FT – How Hong Kong’s economy is reeling from the protests – in 7 charts – Valentina Romei 11/26/19
Well, 4 charts in this case.
Tag: Hong Kong
Bloomberg – A Parking Space in Hong Kong Just Sold for Almost $1 Million – Shawna Kwan 10/23/19
If anyone needed further evidence of Hong Kong’s sky-high real estate prices they found it this week with news that a car parking spot sold for almost $1 million.
The space went for HK$7.6 million ($970,000), making it the most expensive place to park an automobile in the city, and perhaps anywhere in the world.
The car-parking spot is (in)…The Center in Central, which also happens to be the priciest office tower in the world. For the cost of the parking space, you could buy a one-bedroom apartment in Manhattan.
Side note, …the seller was Johnny Cheung Shun-yee, a businessman with a reputation for flipping property. He made around HK$900 million last year in about nine months by buying and selling floors in the same office building.
If you were only to read one thing…
Bloomberg – Panic Roils China’s Peer-to-Peer Lenders – Jun Luo, Alfred Liu, and Crystal Tse 7/16
- “China’s savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the $195 billion industry and testing the government’s ability to maintain calm as it cracks down on risky shadow-banking activities.”
- “In some cases, savers are turning up at the offices of P2P operators to demand repayment, spooked by reports of defaults, sudden closures and frozen funds. At least 57 platforms have failed in the past two weeks, adding to 80 cases in June, the biggest monthly tally in two years, according to Shanghai-based Yingcan Group. The researcher defines failed platforms as those that have halted operations, come under police investigation, missed investor payments, moved into other businesses, or had operators flee with client money.”
- “’Investors have lost confidence in the smaller platforms, because they have no idea if those companies will survive,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Capital. Only a handful of the 2,000 or so remaining firms are likely to endure, he said.”
- “China’s P2P industry, the world’s largest, is one of the riskiest and least-regulated slices of the nation’s sprawling shadow-banking system. A government clampdown has weighed on P2P platforms for two years, but the pressure intensified in recent months after China’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products.“
- “The shakeout has cast doubt on the listing plans of several P2P lenders and underscores the delicate balancing act faced by China’s government as it tries to reduce moral hazard in the financial system without triggering a crisis. While there’s little sign that the P2P turmoil has spread to systemically important wealth-management products issued by banks, much of China’s $10 trillion shadow-lending system faces the same headwinds of rising defaults, slowing economic growth and official calls to end to implicit guarantees on risky investments.”
- “China’s P2P platforms have about 50 million registered users and 1.3 trillion yuan ($195 billion) of outstanding loans, most of which have short maturities. Normally, savers have to wait for loans facilitated by the platforms to mature before getting their money back. But some are now trying to exit early by selling their rights to others at a discount, or by going to the platform’s offices to demand repayment.”
- “The turmoil is also hurting companies and individuals who have relied on P2P platforms for financing. They include cash-strapped small businesses seeking working capital, individuals without a credit history, and, more recently, leveraged stock market investors and home buyers in need of down-payments.”
- “Some P2P platforms were also raising funds illegally for their own use, while others were running Ponzi schemes that collapsed when the flow of new money halted, regulators have said. That helps explain why authorities have so far been steadfast in cracking down.”
- “Last month, China Banking and Insurance Regulatory Commission Chairman Guo Shuqing warned that any savings or investment product with promised returns of more than 8% is likely to be ‘very dangerous’ and that investors should be prepared to lose all their money if advertised returns exceed 10%. The average yield on P2P loans was 10.2% in the first half, official figures show. Reported default rates vary from zero on the best platforms to 35% on the worst, according to National Internet Finance Association of China.”
Markets / Economy
WSJ – Daily Shot: Gold 7/17
WSJ – Daily Shot: Silver 7/17
WSJ – Daily Shot: NASDAQ Composite Index 7/17
Real Estate
- “Online retailers typically benefit from lower overhead than their store-based counterparts, but in the U.K. that advantage is bigger than just about anywhere. The country has the developed world’s highest commercial property taxes, and in many areas those levies have jumped even as store sales decline, because land values have risen since the financial crisis. Last year, Tesco paid £700 million in property taxes, and J Sainsbury Plc, the No. 2 chain, paid £550 million. Amazon’s bill: £14 million.”
Economist – Big corporates’ quest to be hip is helping WeWork 7/12
- “Research suggests that employees are happier in co-working environments like those run by WeWork. But the firm’s real genius is that it is also far cheaper for their employers. Property experts estimate that firms typically spend anywhere between $16,000 and $25,000 per employee on rent, security, technology and related office expenses. Mr Neumann insists they can get all of that from WeWork starting at $8,000 per worker. Efficient use of space is one reason. Ron Zappile of Colliers, a property-services firm, reckons that typical corporate offices use some 185 square feet (17 square meters) per employee. WeWork members get by on 50 square feet per head.”
- “WeWork has more than 250,000 members from a range of industries (see chart) and expects to double revenues this year for the ninth straight year. Last year it made $886m in revenue, 93% of which came from memberships.”
- But…”WeWork’s net losses also roughly doubled, however, from $430m in 2016 to $884m last year. As with many fast-moving startups, it explains its lack of profitability by pointing to big investments. It will open 15 new offices a month worldwide for the foreseeable future. Its bonds issued in April were rated as junk.”
- “…the most important source of stability may well be a shift in its customers, from startups to big firms. A few years ago, WeWork’s business was comprised almost entirely of small fry. In the year to September the enterprise segment (firms with over 1,000 staff) grew by around 370%. As of June, big firms accounted for about a quarter of its membership and revenues. More than 1,000 companies now take anything from one to 12,000 desks. In June, Facebook asked WeWork for an entire building for several thousand workers.”
- “The average enterprise lease is close to two years and many new ones are three to five years long. Whereas big firms, used to conventional office leases of 10-20 years, see WeWork’s contracts as flexible, the firm itself sees them as commitments that will help it weather a downturn.”
Cryptocurrency / ICOs
WSJ – Daily Shot: Barchart – Bitcoin 7/17
Tech
China
FT – China money market funds’ rush into bank credit worries investors – Don Weinland 7/16
- “Investors have warned of growing systemic risks in China’s $1.09tn money market fund industry, as funds buy up bank credit despite a surge in bad debt this year.”
