Tag: Hyperinflation

February 14, 2018

Happy Valentine’s Day!

 

Worthy Insights / Opinion Pieces / Advice

The Atlantic – How Humans Sank New Orleans – Richard Campanella 2/6

Economist – The roots of hyperinflation – J.O’s 2/12

  • “Fifty-seven cases of runaway inflation have been documented. They have common patterns.”
  • “In a country where the annual inflation rate is in four figures, the previous month can seem like a golden age. Venezuela’s currency, the bolívar, has lost 99.9% of its value in a short time. It is hard to fathom how a government can get its economic policy so wrong when the effects of hyperinflation are so severe.”
  • “Hyperinflations do not last long. They end in one of two ways. With the first, the paper currency becomes so utterly worthless that it is supplanted by a hard currency. This is what happened in Zimbabwe at the end of 2008, when the American dollar took over, in effect. Prices will stabilize, but other problems emerge. The country loses control of its banking system and its industry may lose competitiveness. With the second, hyperinflation ends through a reform program. This typically involves a commitment to control the budget, a new issue of banknotes and a stabilization of the exchange rate—ideally all backed with confidence-inspiring foreign loans. Without such reform, Venezuela’s leaders, though scornful of America, may find that its people are forced eventually to adopt its dollar anyway.”

FT – HNA/HK property: throttling back – Lex 2/13

  • “On Tuesday it (HNA Group) sold two parcels of land near the old airport to Hong Kong developer Henderson Land for HK$15.8bn ($2bn). The pull back of a formerly acquisitive group is a warning sign for the territory’s property market.”
  • “True, Henderson is paying 11.2% more than the sum HNA paid for the plots less than a year and a half ago. Back then, a report by real estate services group JLL estimated that the initial price was 13% above the higher end of the market.”
  • Bottom line, the recent run up has been juiced by mainland developers and expect them to be pulling back.

FT – ‘Self-inspection’ campaign looms for China’s online lenders – Henny Sender 2/12

  • “Regulators tighten their grip on fears that borrowers are overstretched.”

Markets / Economy

Bloomberg Businessweek – This Bond Market Could Get Uglier – Brian Chappatta, John Gittelsohn, and Liz McCormick 2/6

FT – US craft beer slowdown sends hops market from boom to bust – Emiko Terazono 2/12

  • “A sharp slowdown in US craft beer sales growth has sent the specialty hop market from boom to bust with its effects starting to be felt by growers beyond its shores.”
  • “Many of the hop varieties popular among craft beer makers have plunged from their peaks between 2015 and 2016. For example, Citra, known for its smooth floral and citrus aroma and flavor, has almost halved from $23 a pound, according to Lupulin Exchange, a US online hop exchange.”
  • “Another variety, Cascade, was trading at $6-$7 a pound in 2015-16, but is now on the market for $1.20, said Mr MacKinnon (Douglas MacKinnon, chief executive of trader 47hops).”
  • “The main issue has been the sudden slowing of growth in the craft beer market, which until a few years ago had been rising annually by double digits. However, market saturation, as well as competition from other alcoholic beverages, have affected growth, which peaked in 2014 at 18%, slowing to about 5% last year.”
  • “The oversupply situation has been made worse by the jump in hop production and acreage which almost doubled in the past five years. Brewers fearing a shortage rushed to sign three- to five-year contracts with farmers, who increased plantings on the back of those contracts and high prices.”
  • “The rising output amid falling demand has resulted in a hop glut, with inventories in pre-harvest September rising 15% to a record 98m pounds, according to the US Department of Agriculture. Of the total, growers and merchants held an all-time-high share of 65%.”
  • “But despite the supply overhang, hop farmers — who on the back of demand invested in expanding operations, need to repay bank loans — are still expected to plant about 1,500 new acres.”

Investment News – SEC offers advisers amnesty to move clients out of high-fee mutual fund share classes – Jeff Benjamin 2/12

  • “Enforcement division giving advisers until June 12 to declare intentions to self-report fiduciary violations and make financial restitution.”

Real Estate

Bloomberg – This Mall Is Only for the Rich, and It’s Doing Fine – Kim Bhasin 2/8

Visual Capitalist – UBS: Real Estate Bubbles: The 8 Global Cities at Risk – Jeff Desjardins 2/13

WSJ – Daily Shot: Lawler Economic & Housing Consulting – Home Builder Net Orders 2/12

Finance

WSJ – Daily Shot: Bloomberg – Broadcom Lines Up Biggest Debt Financing Ever for Qualcomm – Molly Smith and Jacqueline Poh 2/12

WSJ – Daily Shot: FRED – LIBOR and Bank Rate Spread 2/12

  • It’s good to be a banker again.

