Tag: Hedge Funds

October 11, 2017

Perspective

WSJ – Daily Shot: Spanish Empire at its Peak 10/10

  • “Since Monday was Columbus day, here is the size of the Spanish Empire at its peak (in 1790).”

WSJ – America’s Retailers Have a New Target Customer: The 26-Year-Old Millennial – Ellen Byron 10/9

VC – How Americans Differ by Age – Jeff Desjardins 10/10

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – How To Make $5,300 In Commissions on a $43,000 Retirement Account – Anthony Isola 10/9

  • If you are a teacher or have family or friends that are teachers, you should read this. Make sure you’re or they’re not getting fleeced.

NYT – The N.F.L Draft: A Study in Cockeyed Overconfidence – David Leonhardt 4/25/05

  • A worthwhile look at the research that Richard Thaler and Cade Massey did regarding overconfidence.

The Irrelevant Investor – The Price of Progress – Michael Batnick 10/10

  • “The economic machine that we’ve built in the United States has done extraordinary things and I can’t wait to see what we come up with in the future. But what do we do when progress leaves so many behind?”

Markets / Economy

NYT – China Hastens the World Toward an Electric-Car Future – Keith Bradsher 10/9

Economist – American entrepreneurs have not lost their mojo 10/10

  • “Business formation is down, but fast-growing startups are in high gear.”

Energy

FT – Saudi Arabia curbs oil exports to combat glut – Anjli Raval 10/9

  • “Saudi Arabia is allocating fewer barrels of crude for export next month and at a level below current demand, emphasizing the effort by global producers to reduce surplus inventories.”
  • “In a rare statement, the Ministry of Energy on Monday said contracted demand for Saudi crude for November was 7.7m barrels a day, but the kingdom has assigned just 7.2m b/d for export.”
  • “The disclosure of Saudi Arabia’s monthly allocations emphasizes a new focus on foreign sales, alongside production, that Riyadh deems vital to the effort by global producers to reduce surplus inventories.”
  • “’It is very interesting they are now trying to communicate to the market about exports,’ said Olivier Jakob at consultancy Petromatrix. ‘They have gone the extra step of putting out numbers on this, which is the first I’ve ever seen.’”

Finance

WSJ – Daily Shot: Hedge Fund Research – Hedge Fund Fees 10/10

WSJ – Daily Shot: Bitcoin 10/9

  • Bitcoin is rallying again.

WSJ – Daily Shot: Investing.com – Bitcoin Cash 10/10

  • “On the other hand, Bitcoin’s less fortunate twin called Bitcoin Cash has collapsed.”

India

FT – Modi’s pursuit of black money proves drag on India’s economy – Amy Kazmin 10/9

  • “For many Indians the powerful appeal of Narendra Modi, the prime minister, stemmed from his vows to tackle two issues of fierce public concern: the sluggish economy and entrenched corruption.”
  • “But India’s economy has faltered, with growth falling steadily since early 2016 to a three-year low of 5.7% in the second quarter of this year.”
  • “Now, some economists are suggesting Mr Modi’s two big goals are at odds, and that New Delhi’s zealous anti-corruption drive — which reached its apogee with a draconian cash ban — is sapping India’s economic momentum.”
  • “Though disruptive, demonetization failed to purge black money from the economy, because nearly 99 per cent of the cancelled bank notes were deposited or exchanged, rather than being furtively destroyed as forecast.”
  • “Now New Delhi is toughening its stance, with tax officials probing 1.8m individuals or businesses whose cash deposits after demonetization were out of sync with their past tax returns.”
  • “While the quest to unearth Indians’ illicit wealth remains politically popular, economists say it has come at a cost, souring business and consumer sentiment. It is considered one reason why private investment — which has driven past Indian booms — remains stubbornly flat.” 
  • “‘If you’ve got income tax authorities charged up and told to after black money, who is going to invest in a big way?’ said one economist who asked not to be identified given the issue’s sensitivity.”
  • “’The Chinese call this ‘the original sin’ problem,’ he added. ‘Every company has something buried in the past — a sin it has committed. If the government really wants to go after people, it can always find something.’”
  • “Demonetization severely disrupted the property market, previously a favorite parking place for black money and a big growth engine. Real estate prices and sales plunged and, though sales are picking up, there is a huge overhang of unsold inventory.”