- “Comparably high yields and low risk at Chinese money market funds in recent years have made the industry a favorite among retail investors in the country. Assets under management have grown from Rmb600bn at the end of 2012 to an estimated Rmb7.3tn ($1.09bn) in March, making it the second-largest market in the world after the US.”
- “But in recent months China’s central bank has tightened monetary policy and access to credit, forcing down the funds’ once-attractive yields. At the biggest funds, average returns have dropped to an annualized to 3.7% from about 4.5% at the start of the year.”
- “In response, funds have rushed into bank credit, such as negotiable certificates of deposit, as a means to boost returns and continue attracting retail investments.”
- “Investors are now warning that the push into bank credit comes just as regulators are forcing banks to recognize vast amounts of bad debts that were once hidden off their balance sheets, leading to greatly increased risk for the investments. Falling credit ratings at banks could force money market funds to exit their investments, something that could lead to a shock through the massive fund industry.”
- “Ant Financial’s Yu’e Bao, with about $200bn under management, is the world’s largest money market fund. Last month it reduced the amount of money investors could withdraw within one day to Rmb10,000 ($1,498) per investor from Rmb50,000. About Rmb200bn flowed out of the fund between April and June. The company declined to comment.”
- “The risks at the funds are centered around their source of high-yielding investments: credit from hundreds of small banks with weakening balance sheets.”
FT – China closes a fifth of foreign university partnerships – Emily Feng 7/17
FT – Hong Kong tightens screws on pro-independence party – Ben Bland 7/17
- “The Hong Kong government is considering banning a pro-independence political party on unprecedented ‘national security’ grounds, a move decried by activists as the latest violation of the city’s promised freedoms and rights.”
India
NYT – In India, Summer Heat May Soon Be Literally Unbearable – Somini Sengupta 7/17
Other Interesting Links
Maps on the Web: Reddit – White Americans by State 2017 7/4
Worthy Insights / Opinion Pieces / Advice
Economist – In investing, as in poker, following rules works best – Buttonwood 5/31
Markets / Economy
Economist – Central banks holdings of domestic government debt 5/31
- “The European Central Bank is closing a chapter on one controversial policy, government bond purchases, while extending the life of another: negative interest rates.”
- “The central bank Thursday laid out plans to wind down its giant bond-buying program by the end of this year, but said it likely would wait ‘at least through the summer of 2019’ before raising its deposit rate, now at minus 0.4%.”
WSJ – Daily Shot: Deutsche Bank – US Budget Deficit Funding and % Holdings 6/14
Real Estate
WSJ – Daily Shot: Bloomberg – World’s Most Expensive Housing Markets Relative to Salary 6/12
WSJ – Daily Shot: Mary Meeker Internet Trends 2018 – Airbnb vs Hotel ADR 5/31
Wolf Street – Toronoto’s House Price Bubble Not Fun Anymore – Wolf Richter 6/4
Energy
WSJ – Daily Shot: US Total Crude Oil Production 6/14
Finance
FT – US fundraising for ‘blank cheque’ buyout vehicles hits record – Nicole Bullock 6/13
- “Funds have been raised at a record rate in the US this year for shell companies that offer a ‘blank cheque’ to sponsors to pursue takeovers, providing further evidence of the rehabilitation of a controversial tool that waned in the wake of the financial crisis.”
- “The so-called special purpose acquisition companies, or spacs, have raised $4.5bn so far in 2018 — the largest amount for this type of fundraising in the period, according to Dealogic, which began recording the deals in 1995. That followed a brisk 2017, the second strongest year on record with nearly $10bn sold.”
- “The funds are placed in an interest-bearing account until a target is identified — and spac investors can get their money back if they do not approve of the acquisition. They are basically a bet that the sponsors can find a good company at a reasonable price.”
- “Spacs offer investors, often hedge funds, a cash proxy with the option of the acquisition. Sponsors get a 20% stake in the acquired company, if investors approve it, for a nominal amount of money.”
WSJ – Daily Shot: BlackRock – Four big trends to drive ETF growth 5/31
Cryptocurrency / ICOs
WSJ – Daily Shot: Bianco Research – Cryptocurrency Market Caps as of June 11, 2018 6/14
Environment / Science
- “’Beating plastic pollution’ was the theme of World Environment Day on June 5, but Thailand is falling behind Asian and European countries in the fight against plastic waste.”
- “The issue has been brought into focus after a dead whale was found last month to have swallowed 80 plastic bags.”
- “The whale, found in Songkhla province, served as a reminder of Thailand’s problem with plastic, and the abject failures of the government and retail industry to bring the nation’s environmental consciousness in line with the rest of the world’s.”
- “Thailand is the world’s sixth biggest contributor to ocean waste, while China is the largest. Thailand generates 1.03m tons of plastic waste per year, with over 3% of that finding its way into the ocean, Tara Buakamsri, Thailand country director for Greenpeace, told the Nikkei Asian Review.”
- “Of the country’s total waste, plastic accounts for 12% — higher than China’s at 11%. A survey by the government in 2017 found that, on average, Thais each use eight plastic bags per day, which equates to about 198bn per year.”
China
WSJ – Daily Shot: PIMCO – China’s Contribution to Global Credit Creation 6/12
WSJ – Daily Shot: Trading Economics – Hong Kong Home Ownership Rate 6/12
Worthy Insights / Opinion Pieces / Advice
Bloomberg – Middle-Class Doldrums Don’t Add Up to a Crisis – Noah Smith 5/9
- “The U.S. economy is back to normal again. Unemployment is low. Business investment is up. Wages are slowly rising. The traumatic memories of the Great Recession and the global financial crisis are finally beginning to fade.”
- “The absence of pressing crises means that it’s a good time to step back and take stock of deeper issues in the U.S. economic system. For several years, there has been a rising outcry over inequality… Adjusted for inflation, wages for production and nonsupervisory workers fell from their peak until the early 1990s, and haven’t yet climbed back to their former heights:”
- “But the story isn’t quite true. The average American has, in fact, seen modest gains since the early 1970s; the falling wages of production workers don’t tell the whole story.”
