Tag: India

August 8, 2017

Perspective

FT – US haul from credit crisis bank fines hit $150bn – Kara Scannell 8/6

  • “A single bank, Bank of America, has paid more than one-third of all recoveries to US authorities, according to an analysis by the Financial Times. Its $56bn in settlements with state and federal regulators and the DOJ cover its own mortgage sales and actions by two companies it acquired — subprime mortgage lender Countrywide and broker Merrill Lynch.”
  • “JPMorgan Chase, which acquired Bear Stearns and Washington Mutual, has paid the second-largest amount, with $27bn in fines and relief.”

Worthy Insights / Opinion Pieces / Advice

NYT – The Debt-Ceiling Crisis Is Real – Edward Kleinbard 8/7

FT Alphaville – Electric vehicle realities – Izabella Kaminska 8/3

  • “Electric vehicles (EVs) are all the rage. But they’re also fast becoming the sacred cows you can’t criticize for fear of being shredded by the EV, renewable, and tech lobbies.”
  • “Questioning the cost structures of the industry in general is not allowed in public forums. My colleague Jonathan Ford discovered this recently when he dared to question the economic realities underpinning the renewable sector.”
  • “Brian Piccioni and team at BCA Research offer a good starting point to our questions on Thursday, in a report entitled Electric Vehicles Part 1: Costs of Ownership.”
  • “The bad news for EV fans is their work determines that the cost of ownership of an EV still far exceeds that of an internal Combustion Engine Vehicle (ICEV), even after subsidies are accounted for.”
  • A couple of points.
    • Battery packs are expensive and more expensive than generally claimed.
    • Batteries degrade and the cost of replacing them are expensive (more so than the manufacturers let on).
    • Additionally, think of your experience with the value of your old cell phones or computers. While the hardware may still work, the value of your device tends to decline rapidly with an old battery.
  • Back to the subsidies.
  • “Nevertheless, most people are encouraged to buy EVs because of the fuel subsidies or free parking promises. Yet is difficult to assess how long EV subsidies will persist. Fundamentally, the economics dictate that they can only really be affordable to governments as long as the number of vehicles sold remains small. If EV sales accelerate swiftly, these subsidies would get very costly for government coffers very quickly — straining public finances if not creating massive implied contingent liabilities.”
  • “On that basis, when electric car subsidies start eating into the funding that’s available for other vital government services, public perceptions of EV efficiency will change markedly.”
  • All for EV adoption, just trying to be more aware of the factors in play.

Bloomberg Gadfly – OPEC’s Existential Sucker Punch – Julian Lee 7/30

Markets / Economy

WSJ – Daily Shot: FRED – US Prime-Age Labor Force Participation 8/7

WSJ – Daily Shot: FRED – US Civilian Labor Force Participation by Gender 8/7

Environment / Science

NYT – Let Forest Fires Burn? What the Black-Backed Woodpecker Knows – Justin Gillis 8/6

  • “Scientists say that returning forests to a more natural condition would require allowing 10 million or 15 million acres to burn every year, at least.”
  • “Today, closer to four million or five million acres burn every year.”

Agriculture 

WSJ – Daily Shot: CBOT Soft Red Winter Wheat 8/7

  • “The US wheat rally has been fully reversed on improved crop conditions.”

India

FintechFT – India’s fintech revolution – Don Weinland 8/7

Bloomberg Gadfly – Indian Banks’ Soaring Price-to-Truth Ratio – Andy Mukherjee 8/7

  • Several Indian banks have more non-performing loans in their books than they are letting on and are aware of. Worse, there a quite a few loans issued to companies (i.e. Videocon) with too few restrictions, who are then using the funds to pursue moonshot projects out of their core competencies.