Japan

NYT – Kobe Steel’s Falsified Data Is Another Blow to Japan’s Reputation – Jonathan Soble 10/10

  • “For decades, Japanese manufacturers of cars, aircraft and bullet trains have relied on Kobe Steel to provide raw materials for their products, making the steel maker a crucial, if largely invisible, pillar of the economy.”
  • “Now, Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through Japan and beyond, and casting a new shadow over the country’s reputation for precision manufacturing, a mainstay of its economy.”
  • “Companies ranging from the automakers Toyota Motor and Honda Motor to aircraft companies like Boeing and Mitsubishi Heavy Industry said they were investigating the use of rolled aluminum and other materials from Kobe in their products. They also said they were trying to determine if substandard materials had been used in their products and, if so, whether they presented safety hazards.”
  • “Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers — including for vital qualities like tensile strength — when they did not.”
  • “Kobe Steel added that it was examining other possible episodes of data falsification going back 10 years. It did not provide details about the size of the discrepancies it had discovered, making it difficult to immediately determine if they posed a safety threat.”
  • “Kobe Steel’s problem points to ‘a common organization issue,’ said Shin Ushijima, a lawyer who serves as president of the Japan Corporate Governance Network. He drew parallels between Kobe Steel and Takata and Mitsubishi, as well as with financial-reporting improprieties at Toshiba, which admitted to overstating profit in 2015.”
  • “’Boards aren’t doing their jobs,’ he said. ‘This isn’t an issue that can be solved by the president resigning. There needs to be wholesale change.’”
  • “He continued, ‘The Kobe Steel case is a test of whether we’ve learned anything from Toshiba and these other issues.’”

Mexico

FT – Mexicans hope earthquake will shake up corrupt system – Jude Webber 10/9

  • “There are disasters waiting to happen, says Eduardo Reinoso, a civil engineer who has studied compliance with building codes introduced after 1985. He blames not only corruption and incompetence but also a culture of impunity that has encouraged people to build or modify their homes without planning permission because of a belief they can get away with it.”
  • “As Gabriel Guerra, a former diplomat and government official, put it: ‘Our collective negligence and corruption is coming back to bite us where it hurts.’”

December 16 – December 22, 2016

China no longer the largest US creditor – Japan is again. China capital outflows, have you looked at the bank loans? Brazil’s Odebrecht just got served the FCPA’s largest settlement.

Happy Holidays!

Headlines

  • FT – Ferocious competition roils private equity market 12/17. Deal volume is down, acquisition multiples are up (“acquisitions made in the first half of this year required private equity managers to pay on average 10 times the cash flow of a target company, well above the previous peaks for deal valuations in 2006 and 1999”), dry powder is at a record closing in on $1tn, and future returns are looking skinny, but then again consider your options in stocks and bonds.
  • FT – Private equity: lowering the bar 12/20. Following on the previous headline, despite – or rather because of – lower projected returns, top tier private equity groups are able to dictate terms on investors. In some cases lowering the hurdle rate from 8% to 6% or in some cases just removing them altogether…
  • NYT – Calpers Cuts Investment Targets, Increasing Strain on Municipalities 12/21. Calpers is reducing benefits and lowered its return assumptions from 7.5% to 7.0% to be phased in over three years. Oh, and “shifting expectations down to 7% will force the State of California to contribute an additional $2 billion a year for state workers…”

Special Reports / Opinion Pieces

  • FT – The Opec agreement: Russia’s role adds a geopolitical twist – George Abed 12/15
    • “The three-way oil agreement involving Russia, Saudi Arabia and its GCC neighbors, and Iran, who in combination produce nearly a third of global supplies, is likely to have tamed the wild gyrations of the oil market, at least for a time. More significantly, the accord may have given rise to an uneasy alliance of convenience which may have broader implications, for the future of the Middle East as much as for the global oil markets.”