- “What explains the difference between wages and income? Two things. First, wages aren’t the only way Americans make money in the market. Income from assets, like retirement accounts and pensions, is increasingly important, as are nonwage compensation like employer contributions to retirement accounts. Second, the income numbers include government transfers, which have shifted more and more income from rich Americans to those who earn less in the market. These factors are all bigger than in the 1970s:”
- “Increased redistribution has been helping the poor as well as the middle class. Recent calculations by the Center on Budget and Policy Priorities show that child poverty in the U.S. has fallen to record lows once government assistance is taken into account.”
- “Meanwhile, gains in income haven’t come from increased toil. Despite women’s increased labor force participation, working-age Americans in 2014 tended to labor little more than their predecessors in the late 1970s:”
- “In fact, the working hours data makes the 2000s and 2010s look less awful in comparison to the ’80s and ’90s. Gains in those earlier decades came partly from women entering the workforce en masse. But those gains were preserved in recent decades despite Americans working fewer hours on average.”
- “It was during the early 1970s that total factor productivity growth began to slow down. It accelerated again in the 1990s and early 2000s, only to fall back to a crawl about the middle of that decade.”
- “It’s therefore possible to interpret the slower growth of Americans’ incomes as the result of slowing productivity. Inequality has certainly contributed as well, but increasing government transfers have helped cancel out some of that. But with slowing productivity growth, there’s simply less to redistribute than if productivity had maintained the torrid pace of the early and mid-20th century.”
- “Capitalism may not be in crisis, but it’s troubling that a few super-rich individuals have managed to amass vast fortunes even as productivity has stagnated. That is a phenomenon whose cause must be carefully investigated. For the typical American, gains in living standards have continued at a slow, steady pace. Increasing that pace should be a top priority.”
FT – Investors should be cautious of simplistic indices – Kate Allen 5/9
- “Poland’s upgrade to developed status shines a light on [an] outdated approach to classification.”
Markets / Economy
- “Germany’s Daimler and Japan’s three largest banks are set to become investors in SoftBank’s Vision Fund as the Masayoshi Son-led company looks to complete fundraising for its $100bn technology investment fund, according to people briefed on the matter.”
- “The Mercedes-Benz maker along with MUFG, Mizuho and Sumitomo Mitsui Banking Corp will be among the final investors in the fund, which is the largest ever created in private equity or venture capital, these people said.”
- “They added that other new investors will include Larry Ellison, the billionaire US co-founder of software group Oracle who is investing personally, and the sovereign wealth fund of Bahrain.”
- “Daimler and the Japanese banks are set to be among the smaller ones in the fund, alongside earlier participants such as Apple, Qualcomm, Foxconn and Sharp. About $88bn of the fund comes from SoftBank, Saudi Arabia and Abu Dhabi.”
- “Individuals close to the three Japanese banks said their decision to invest had a twin motivation: the quest for returns in Japan’s ultra low-interest environment and the desire to further strengthen their relationships with what is by far Japan’s most active corporate name.”
- “All the new investors will be participating under the terms of the fund’s unusual structure, which sees them receive 62% in preferred units paying out an annual coupon of 7% over the fund’s 12-year life cycle, and the rest with equity.”
- “SoftBank itself is the only investor that has full equity exposure, giving it the most upside to the fund’s investments in addition to the management and performance fees.”
- “SoftBank outlined on Wednesday in a presentation that it had spent $29.7bn of the Vision Fund since inception. It has placed bets on more than 30 companies including ride-hailing group Uber, shared-office provider WeWork and chipmaker Nvidia.”
Real Estate
WSJ – California Takes Big Step to Require Solar on New Homes – Erin Ailworth 5/9
Energy
FT – US oil producers battle to meet Iran shortfall – Ed Crooks 5/9
- “Pipeline constraints mean shale cannot come to rescue as sanctions push up prices.”
- “Inadequate transport capacity in the region is reflected in the soaring discount for oil in Midland, west Texas, compared with US benchmark crude. That discount hit $13 a barrel this week, meaning that while the easier-to-trade West Texas Intermediate was selling for about $70 a barrel, oil in Midland was just $57 a barrel.”
WSJ – Venezuela’s Brewing Oil Shock May Be Bigger Than Iran’s – Spencer Jakab 5/10
- “The oil headlines this week have all been about Iran, but the slowly unfolding disaster in Venezuela may be even more significant.”
- “Venezuela faces two risks that, if both come to pass, could cut its oil output by more than the biggest estimates of what could happen to Iran if sanctions were reimposed. The risks stem from Venezuela’s dependence on importing lighter varieties of crude to mix with the heavy oil it produces, and its need for products imported from the U.S. to enable its thick oil to be transported.”
- “The first situation is playing out in the Dutch-administered islands of Curaçao and Bonaire, where Venezuela’s state oil company owns refining and storage facilities. U.S. producer ConocoPhillips is attempting to take physical control of those facilities after winning an arbitration award against Venezuela for seizing its assets in 2007. Venezuela appears to be telling its suppliers not to ship oil to these facilities for fear ConocoPhillips will seize that too, potentially shutting down refining.”
- “The second situation would play out if the U.S. halts exports to Venezuela of a product called diluent, which allows the thick oil to be transported. Such a move would imperil half or more of the country’s remaining production. U.S. Vice President Mike Pence has already called the presidential election a sham.”
Finance
WSJ – Daily Shot: DISH Network Bond Price 5/19
Environment / Science
Economist – Climate change will affect developing countries more than rich ones – The Data Team 5/9
Construction
WSJ – Daily Shot: FRED – PPI Concrete Products 5/10
Asia – excluding China and Japan
Economist – Malaysia’s chance to clean up – Leaders 5/10
- “Elections in Malaysia are normally predictable. In fact, the United Malays National Organization (UMNO) and various allies had won all of them since 1955, until this week. Over the years UMNO has resorted to every conceivable trick to remain in power: stirring communal tensions among Malaysia’s ethnic groups, locking up critics, rigging the electoral system in its favor, bribing voters with populist handouts and threatening chaos if it lost. In the run-up to the election on May 9th it did all of that. It was testimony to the awfulness of the government of Najib Razak that the opposition was even in contention. And it is testimony to the good sense of Malaysian voters that the opposition won, convincingly, paving the way for Malaysia’s first ever change of government.”