Middle East

WSJ – Egypt’s Leader Makes a Risky Bet on the Healing Power of Economic Pain – Yaroslav Trofimov 8/6

  • “Egypt’s President Abdel Fattah Al Sisi is cutting food and fuel subsidies, a program long plagued by waste and corruption, in a high-stakes gamble to aid the stalled economy that none of his predecessors dared execute.”
  • “The economic shock therapy, coupled with a steep currency devaluation, has rocked the Arab world’s most populous country. Fuel prices went up 50% in June, cooking-gas prices have doubled and the annual inflation rate has surpassed 30%.”
  • “Every day, millions of Egyptians line up at government bakeries to buy five loaves of bread for less than two U.S. cents, a fraction of the wheat’s cost. The food subsidies extend to some 80% of Egypt’s families and were first instituted as part of rationing during World War II.”
  • “Farmers across Egypt nurture their crops with water pumps operating on diesel that, even after June’s 55% increase, still retails for 77 cents a gallon, less than a third of retail prices in the U.S.”
  • “The government’s goal is to end the subsidies in three to five years, according to Mr. Kabil, the trade and industry minister. ‘The right thing to do is to lift them totally,’ he said. ‘But you cannot do it today because you cannot correct 40 years of problems in one day.’”
  • The question is whether or not the people of Egypt will be able to make to that point without changing course?

South America

WSJ – Daily Shot: Caracas (Venezuela) Stock Exchange Market Index 8/4

  • If you live in Venezuela, there is nowhere else to preserve your money (outside of hard currencies – if you can get them).

WSJ – Daily Shot: Black Market Bolivar (Venezuela) USD Exchange Rate 8/7

Other Links

NY Post – Hedge fund manager (Raymond Montoya) charged for scamming investors out of millions – John Aldan Byrne 8/5

July 5, 2017

Perspective

WSJ – Daily Shot: Credit Suisse – USA Aggregate Net cash and Debt % of Sales 7/3

WSJ – Daily Shot: WEF – World’s most crowded cities 7/3

FT – SF Express uses first China drone license to deliver the goods – Yuan Yang 6/30

  • “SF Express has completed commercial drone deliveries after receiving China’s first drone airspace license, state media reported on Friday.”
  • “China’s logistics and technology companies have announced such delivery services before but little commercial use has followed. However, there are some signs that the SF Express launch was different.”
  • “The granting of the license indicates that national regulators are now more willing to open airspace to drone delivery companies, say analysts.”
  • “SF Express, one of China’s biggest logistics services, flew a fleet of drone models, some of which can carry up to 25kg and have a range of up to 100km, in the southern area of Ganzhou in Jiangxi province.”

Worthy Insights / Opinion Pieces / Advice

INET – Jim Chanos: U.S. Economy is Worse Than You Think – Lynn Parramore 6/30

  • “Since the election of Donald Trump, the stock market has soared and many pundits have noted positive economic trends in the US. Jim Chanos of Kynikos Associates, known for his financial prescience, is less sanguine.”

NYT – After Killing Currency, Modi Takes a Leap With India’s Biggest-Ever Tax Overhaul – Geeta Anand 6/30

Economist – How fracking leads to babies 7/2

  • “The typical family in America is changing. Couples are increasingly reluctant to seal their relationships with the stamp of marriage, or to tie the knot before having children. In 1960 fewer than a tenth of births were to unmarried women, whereas these days around two fifths of children are born out of wedlock. Economists wonder whether the changing economic fortunes of men might be driving these decisions, but struggle to disentangle the different factors at work. Recently, though, new evidence has emerged on the topic. Did, for example, the fracking boom affect family formation?”
  • “A new study by Melissa Kearney and Riley Wilson, two economists at the University of Maryland, looks at the impact of the recent fracking boom in America, which boosted job opportunities for less-educated men. The economists wanted to see how this affected birth rates, both in and outside of marriage. They compared marriage and birth rates in areas where fracking had boosted the local economy with those where it had not had any effect. The researchers found no effect on marriage rates, though fertility rates did rise. On average, they find that $1,000 of extra fracking production per person was associated with an extra six births per 1,000 women.” 
  • “The result confirms the hypothesis that better economic prospects lead to higher fertility. But it also sheds light on changing social mores in America: good times used to mean more wedding bells and babies, whereas now they just mean the latter. The policy prescriptions are not obvious. Whether or not people get married is their own business. But the finding does offer some comfort to those who worry that declining marriage rates are purely the product of worsening economic prospects for men. Clearly, some other factor is at play.”