Cryptocurrency

BBC – Bitcoin energy use in Iceland set to overtake homes, says local firm – Chris Baraniuk 2/12

Bloomberg – Bitcoin Risks Crashing to $900 If Dot-Com Mania Is Any Guide – Eddie Van Der Walt 2/12

  • “Already slashed by more than half since hitting a record near $20,000 in December, the cryptocurrency could plunge a further 90% in an environment of unsustainably growing supply, according to Bloomberg Intelligence commodity strategist Mike McGlone.” 
  • While the creators of Bitcoin intended to limit supply to 21 million coins, forks mean that there are already more than 50 million outstanding coins based on the original blockchain. There’s also nothing preventing rivals from spawning an infinite amount of clones, he said. The number of tradable cryptocurrencies jumped 120% in the past year.”
  • “’Parabolically increasing supply is the primary limitation to cryptocurrency market-price appreciation,’ McGlone said. ‘There’s strong gravitational pull toward $900, the average price since inception and the start of 2017’.”

Environment / Science

NYT – Here Are the Places That Struggle to Meet the Rules on Safe Drinking Water – Brad Plumer and Nadja Popovich 2/12

 

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February 9, 2018

Perspective

Economist – When the prices are too damn high – Daily Chart 2/5

WSJ – Hard Lessons From the Federal Student-Loan Program’s Coming $36 Billion Shortfall – Josh Mitchell 2/4

  • “U.S. officials have long maintained the federal government would make a profit on its $1.4 trillion student loan portfolio or at least break even, but two recent reports suggest just the opposite will be the case. Government lending to college and graduate students could soon become an immense drain on federal coffers, worsening an already deteriorating U.S. budget picture.”
  • “The Education Department’s inspector general, an agency watchdog, in a report released last week said the profitability of the U.S. federal student-lending program is being squeezed because millions of Americans who borrowed heavily in recent years—including many graduate students—are flocking into a program to have substantial portions of their debts forgiven.”
  • “Students who borrowed in the fiscal year ended Sep. 30, 2015, and enrolled in such ‘income-driven repayment’ plans, for example, are expected to pay back $11.5 billion less than they took to pay tuition and other schooling costs.”
  • “The government still earns billions of dollars every year in interest on the loans it has made to 43 million American undergraduates, graduate students and parents of undergrads. But the losses from those not repaying are now projected to mount and could eat up all of the gains. It is hard to get precise estimates, but the Education Department’s annual financial report, released in November, offered a clue. A footnote in the report projected that money coming in for government student loan and guarantee programs will be $36 billion short of what’s needed to cover outstanding debt and accrued interest.”
  • “A year earlier, the department projected the shortfall at $8.4 billion, while in prior years it projected the program would generate billions of dollars in taxpayer surpluses. The latest report explained that one reason for the sharp switch was the rise of income-driven repayment plans. These plans set monthly payments as a share of a borrower’s income and then forgive any balance that remains after 10, 20 or 25 years, depending on the borrower’s work status and loan size.”
  • “While that $36 billion projection doesn’t quite compare to the $4 trillion federal budget, it’s still an immense sum. To put it in perspective, the government ultimately paid $33 billion in its response to the financial crisis through the Troubled Asset Relief Program, according to the Congressional Budget Office.”

Worthy Insights / Opinion Pieces / Advice

FT – The discreet terror of the American bourgeoisie – Edward Luce 2/7

  • “Elites thought they could have it both ways: capital gains and moral certainty.”

Mauldin Economics – Kill the Quants – John Mauldin 2/7: Once Again – “Kill the Quants (and the Levered ETFs and ETNs) Before They Kill Our Markets” – Douglas A. Kass 2/6

Project Syndicate – Justice Without Borders for Venezuela – Ricardo Hausmann 2/7

  • “According to estimates from MIT’s Billion Prices Project, month-on-month food inflation in Venezuela reached 117.6% in January, or the equivalent of 1,130,000% a year. At the same time, the exchange rate depreciated at an annual rate of more than 700,000%, while the real purchasing power of wages – which barely represented 1,400 calories a day in December – was decimated further. A survey published in early January estimated recent out-migration at four million people, nearly as many as from Syria.”

Markets / Economy

Bloomberg – World’s Largest ETF Hit by Biggest Four-Day Outflow on Record – Sid Verma and Dani Burger 2/7

  • “The global market maelstrom spurred money managers to yank a record $17.4 billion from the mighty SPDR S&P 500 ETF over the past four trading sessions. The $8 billion removed on Tuesday alone was the third-largest daily withdrawal in the post-crisis era.”

Real Estate

Bloomberg – HNA Group Puts $4 Billion of U.S. Properties on Market – Sarah Mulholland 2/8

  • “Among the properties on the block is 245 Park Ave., according to a marketing document seen by Bloomberg. HNA bought that skyscraper less than a year ago for $2.21 billion, one of the highest prices ever paid for a New York office building.”

Health / Medicine

NYT – In Sweeping War on Obesity, Chile Slays Tony the Tiger – Andrew Jacobs 2/7

  • “New regulations, which corporate interests delayed for almost a decade, require explicit labeling and limit the marketing of sugary foods to children.”