- “For a country where politics has always been run along communal lines, the shocking upset holds out the prospect of a more meritocratic form of government. For the region, where rulers with authoritarian instincts have been steadily curbing political freedoms, it is a heartening victory for democracy. And for Mr Najib, who was accused by America’s Department of Justice of personally pocketing $681m looted from a Malaysian government agency, it is a welcome comeuppance.”
- “Sceptics note that it is led by Mahathir Mohamad, a former five-term UMNO prime minister who pioneered many of the underhand tactics to which Mr Najib resorted in his failed bid to remain in power. Dr Mahathir was also a champion of Malaysia’s odious system of racial preferences, which he expanded to keep Malay voters loyal to UMNO.”
- “Perhaps the new government will succumb to infighting and fail to get much done. But its very existence is a potent reminder to Malaysians and their neighbors that governments can and should, from time to time, change peacefully. With luck, Cambodians, Singaporeans, Thais and Vietnamese, among others, will begin to wonder if something similar might one day happen to them.”
China
FT – China credit spreads near 2-year highs on default worries – Gabriel Wildau 5/9
“China credit spreads hit their widest level in nearly two years this week following new regulations that undermined long-held assumptions about implicit guarantees on debt linked to local governments.”
FT – Hong Kong’s tycoons: handing over power in troubled times – Ben Bland 5/9
Perspective
The Verge – South Korean millennials are reeling from the Bitcoin bust – Rachel Premack 4/3
- “From the outside, the Korean economy appears to be flourishing: the country is home to major industry leaders such as Samsung, Hyundai, and Kia. It’s the 11th-largest economy in the world, with semiconductors, car LCDs, and other high-tech products dominating its exports. The overall unemployment rate is just 4.6%.”
- “Still, young people can’t find jobs. Youth unemployment has hovered around 10% in Korea for the past five years. The underemployment rate — defined by those involuntarily working jobs they’re overqualified for or are part-time — is even higher as of this year: it hovered at 38% in 2016, according to Dongseo University professor Justin Fendos.”
- “In this highly educated economy, it can be hard for young Koreans to distinguish themselves from their peers. Nearly 70% of all Koreans ages 25–34 have a post-secondary degree, the highest of all Organization for Economic Co-operation and Development (OECD) countries, and a high school degree is nearly universal. Entire neighborhoods in Seoul are full of college graduates studying to pass hiring exams in order to get in at Korea’s biggest companies or the enviable public sector.”
- “’The design of Korean society is a big reason why the cryptocurrency became so popular,’ says Yohan Yun, a 25-year-old assistant reporter in Seoul who invested around $400 in Ethereum. ‘People here are generally unhappy with their current status in society.’”
- “Even employed young people are pessimistic about their economic prospects: a survey conducted in 2015 showed that half of young Koreans don’t believe that they will do better than their parents’ generation, compared to 29% in 2006.”
- “For young Koreans, cryptocurrency seems like a rare shot at prosperity. Months after last year’s bubble started to implode in February, the Korean won remains the third most traded currency for Bitcoin. The country of 52 million comprises 17% of all Ethereum trading, and it was the location of two-thirds of world’s biggest exchanges this winter, Korea Expose reported in February.”
- “An estimated three in 10 salaried workers in Korea had invested in e-currencies by December 2017, according to a survey by Korean recruiting firm Saramin. Eighty percent of those people were in their 20s and 30s.”
- “But now that the prices of cryptocurrency coins like Bitcoin, Ethereum, and Ripple have tanked, many Korean youths are dealing with the mental and financial aftermath of their losses. Korean psychologists have reported an uptick of patients from the so-called ‘Bitcoin blues,’ divorce counselors say marriages are splitting from failed investments, and even the country’s prime minister said that virtual currencies are on track to cause ‘serious distortion or pathological social phenomena’ among Korea’s young population.”
- “Real estate used to be the traditional way to grow one’s fortune in Korea, but prices have become exceedingly expensive for even upper-middle-class people. And interest rates for savings accounts are rarely more than a few percentage points a year.”
- “Koreans’ hyperconnectivity helped spur Bitcoin’s popularity. Teens and young adults spend around four hours a day using mobile phones in Korea. Nearly every Korean home has internet access, and 88% have smartphones, the highest percentage globally. Such an abundance of connectivity allowed potential traders of all ages to learn about the craze and hear about the insane amounts of money one could make on trading. Cryptotrading clubs, where people can meet like-minded traders and share tips, popped up at many Korean universities.”
- “Thanks in part to the frenzy, some coins cost up to 51% more in Korean markets than anywhere else. Bitcoin’s price was up nearly $8,000 in January, Bloomberg reported. The ‘kimchi premium’ drew foreign traders to buy their coins abroad and trade them in the Korean market.”
- “But then came the crash. From January 6th to January 16th, 2018 the price of Bitcoin to Korean won tumbled from a high of a US-equivalent $25,065 to $13,503, according to Korbit. It continued to fall to $7,410 by February 5th, and as of April 2nd, the price of a bitcoin sits at $7,241.”
- “In total, the Bitcoin crash wiped out $44 billion of value in January, or more than Ford’s entire market capitalization, according to Bloomberg. New regulations against cryptocurrency trading, particularly ones from a worried South Korean government, helped usher the fall.”
Worthy Insights / Opinion Pieces / Advice
- “The mobile-home market is showing signs of stress.”
- “The delinquency rate on mobile-home loans has increased by 200 basis points, or 2 percentage points, over the past year, according to research cited by UBS. The 30-day-plus delinquency level is now about 5%, the highest level since 2005.”
- “The increase in the number of struggling mobile-home borrowers suggests that a large chunk of these people haven’t benefitted from the economic growth of the past few years, despite the low unemployment level.”
- “This data represents a piece of a jigsaw puzzle of the condition of consumer finances in the US. And the picture that’s emerging, according to UBS, is of a two-speed economy, with lower-income consumers and younger borrowers with substantial student debt moving at a slower pace than more affluent and established participants.”
- “‘We believe weakness in these two groups (lower-income consumers and younger borrowers) will drive higher credit losses at some stage over the next few years — particularly in credit card, installment, and student loans — with macroeconomic inflection from job growth to job loss as a likely catalyst,’ UBS said.”