NYT – Confidence Boomed After the Election. The Economy Hasn’t. – Neil Irwin 7/4

FT – China was the real victor of Asia’s financial crisis – James Kynge 7/2

Energy

WSJ – Behind Oil’s Ups and Downs, Little Has Changed – Nathaniel Taplin 7/4

  • “If oil heads higher, it will elicit a quick supply response – same on the downside. Nothing in the past six weeks has done much to change that equation.”

Finance

FT – SEC accuses British executive of bitcoin fraud – David Lynch 6/30

  • The fraudster: Renwick Haddow
  • The companies: Bitcoin Store and InCrowd Equity Inc.
  • Caveat emptor

Tech

WSJ – Daily Shot: Credit Suisse – Data Storage Costs 7/3

Health / Medicine

FT – Our digital addiction is making us miserable – Izabella Kaminska 7/4

Religion

NYT – Israel Faces Uproar Abroad as Netanyahu Yields to Ultra-Orthodox Jews – Isabel Kershner 7/3

  • “Jews around the world have been in an uproar in the week since Mr. Netanyahu yielded to pressure from his ultra-Orthodox coalition partners and suspended a plan to provide a better space for non-Orthodox men and women to worship together at the Western Wall in Jerusalem.”
  • “That new prayer space had long been a goal of the Reform and Conservative movements, popular in the West. And in another blow to those more liberal wings of Judaism, the government also approved a contentious bill enshrining the strictly Orthodox Chief Rabbinate’s monopoly over conversions to Judaism in Israel.”
  • “Together, those moves have reawakened a decades-old dispute over who is a Jew. And they have prompted an emotional debate over the nature of the relationship between the world’s Jews and the Jewish homeland — at a time when a right-wing Israeli government, under increased international criticism, has relied on support among the generally more liberal Jewish diaspora in the West.”
  • “The furor over the Western Wall agreement boils down to a refusal by Israel’s Orthodox religious authorities to grant any recognition to Reform and Conservative Judaism. The main prayer space at the Western Wall, known in Hebrew as the Kotel, has separate men’s and women’s sections, in the Orthodox tradition, and is run like an Orthodox synagogue.”

China

FT – China bans homosexuality, luxurious lifestyles from online videos – Yuan Yang 7/1

  • “Sexual freedom, luxurious lifestyles and portrayals of Chinese imperialism are the latest targets of China’s crackdown on internet video content.”
  • “’Abnormal sexual lifestyles’, including homosexuality, are included among the 84 categories of topics that were banned from online video programs by Chinese censors last week. ‘Unhealthy’ views of the family, relationships, and money are also banned.”
  • “The detailed list is the first issued by government censors to cover the rapidly growing field of internet video, and comes after dozens of the country’s most popular entertainment channels were shut down in an online crackdown that started three weeks ago.”
  • “Beijing has heightened its scrutiny of online content in the run-up to the politically sensitive national congress of the Communist party later this year, analysts say.”
  • “Under the new guidelines, mocking revolutionary heroes is forbidden, as well as portraying ethnic discord or lack of national unity.” 
  • “In particular, programs should not portray ‘the use of military force to conquer others during China’s historic feudal period’.” 
  • “The clause is a veiled reference to Tibet and Xinjiang — two large border regions of China where separatist movements have emerged in opposition to the government’s policies against Buddhist and Muslim citizens.” 