Canada

FT – Canada’s housing market flirts with disaster – Ben McLannahan 2/7

  • “Canada is in the grip of a housing crisis more severe, by some measures, than anywhere else in the world. Household debt now amounts to more than 100% of the country’s gross domestic product, according to the Basel-based Bank for International Settlements, one of the highest of any developed nation. House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.”
  • “For now, the number of home loans in arrears across Canada is still very low, suggesting that people are finding ways to cope with ever-larger debts. But rising interest rates are beginning to bite, while a new stress test for mortgages issued by regulated banks has tightened the supply of credit. This week the Toronto Real Estate board said that sales in Canada’s biggest city dropped 22% in January, the weakest for that month since 2009.”
  • “Bullish observers say fears of a meltdown are overblown. Canada can sustain high house prices, they argue, because they reflect the country’s high levels of net migration, restrictive zoning laws and low unemployment.”
  • “Henry Lotin, a retired diplomat and principal at research group Integrative Trade and Economics, says the same forces that have pushed up prices in global hubs such as New York are now doing the same to the most attractive parts of Canada. ‘Torontonians should be thankful and we should manage it as best we can. We really have to be prepared that demand is going to exceed supply for the foreseeable future’.”
  • “Many also note that mortgage books at the big banks look rock-solid. Royal Bank of Canada, for example, which recently joined the club of the world’s most systemically important banks thanks to years of rapid asset growth, had a Canadian residential mortgage portfolio of an average C$231bn in the year to October. Defined as estimates of losses on impaired loans and losses incurred but not yet identified, provisions for credit losses were just C$33m — or one one-hundredth of 1%.”
  • “Others say pristine loan books are not a good indicator of the stress lurking in the system. For one thing, every homebuyer with a down payment of less than 20% of the purchase price (if less than C$1m) has to buy insurance against default. That has the effect of flattering the banks’ books but shifts the risk of default to insurers such as the state-backed Canada Mortgage and Housing Corporation.”
  • “CMHC was set up after the second world war to help returning veterans find housing. These days it insures about C$480bn of residential mortgages, or almost one-third of the outstanding stock in Canada, using an automated system to process about two-thirds of applications.”
  • “Meanwhile, the uninsured segment is growing. As the market has barreled upwards in recent years, borrowers have been able to convert insured mortgages into uninsured mortgages simply by buying a property, waiting for the price to rise, then refinancing.”
  • “Uninsured buyers made up about three-quarters of new loans at federally regulated banks in 2017, up from two-thirds in 2014, according to the Bank of Canada. In Vancouver, where the average sales price of condos hit a record of C$1.1m in January, more than double the level a decade earlier, about 90% of new mortgages are uninsured.”
  • “Laurentian Bank, Canada’s seventh-biggest by assets, said in December that it would have to buy back about C$300m of mortgages it had sold to third parties, having found that borrowers had ’embellished’ income and assets. Last month, the Montreal-based bank said the buyback obligations had increased to about C$400m, and it would have to raise more capital.”
  • “That kind of disclosure — in dribs and drabs, each more alarming than the last — has echoes of the beginning of the US mortgage crisis, when terms such as ‘liar loan’ began to enter the vernacular. ‘Trends are developing . . . that we took for granted were not an issue in Canada,’ says Gabriel Dechaine, an analyst at National Bank of Canada. ‘There are puffs of smoke, but I don’t want to yell fire in a crowded theater’.”
  • “More strains could emerge. With interest rates rising — three increases in the central bank’s policy rate since July has left it at 1.25% — many borrowers may be facing a struggle to refinance in a market where almost all mortgages are renewed every five years or less.”
  • “Anecdotal evidence suggests tougher rules on underwriting are also beginning to curb lending. On January 1 the federal banking regulator, the Office of the Superintendent of Financial Institutions, introduced a rule requiring all new mortgage applicants to show they could cope with interest rates substantially higher than their contracted rate. Previously, stress tests applied only to insured mortgages.”

China

Bloomberg – Frenzy of Fines for China’s Bank Is Only Just Getting Started – Jun Luo and Alfred Liu 2/5

  • “China’s banking regulator is increasingly showing its teeth, slapping a record amount of fines on financial institutions in the past several months for transgressions such as lax lending procedures and manipulating bad-loan data. Expect the unprecedented frenzy to continue.”
  • “The China Banking Regulatory Commission (CBRC) announced 3,452 penalties and confiscations of funds involving 1,877 financial institutions and totaling 2.93 billion yuan ($465 million) in 2017, a 10-fold surge from the previous year, according to official data. Some 270 banking executives were punished, including being banned from the industry for life, according to a CBRC official speaking on CCTV.”
  • “The frenzy continues this year, with an average 16 fines imposed every day of January.”
  • “The biggest of 2018 so far was levied against Shanghai Pudong Development Bank Co., fined 462 million yuan for what the CBRC termed ‘a well-organized fraud.’ Last Friday, the CBRC fined Industrial & Commercial Bank of China Ltd. and 18 other banks’ branches in central China 52.5 million yuan for accepting low-quality gold as collateral for 19 billion yuan worth of loans, resulting in the banks being defrauded.”
  • “After his appointment last year as CBRC chairman, Guo Shuqing embarked on a campaign to root out malpractice in the $39 trillion banking industry, improve implementation of lending policies and curb cross-holdings of financial products.”