NYT – How Dr. King Lived Is Why He Died – Jesse Jackson 4/3
WSJ – Telsa’s Model 3 Is No Model T – Charley Grant 4/3
- “First-quarter production is not as rosy as the electric-car maker believes.”
Markets / Economy
WSJ – Daily Shot: Deutsche Bank – US Actual vs Potential GDP 4/4
Real Estate
John Burns RE Consulting – California Has Density Solutions, but Not Enough New Housing – Pete Reeb 4/3
Finance
WSJ – Daily Shot: Deutsche Bank – European Bond Issuance v ECB Purchases 4/4
WSJ – Daily Shot: Deutsche Bank – Emerging Market USD & EUR Debt Issuance 4/4
China
WSJ – Daily Shot: Deutsche Bank – Credit Expansion in BRIC Countries 4/4
WSJ – Daily Shot: Hong Kong Retail Sales 4/4
- “Hong Kong’s retail sales jumped by most in eight years as wealthy shoppers from the mainland return.”
Japan
WSJ – Daily Shot: Deutsche Bank – Declining Service Quality in Japan 4/4
- “Instead of inflation, Japan’s extremely tight labor markets are translating into reduced-quality services for consumers. The US is starting to experience this trend as well.”
Puerto Rico
Bloomberg – Stunned Investors Reap 95% Gains on Defaulted Puerto Rico Bonds – Michelle Kaske 4/3
- “Not only are Puerto Rico’s bonds the top performer in the $3.9 trillion municipal market, they’ve gained more than any other dollar-denominated debt in the world, according to data compiled by Bloomberg.”
WSJ – Daily Shot: Puerto Rico General Obligation Bonds 4/4
Worthy Insights / Opinion Pieces / Advice
Bloomberg Gadfly – Users Built Facebook’s Empire, and They Can Crumble It – Nir Kaissar 3/26
FT – It is Venezuela’s crisis that is driving the oil price higher – Nick Butler 3/25
- “While the Maduro-military alliance holds, output is likely to fall further.”
NYT – New Leadership Has Not Changed Uber – Steven Hill 3/26
- “The problem with Uber was never that the chief executive had created a thuggish ‘Game of Thrones’-type culture, as Susan Fowler, an engineer, described it in a blog post. The problem was, and still is, Uber’s business model: Its modus operandi is to subsidize fares and flood streets with its cars to achieve a transportation monopoly. In city after city, this has led to huge increases in traffic congestion, increased carbon emissions and the undermining of public transportation.”
- “Most customers who love Uber don’t realize that the company subsidizes the cost of many rides. This is likely a major factor in Uber’s annual losses surging from 2.8 billion in 2016 to $4.5 billion in 2017. This seemingly nonsensical approach is actually Uber’s effort to use its deep pockets to mount a predatory price war and shut out the competition. That competition is not only taxis and other ride-sharing companies, but public transportation.”
- “Ridership on public transportation is down in nearly every major American city, including New York City (which recorded its first ridership dip since 2009). This is hurting the revenue that public transportation needs to sustain itself. Uber passengers and public transportation users alike now find themselves stuck in heavy traffic for far longer because of what’s been called ‘Uber congestion.’ In Manhattan, there are five times as many ridesharing vehicles as yellow taxis, which has caused average speeds to decline by 15% compared with 2010, before Uber.“
- “Ride-sharing services could potentially add something positive to our transportation options, but only if they are regulated properly.”
- “First, regulators should limit the number of ride-sharing cars. Traditional taxis already have a sensible limit to minimize congestion. A balance must be found between having enough taxi-type vehicles but not so many that the streets are choked with traffic. Fix NYC, a panel appointed by Gov. Andrew Cuomo of New York, has called for all Ubers, Lyfts and taxis to be outfitted with GPS technology to track congestion and to charge a fee on for-hire vehicles that could help reduce traffic and generate hundreds of millions of dollars for public transportation.”
- “Second, Uber should be prohibited from subsidizing its fares. It should be required to charge at least the true cost of each ride. If Uber refuses, a ‘fairness fee’ should be added to each fare.”
- “Third, ride-sharing companies and their vehicles should be required to follow the same laws as traditional taxis, especially in terms of background checks for drivers and insurance requirements.”
- “Fourth, Uber should be required to share its data with regulators, including information about its drivers and their contact information, so that members of this ‘distributed work force’ can more easily contact one another and organize collectively if they choose.”
- “Finally, regulations should ensure that Uber treats its drivers fairly. Mr. Khosrowshahi asserts that drivers’ wages are adequate, but according to one study, more than half of Uber drivers earn less than the minimum wage in their state, and some even lose money once the costs of driving are taken into account. That helps explain why, according to Uber’s own internal study, half of its drivers leave after a year.”
WSJ – Turkey Is the One to Watch for Emerging Markets Risk – Richard Barley 3/26
Markets / Economy
WSJ – Libor’s Rise Accelerates, Squeezing Short-Term Borrowers – Ben Eisen and Chelsey Dulaney 3/27
- “The three-month London interbank offered rate climbed to 2.29% in the U.S. on Monday, its highest since November 2008. Libor measures the cost for banks to lend to one another and is used to set interest rates on roughly $200 trillion in dollar-based financial contracts globally, from corporate loans to home mortgages.”
- “Libor has been rising for the last 2½ years as the Federal Reserve lifts its key policy rate, but recently the pace has picked up. It has climbed nearly a full percentage point in the last six months—outpacing the Fed—and could rise further with the approaching end of the quarter, typically a time of elevated demand for short-term funds in the banking sector, analysts say.”
- “Demand for dollars at the end of the first quarter could send Libor up an additional 0.2 percentage point in the coming days, market analysts say, as investors rebalance their portfolios and banks rein in their balance sheets. The end of March also marks the finish of Japan’s fiscal year, potentially compounding the moves as big investors bring money back to Japan.”
- “Libor has already sprinted ahead of the rates indicated by central bank policies, an acceleration that has baffled economists and traders. That widening gap has alarmed those who watch it as a signal of stress in the financial system. Others have pinned it on a series of technical factors, such as rising short-term debt sales by the U.S. government and new corporate tax policies.”
- “Other markets that can be tapped for dollars—including through the swaps market and liquidity lines maintained by global central banks—aren’t yet showing a big dollar squeeze.”