WP – China vows to step up air and sea patrols after U.S. warship sails near disputed island – Simon Denyer and Thomas Gibbons-Neff 7/3

  • “China’s military vowed Monday to step up air and sea patrols after an American warship sailed near a disputed island in the South China Sea in what Beijing called a ‘serious political and military provocation.’”
  • “The past few days have seen a dramatic downturn in relations between the two sides, after the United States announced its intention to sell arms to Taiwan and sanction a Chinese bank doing business with North Korea.” 
  • “Then, on Sunday, the USS Stethem, an American guided-missile destroyer, sailed within 12 nautical miles of Triton Island, a small isle in the Paracel Islands chain claimed and controlled by China, a U.S. defense official said.”
  • “The Stethem’s patrol marked the second such operation near Chinese-controlled islands in six weeks, after a few months’ hiatus in the wake of Trump’s inauguration.”
  • “China’s Defense Ministry said its armed forces had dispatched two frigates, a minesweeper and two fighter jets to warn the Stethem away.”
  • “The Paracels are among a group of islands and atolls in the South China Sea at the heart of ongoing tensions in Southeast Asia. China claims full sovereignty over the sea and has built fully functional military facilities complete with airfields and antiaircraft defenses on some islands.”
  • Expect the movie WarGames to start trending.

NYT – China’s Vision for a Straddling Bus Dissolves in Scandal and Arrests – Austin Ramzy and Carolyn Zhang 7/4

June 29, 2017

Perspective

FT – Samsung set to eclipse Intel as world’s number one chipmaker – Song Jung-a 6/27

  • “Samsung Electronics is expected to overtake Intel as the world’s largest chipmaker in the current quarter, for the first time ever, on the back of strong demand for chips for mobile devices and data servers.”
  • “Intel has been the number one chipmaker since 1993 after releasing the Pentium CPU (central processing unit) for personal computers. However, the rapid adoption of mobile devices around the world has enabled Samsung to close the gap in chip sales in recent years.” 
  • “Samsung is estimated to have generated $15.1bn in chip sales for the April-June quarter, surpassing Intel’s estimated sales of $14.4bn, according to Nomura. Samsung is also expected to displace Intel as the industry leader for the full year, unless memory chip prices fall sharply in the second half. Samsung’s 2017 chip sales are forecast at $63.6bn, versus Intel’s estimated $60.5bn.” 

Real Estate

The Lead Left – Private Debt Intelligence: North America Real Estate Debt 6/26

WSJ – Has America Built Its Last Major Mall? – Esther Fung 6/27

  • “Appetite for building enclosed malls of more than 800,000 square feet has dried up. Department stores, once dependable foot-traffic generators, are closing locations amid stiff competition from off-price retailers and the growth of online shopping.”
  • “A mall construction spree in the 1970s and 1980s has left in its wake aging properties at a time when there is little capital available for upgrades. As anchor stores close, more mall space sits idle and foot traffic wanes, hastening the march toward death.”
  • “In all, there are roughly 1,200 malls in the U.S., and some analysts see the figure bottoming out at 500 to 800.”
  • “As of the current quarter, there were 612 so-called superregional malls, which typically have a gross floor area of 800,000 square feet or more, only two more than there were in 2010. Between 2002 and 2009, there were 37 such malls built. The number of smaller enclosed malls of 400,000 to 800,000 square feet stands at 599, up by 16 since 2010. Between 2002 and 2009, 40 such malls were constructed.”
  • “But other categories of retail are flourishing. The number of neighborhood shopping centers and strip centers has jumped by 2,303 since 2010 to 114,683. These centers typically offer a narrower range of goods and feature tenants such as grocery stores, laundromats and other necessity-based services that cater to nearby residents.”
  • To be sure, not everyone is hurting.
  • “Grade A malls in dense neighborhoods with above-average household incomes are still doing well, and their landlords argue that consolidation in the industry works in their favor.”

WSJ – Labor Shortage Squeezes Real-Estate Developers – Peter Grant 6/27

  • “About two-thirds of the contractors who are struggling with the labor shortages gripping the construction industry say it has become a challenge to finish jobs on time, according to a new survey.”
  • “More than one-third of contractors said they are being forced to turn work down and 58% said they are putting in higher bids, said the survey sponsored by USG Corp. and the U.S. Chamber of Commerce. Three-quarters of those who said they are having difficulty finding skilled labor said they are simply asking their employees to work harder.”
  • “Labor shortages are partly due to the increasing number of construction projects moving forward. During the first four months of this year, construction spending amounted to $359.5 billion, 5.8% more than the same period in 2016, according to the U.S. Census Bureau.”
  • “Also, tens of thousands of workers left the building trades during the economic downturn.”