Briefs

  • Andres Schipani of the Financial Times illustrated how hyperinflation is at Venezuela’s doorstep.
    • Last week the Venezuelan President Nicolas Maduro “announced plans to scrap the ubiquitous 100 bolivar bill, which makes up about half the country’s banknotes but is increasingly worthless as annual inflation is forecast to top 1,600% next year.”
    • “The plan, which the government insists is necessary to fight currency hoarders and counter an ‘economic war’, is to replace the old money with new high denomination notes, including 20,000 bolivar bills.”
    • However, due to looting, riots, and protests that accompanied this initiative, the president has extended the currency’s use until sometime in the new year.  This of little comfort with monthly inflation above 50% and where it is difficult to obtain high denomination notes.
    • “Caracas-based consultancy Ecoanalitica said the range of notes reflected inflation of 17,011% since the older notes were first launched in 2008.”
  • Chris Kirkham of The Wall Street Journal highlighted that the percentage of young Americans living with their parents is at a 75-year high.
    • “Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia.”
    • wsj_percentage-of-18-34-year-olds-living-at-home_12-21-16
    • “The result is that there is far less demand for housing than would be expected for the millennial generation, now the largest in U.S. history. The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies.”
    • Why? “Analysts point to rising rents in many cities and tough mortgage-lending standards as the culprit…”
    • Well at some point this back log is likely to play out with an increase in household formation and housing starts. As it stands, “economist project the historically large millennial generation will more than double its current number of households through 2025.”
  • Rachel Sanderson, James Politi, and Martin Arnold of the Financial Times covered the Italian bail out of the world’s oldest bank – Monte dei Paschi di Siena bank.
    • “Monte dei Paschi di Siena is to be rescued by the Italian state using a new 20bn bailout package, as a last-gasp private sector rescue plan for the world’s oldest bank looked set to fail, forcing losses on bondholders.”
    • “The state funds to rescue the bank would come from a €20bn package approved by both houses of parliament on Wednesday that could be used to bail out several of Italy’s most fragile banks. Goldman Sachs estimates they need €38bn to be adequately capitalized.
    • Granted, not everyone is pleased. “A backlash against a taxpayer-funded bailout of Italy’s weakest lenders has already begun. Codacons, a consumer lobby group, estimated 20bn ploughed into Italy’s failing lenders would cost each Italian family 833.”

Graphics

WSJ – Daily Shot: Vancouver Housing Market Correction 12/18

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WSJ – Daily Shot: Declining income mobility in US 12/18

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Visual Capitalist – 75 Years of How Americans Spend Their Money – Jeff Desjardins 12/19

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WSJ – Daily Shot: S&P vs. Treasury Spread 12/20

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FT – China’s ‘airpocalypse’ hits half a billion people – Yuan Yang 12/19

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WSJ – Daily Shot: Change in Mortgage Rates Since Election 12/21

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WSJ – Daily Shot: Percentage of Adults Without Children in House 1967 & 2016 12/21

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FT – Hedge fund fees take a trim – Lindsay Fortado 12/21

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Featured

*Note: bold emphasis is mine, italic sections are from the articles.

China cedes status as largest US creditor to Japan. Tom Mitchell, Joe Rennison, and Eric Platt. Financial Times. 16 Dec. 2016.

“Beijing’s ownership of US Treasuries fell by $41.3bn to $1.12tn in October, according to data from the US Treasury released on Thursday – the sixth straight month of decline. Japan’s holdings fell by $4.5bn to $1.13tn for the same period.”

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According to Eswar Prasad, an economics professor at Cornell University and former IMF director for China, “this pattern is unlikely to be reversed in the near future, especially with US and Chinese economic fortunes and monetary policy stances continuing to diverge. The days of China providing abundant and cheap financing for US budget and current account deficits through the purchases of Treasury securities may have come to an end.”

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“China and Japan account for 37% of the total $6tn of holdings tracked by the Treasury and Federal Reserve.”

China capital outflows: bank loans dwarf foreign deals. Gabriel Wildau and Don Weinland. Financial Times. 17 Dec. 2016.

“While an overseas buying spree by Chinese companies has grabbed headlines, more mundane activity such as trade finance and corporate cash management are a much bigger strain on China’s foreign exchange reserves, analysis of official data shows.”