Real Estate
The Big Picture – WeWork: Manhattan’s 2nd-biggest Private Office Tenant – Barry Ritholtz 3/27
FT – House prices falling in two-fifths of London postcodes – James Pickford 3/26
- “House prices are falling in two out of five London postcodes, according to research that underlines the growing divergence between prices in southern English cities and those elsewhere in the UK.”
- “The average annual rate of price growth in the capital has slowed to 1%, down sharply from 4.3% a year ago, meaning it is at its lowest level since August 2011, according to research by Hometrack, a housing market analyst. This stands in contrast to UK-wide average house price growth of 5.2% in the year to February 2018, up from 4% a year ago.”
- “Prices are under greatest pressure in central London, where owners of the most expensive types of property began cutting prices in 2015 responding to the impact of higher taxes. In the past year, however, the trend has deepened in areas beyond the prime zones of Westminster and Kensington & Chelsea. The boroughs that saw the greatest drop in value were the City of London, Camden, Southwark, Islington and Wandsworth, according to Hometrack’s research.”
- “Hometrack is predicting that the number of areas of the capital experiencing falling house prices will multiply during this year as trapped sellers reduce their asking prices to drive through transactions. ‘The net result will be a negative rate of headline price growth for London by the middle of 2018,’ the research said.”
- “Outside southern England, house prices are more likely to be rising, in some places at a substantial pace. Edinburgh, Liverpool, Leicester, Birmingham and Manchester are adding more than 7% a year to their average house price, Hometrack found, with Leeds, Nottingham and Sheffield pegging rises of 6% or more.”
- “The laggards in the 20-city index were Aberdeen (down by 7.7%), Cambridge (down by 1.5%) and Oxford (up by just 0.5%).”
NYT – Grocery Wars Turn Small Chains Into Battlefield Casualties – Michael Corkery 3/26
WSJ – Homeowners Ditch Refinancings as Mortgage Rates Rise – Christina Rexrode 3/26
- “Last year, 37% of mortgage-origination volume was because of refinancings, according to industry research group Inside Mortgage Finance. That is the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. In 2012, refinancings were 72% of originations.”
- “While purchase activity has climbed steadily from a post-financial-crisis nadir in 2011, growth in 2017 wasn’t enough to offset a $366 billion decline in refinancing activity. The result: The overall mortgage market fell around 12%, to $1.8 trillion, according to Inside Mortgage Finance.”
- “What’s more, there are fewer homeowners eligible to refinance because of rising rates. The number of borrowers who could benefit from a refinancing is down about 37% from the end of last year, estimates Black Knight Inc., a mortgage-data and technology firm. At 2.67 million potential borrowers, this group is at its smallest since 2008.”
- “Home-purchase activity has so far been holding up. Sales of previously owned homes in February rose 1.1% from a year earlier, countering worries that a downturn the previous month signaled a peak for the market.”
- “Still, rising interest rates, a shortage of housing inventory and higher home prices are all long-term threats to purchase activity.”
- “For refinancings, rising rates are a more immediate worry. Freddie Mac said last week that the average rate on a 30-year fixed-rate mortgage was 4.45%, up from 3.95% at the beginning of the year.”
- “The Mortgage Bankers Association expects mortgage-purchase volume to grow about 5% in 2018 but refinancing volume to drop 27%. Refinance applications fell 5% in the week ended March 16 from the prior one, according to the group.”
Cryptocurrency / ICOs
Bloomberg – Fewer Americans Hold Cryptocurrencies Than You Probably Think – Olga Kharif 3/16
- “More than 90% of American adults don’t own cryptocurrencies – and most have a lot of concerns about the coins, a new survey from Finder found.”
Fishing
Bloomberg – Maine’s Lobster Tide Might Be Ebbing – Justin Fox 3/23
- “The numbers came in earlier this month on Maine’s 2017 lobster harvest. By historical standards, the 110.8 million-pound, $434 million haul was pretty spectacular. But it was a lot lower than 2016’s 132.5 million-pound, $540 million record, and it was another sign that the Great Lobster Boom that has surprised and delighted Maine’s lobster fishermen since the 1990s — and brought lobster rolls to diners from coast to coast — may be giving way to … something else.”
- “The lobster boom does not seem to be the result of overfishing; Maine’s lobster fishermen figured out a set of rules decades ago that appear to allow them to manage the catch sustainably. There are just lots and lots more lobsters off the coast of Maine than there used to be. Why? In a column last spring, I listed four reasons that I’d heard during a trip to Maine:”
- “Warmer temperatures in the Gulf of Maine.”
- “A collapse in the population of cod, which eat young lobsters.”
- “Reduced incidence of a lobster disease called gaffkemia.”
- “Increased effort and efficiency on the part of lobstermen, who go farther offshore and can haul in more traps in a day than they used to.”
- “Given how quickly the lobster harvests grew, though, especially from 2007 through 2012, it’s hard not to wonder whether they might not eventually collapse. They already have in several states farther down the Atlantic coast. Lobster landings were still on the rise as of 2016 (data aren’t available yet for 2017) in New Hampshire and Massachusetts but peaked in Rhode Island in 1999, Connecticut in 1998, New York in 1996 and New Jersey in 1990.”
- “So that’s some evidence for the warming-ocean-temperatures theory of the lobster boom. This would imply that eventually even the oceans off Maine will get too warm, although it doesn’t give much of a hint as to when.”
- Canada has been benefiting as well.
Perspective
FT – Super Bowl thriller watched by smallest audience since 2009 – Shannon Bond 2/5
- “In spite of the upset which saw the Eagles beat the Patriots 41 to 33 in a hard-fought battle in Minneapolis that came down to the final seconds of play, the broadcast drew 7% fewer viewers to NBC with 103.4m watching, according to Nielsen.”
- “When people who watched the game online were included, NBC counted a total audience of 106m and said it was the most-streamed Super Bowl ever. But this compares with the 111.3m people who tuned in to Fox’s broadcast last year.”
- “While football remains the most popular programming on US television, the figures from Nielsen underscore the ratings decline that has been plaguing the National Football League for two seasons. Audiences for regular season games shrank 10% in 2017, an acceleration from 2016’s 8% decrease.”
Worthy Insights / Opinion Pieces / Advice
Bloomberg View – Don’t Mistake the Stock Market for the Economy – Robert Burgess 2/6
FT – Bitcoin freeloads on institutions’ trust, warns BIS – Martin Arnold 2/6
- “Cryptocurrency is ‘a Ponzi scheme and an environmental disaster’ says Agustin Carstens.”
FT – Poland’s death camp law is designed to falsify history – Jan Gross 2/6
- “The rule barring debate of the country’s role in the Holocaust is a policy disaster.”
WSJ – Samsung Saga Shows Korea Reform Is Going Nowhere – Jacky Wong 2/5
- “The release of the conglomerate’s de facto leader will do little to allay investors’ concerns about the country’s corporate governance standards.”
- “Mr. Lee (Lee Jae-yong) walked free on Monday after appealing the five-year prison term handed to him in August when he was convicted on bribery and embezzlement charges: He received a reduced and suspended sentence instead. The next stage could see the case go to South Korea’s Supreme Court.”
WSJ – The Stock Market Didn’t Get Tested – You Did – Jason Zweig 2/5
Markets / Economy
- “Sales of smartphones in China — the world’s biggest market, responsible for about one in every three shipments — fell last year for the first time since 2009, raising fresh concerns about the strength of the global handset market.”
- “Data from IDC, the research company, showed that smartphone sales slumped 4.9% in 2017 from the previous year as the local market, a growth engine for the global mobile phone industry, contracted.”
- “Analysts pointed to the fact that Chinese consumers were waiting longer to replace their smartphones than they have in the past, mirroring a similar trend in other markets including the UK.”
- “IDC’s numbers come just days after data provider IHS Markit said global smartphone sales had dropped 4.5% in the last quarter of 2017, with only Xiaomi and Lenovo’s Motorola experiencing any growth in shipments.”
- “Apple took the biggest hit in China last year according to IDC, with unit sales down 8.3% year on year, although the company continued to dominate the premium market for phones that cost more than $600.”
- “In terms of overall value, the China mobile market grew 11% in 2017 — from $120bn in 2016 to $134bn.”
FT – M&A boom heightens fear of credit cycle nearing peak – Eric Platt 2/4
Finance
WSJ – How the Bull Market’s Greatest Trade Went Bust – Spencer Jakab 2/6
- “Only very rarely has a trade gone from being so good to being so bad so quickly.”
- “Among the most profitable trades during the bull market has been to short volatility, essentially betting the market would get calmer and stay calm. An exchange-traded instrument, the VelocityShares Daily Inverse VIX Short-Term exchange-traded note, grew to $2 billion by harnessing futures on the Cboe Volatility Index.”
- “The note, with the symbol XIV, had a 46% compound annual return from its inception in 2010 to two weeks ago. Late on Monday, though, the combined value of the note fell 95% to less than $15 million as trading was halted early Tuesday. Sponsor Credit Suisse says the last day of trading will be later this month.”
- “The lesson in the trade’s collapse isn’t that volatility is a flawed asset class. Instead, it is one as old as markets—crowded, ‘can’t lose’ trades often end in stampedes.”
Cryptocurrency
Bloomberg Quint – Get Ready for Most Cryptocurrencies to Hit Zero, Goldman Says – Kana Nishizawa 2/7
- “Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors…. At the same time, it probably does mean that most, if not all, will never see their recent peaks again.” – Steve Strongin, Goldman Sachs
China
Bloomberg – China’s Next Debt Bomb Is an Aging Population – Yinan Zhao and Jing Zhao 2/5
FT – China developers retreat from Hong Kong property market – Ben Bland 2/6
- “Chinese property developers have retreated sharply from Hong Kong’s booming land market, becoming the latest industry to be dented by Beijing’s capital controls and intensified scrutiny of outbound transactions.”
- “Chinese developers won 11% of bids by value in Hong Kong government land auctions since April, down from about 50% in the preceding two years, according to an analysis of official data by Standard & Poor’s, the debt rating agency.”
- “Esther Liu, an analyst at S&P, said the main reason for the pullback by Chinese developers was the clampdown on outbound investment by the Chinese government, which began in late-2016. Beijing has since intensified the crackdown as it seeks to stem capital outflows and discipline companies such as HNA that borrowed heavily to fund a flurry of overseas deals.”
- “Ms. Liu said that Chinese developers were also deterred by the longer development cycle in Hong Kong, compared with mainland China.”
- “She said it typically took six to nine months in China for developers to progress from buying land to launching their first off-plan sales. In Hong Kong, by contrast, it can take several years to plan the development of the site and obtain the required permissions.”
- “Despite the retreat of the mainland developers, analysts forecast that Hong Kong property prices will continue to rise.”
FT – Chinese tycoon sues local government for $640m – Tom Hancock and Xinning Liu 2/5
- “One of China’s richest men has revealed an attempt to sue a municipal government for Rmb4bn ($640m) over a suspended project to build a new city, the biggest case of its kind brought by an entrepreneur against the state.”
- “Yan Jiehe said the company he founded, China Pacific Construction Group, had not been paid for its work on Lanzhou New City, a settlement once billed as ‘Las Vegas in the Gobi’, where diggers flattened dozens of hills before officials suspended the project in 2013.”
WSJ – Chinese Police Add Facial-Recognition Glasses to Surveillance Arsenal – Josh Chin 2/7
India
If you were to read only one thing…
WSJ – China Tightens Rules on Cash Leaving Country as Growth Slows – Liyan Qi 8/18
- “China formalized existing measures to curb outbound investment, underscoring persistent capital-outflow pressure faced by Beijing.”
- “The government must restrict overseas investment in sectors such as property, hotels, cinema, entertainment and sports teams, the State Council said in guidelines released on the main government website Friday.”
- A cannon was just fired through the hallway.
- “Officials have warned against rising risks in such investment over the past year, but it is the first time the cabinet has publicized such controls in the form of official guidance.”
- “Establishment of equity-investment funds and any investment platforms that aren’t linked to any specific projects are also restricted by the government, according to the measures jointly drafted by the country’s top economic planner, Commerce Ministry, central bank and Foreign Ministry.”
- “Authorities must also step up oversight of investment projects that aren’t considered to meet the technology, environment and security standards required by the governments of the destination countries, according to the guidelines dated Aug. 4.”