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“‘Several hundred billion in outflows are simply associated with repayment of existing loans,’ said Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury official.”

“Foreign bank claims on China, a broad measure of cross-border lending, have fallen by $305bn in the 18 months through June this year, according to the most recent figures from Bank of International Settlements, showing how banks are pulling funds from the country. Claims had risen by $643bn in the previous two years.”

“Much of this lending came in the form of trade finance. When the renminbi was appreciating against the dollar, Chinese importers eagerly borrowed in dollars.”

ft_china-capital-flows_12-17-16

“‘Corporates rushed to raise funding in dollars because interest rates were very low. Now that carry trade is being unwound,’ said Harrison Hu, China economist at Royal Bank of Scotland in Singapore.”

“To be sure, the regulatory focus on corporate deals is a response to a rapid acceleration of outbound FDI. But it also reflects the lower disruption from tightening the reins on foreign acquisitions compared with forcing loan or bond defaults by blocking cross-border debt repayments.”

“‘The cross-border regulations could definitely have an impact on companies that have offshore debt,’ said Xia Le, chief Asia economist at BBVA in Hong Kong. ‘There is a concern that many will have to refinance but at a much higher cost. They will need to issue very high-yielding bonds.'”

Brazil’s gargantuan corruption scandal goes global. Economist. 22 Dec. 2016.

“On December 21st America’s Department of Justice (DoJ) reached a $3.5bn settlement with Odebrecht, Brazil’s biggest builder, and with Braskem, a petrochemical joint venture between that firm and Petrobas. The DoJ alleges that since 2001 Odebrecht and Braskem paid $788m in bribes to officials and political parties in Brazil and in 11 other countries.

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“The payoffs brought Odebrecht and Braskem contracts for around 100 projects, many of them to build public infrastructure. Often, governments paid more for the work than they needed to. The DoJ alleges that Odebrecht set up a ‘Division of Structured Operations,’ which ‘effectively functioned as a stand-along bribe department.'”

“The settlement is the biggest yet under America’s Foreign Corrupt Practices Act (FCPA). It is more than double the previous record: $1.6bn paid by Siemens, a German engineering giant, in 2008.”

“Odebrecht has accepted that the appropriate fine for the company is $4.5bn but says it can only afford $2.6bn; the remaining $900m is owed by Braskem.”

Additionally, now the authorities in the 11 countries will have a crack at the two companies.

Either way “Odebrecht is a shadow of its former self. To survive the investigations, it has been retrenching. Over the past three years the company has reportedly laid off 100,000 of its 181,000 employees, most of them since the launch of the Petrobas investigation in March 2014…. Even Odebrecht’s stake in Braskem, which makes up half of the construction firm’s revenues, may be up for sale. That is quite a comedown for a company named in 2010 by a Swiss business school as the world’s best family-run firm.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

FT – Central bank injection soothes China credit squeeze 12/15

FT – China’s exports to the US fall for first time since crisis 12/15

FT – US drugmaker charges 200 times UK price for common worm pill 12/18

FT – Vanke: to our sponsors 12/19

FT – Yield on German two-year debt falls to new low 12/19

FT – Uber racks up $800m third-quarter loss despite China exit 12/19

FT – Italy seeks up to €20bn to prop up fragile lenders 12/19

FT – China’s bull market in bonds on borrowed time 12/19

FT – Lawyers demand Chinese government action to clear smog 12/20

FT – US sues Barclays for fraud over crisis-era loans 12/22

LinkedIn – Reflections on the Trump Presidency, One Month after the Election (Ray Dalio) 12/19

Miami Herald – Miami Beach wants to know if you’re renting your condo on Airbnb 12/15

NYT – How Republics End (Krugman) 12/19

NYT – Hedge Fund Math: Heads We Win, Tails You Lose 12/22

ValueWalk – CalPERS Cuts Retiree Benefits For First Time Ever 12/20

WSJ – China Halts Trading in Key Bond Futures as Panicky Investors Sell Securities 12/15

WSJ – Surging Dollar Upends China’s Huge Bond Market 12/16

WSJ – Platinum Partners’ Executives Charged With $1 Billion Securities Fraud 12/19