- “The government is setting up a list to track down and penalize offenders, the cabinet said.”
- “China’s outbound direct investment outside the financial sector declined 44.3% over the first seven months from a year earlier, with investment in property and entertainment down by 81.2% and 79.1%, respectively, the Commerce Ministry said on Tuesday.”
- “’Irrational outbound investment has been effectively contained further,’ the ministry said.”
Perspective
FT – Trump says it is ‘foolish’ to remove Confederate symbols – Neil Munshi 8/17
Worthy Insights / Opinion Pieces / Advice
Project Syndicate – The Lost Lesson of the Financial Crisis – Mohamed El-Erian 8/17
NYT – We Need Immigrants With Skills. But Working Hard Is a Skill. – Jeff Flake 8/18
Energy
WSJ – OPEC’s Sick Man, Venezuela Could Jolt Oil Market – Spencer Jakab 8/17
- “Venezuela’s already falling oil production will get worse, maybe much worse, before it gets better, potentially roiling global energy markets. The cash-strapped country has been unable to maintain its oil fields, meaning some of the production losses will be permanent.”
- “The country now produces between 1.9 million and 2.2 million barrels a day, depending on whether one uses unofficial or official data, down from around official estimates of 2.5 million in late 2015 and 3.4 million before Hugo Chávez took power in 1999.”
- “The decline in production is so dramatic that Venezuela, home to the world’s largest proven crude reserves, is actually importing barrels of light crude, which it needs to mix with its heavy varieties to make them usable.”
- “The problem is cash, debt and production. Venezuela is struggling under $120 billion in debt, and it has pledged barrels of oil as repayment for Russian and Chinese loans. After supplying the domestic energy market and paying for crude imports, Venezuela only has 600,000 to 800,000 barrels a day left over to generate net cash flows, according to Columbia University’s Center on Global Energy Policy. The country earns some 90% of its foreign currency revenue from oil exports.”
- “If the country can right itself, output might stabilize, but any rebound would be modest. Years of underinvestment may have done permanent damage to Venezuela’s conventional oil reservoirs. Reviving output would require substantial foreign investment, including in heavy-oil deposits. Now that Venezuela has burned not just western multinationals but also state companies from Russia and China, doing so will be a tall order without regime change.”
China
NYT – Joshua Wong and 2 Others Jailed in Hong Kong Over Pro-Democracy Protest – Alan Wong 8/17
- “The sentences risked casting the three young men as Hong Kong’s first prisoners of conscience, undermining the city’s reputation as a haven of civil liberties with special status in China.”
Have a great Independence Day!
Perspective
- “According to provisional 2016 population data released by the Centers for Disease Control and Prevention on Friday, the number of births fell 1% from a year earlier, bringing the general fertility rate to 62.0 births per 1,000 women ages 15 to 44. The trend is being driven by a decline in birthrates for teens and 20-somethings. The birthrate for women in their 30s and 40s increased — but not enough to make up for the lower numbers in their younger peers.”
- “A country’s birthrate is among the most important measures of demographic health. The number needs to be within a certain range, called the “replacement level,” to keep a population stable so that it neither grows nor shrinks. If too low, there’s a danger that we wouldn’t be able to replace the aging workforce and have enough tax revenue to keep the economy stable.”
- The article attributes the trend to characteristics of the millennial generation; however, I would place more of the cause at the rising cost of housing, rising cost of primary education & extracurriculars, lingering student debt, and the replacement of stable work with ‘gigs’. It’s hard to want to procreate when you don’t feel stable or supported.
Worthy Insights / Opinion Pieces / Advice
NYT – Once a Model City, Hong Kong Is in Trouble – Keith Bradsher 6/29
Energy
FT – Canada oil output threatens to derail Opec plan – Gregory Meyer 6/29
- “As Opec glares at the surge in US shale production that is threatening to derail its attempt to balance the oil market, it may also want to cast an eye north.”
- “Canada, home of the world’s third-largest oil reserves, might have seen producers slash capital spending during the three-year-old oil decline, but earlier investments in the country are set to keep pushing output higher for at least the next 18 months.”
- “A forecast released this month by the Canadian Association of Petroleum Producers sees the country’s output increasing by 270,000 barrels a day in 2017 and another 320,000 b/d next year.”
- “That combined two-year Canadian increase is equal to almost a third of Opec’s production cuts that it made with allies like Russia at the beginning of this year in an effort to raise prices.”
- “Much of that Canadian oil is already pouring into storage tanks in the US, rattling traders who last week pushed prices to a half-year low.”
FT – US oil rig count drops for first time since January – Gregory Meyer 6/30
- “The number of rigs drilling for oil in the US has clocked its first weekly decline since January… The tally had risen for 23 consecutive weeks beforehand.”
Agriculture
- “Prices for spring wheat, the high-protein variety favored for bagels and pizza crusts, are starting to defy gravity.”
- “Futures soared as much as 8.5% on Thursday, the most intraday since 2010, after Canada cut its planting outlook and drought conditions expand in U.S. growing states. Prices are up 31% in June, beating the gains for 80 other commodities tracked by Bloomberg.”
- “The northern U.S. has been plagued by dryness this year, and conditions for the domestic spring-wheat crop are their worst for this time since 1988. Now, traders are eyeing a smaller crop in Canada, too. The country’s government on Thursday cut its outlook for the total wheat acreage more than analysts expected and said canola plantings will top the grain for the first time ever.”
China
Reuters – Macau casinos post 11th month of gains on VIP resurgence – Farah Master 7/1
- “Revenues in the world’s biggest casino hub of Macau jumped nearly 30% in June, posting an 11-month winning streak, as demand from high-roller VIPs accelerated despite a corruption crackdown.”
- “Chinese President Xi Jinping has warned Hong Kongers not to cross the ‘red line’ of China’s sovereignty and called for a renewed campaign of “patriotic education” for young people in a hardline speech that comes amid growing opposition to Beijing’s rule and its creeping interventions in the semi-autonomous territory.”
- “’Any attempt to endanger national sovereignty and security, challenge the power of the central government . . . or use Hong Kong to carry out infiltration and sabotage activities against the mainland is an act that crosses the red line, and is absolutely impermissible,’ he said on Saturday.”