Finance

WSJ – Daily Shot: US Leveraged Loan Issuance 6/26

WSJ – Daily Shot: Pension Partners – European High Yield Index – Effective Yield 6/26

Why… so much money chasing yield products.

WSJ – Daily Shot: Topdown Charts – ETF Assets in Yield Products 6/26

China

FT – China’s fake travel spending masks capital flight, warns Fed – Gabriel Wildau 6/28

  • “Capital flight disguised as overseas tourism spending has artificially cut China’s reported trade surplus while masking the extent of investment outflows, according to research by the US Federal Reserve.” 
  • “A significant share of overseas spending classified in official data as travel-related shopping, entertainment and hospitality may over a 12-month period have instead been used for investment in financial assets and real estate, the Fed paper argued.”
  • “Disguised capital outflows in the year to September may have amounted to $190bn, or 1.7% of gross domestic product, according to the paper.”
  • “Foreign exchange purchases by individuals are capped at $50,000 a year, with the money meant to be used for consumption purposes such as travel, foreign medical care and tuition.”
  • “Until recently, however, Chinese bank tellers rarely asked for documentation to prove how the foreign currency they sold to individuals was actually used. Clients typically ticked the “travel” box on bank disclosure forms, even when they intended to stash funds in foreign bank or brokerage accounts.”
  • “Those wanting to buy real estate or make other large investments could pool quotas from friends and family in a process known as “antlike house moving” — named after the way ants can transport an entire colony by carrying one small piece at a time.”
  • “The Fed’s suspicion was sparked by a sharp rise of so-called travel spending among Chinese tourists.”
  • “Previously, official data showed the scale of Chinese travel spending was consistent with other middle-income countries. But in 2014 this spending became “anomalously high”, the Fed paper argued, with per-capita travel spending as a share of per-capita GDP reaching the same level as the UK — where per-capita GDP is seven times higher.”
  • “Zhang Zhiwei, chief China economist at Deutsche Bank in Hong Kong, acknowledged the possibility of disguised capital outflow but suggests another explanation: the wealth effect from rising house prices. ‘It’s hard to pin down how much comes from each factor,’ he said.”

Europe

WSJ – Daily Shot: Bloomberg & BMI – Select European Country NPL Exposure 6/26

India

FT – Trump’s India property empire hit by tax shake-up – Kiran Stacey 6/27

  • Come July 1, there will be a national goods and services tax that is implemented. In anticipation of this, many retailers and developers are pushing their products through discounts prior to the deadline.

 

June 7, 2017

If you were to read only one thing…

WSJ – Chinese Banks Face Up to Funding Squeeze – Anjani Trivedi 6/5

  • “Household deposits—long the backbone of China’s economy, funding inexorable loan growth—are fleeing: Around 1.2 trillion yuan ($176 billion) left the banking system last month. Meanwhile, growth in corporate deposits has slowed, reducing the rise in deposits overall to a crawl.”
  • “The exodus is proving a double whammy for China’s banks. Not only are they losing a stable source of funding, they are also bearing the brunt of higher costs to raise cash as financial conditions tighten.”
  • “Much of the money pulled out of conventional deposits is being invested in the rapidly multiplying population of investment funds, which offer higher rates. Yu’e Bao, run by Alibaba-backed Ant Financial, has become one of the world’s biggest money-market funds—with $165 billion under management—offering investors a 7-day annualized rate of over 4%.”
  • “Ironically, it and other funds are achieving such returns by investing in financing tools issued by banks. When China liberalized deposit rates in 2015, banks started churning out new investment products, including so-called negotiable certificates of deposit. Issuance of these short-term products in April totaled $180 billion, up 60% from a year earlier. Their relatively high rates—up to 4% or 5%—have made them attractive to money-market funds like Yu’e Bao.”
  • “But the upshot for banks is that stable deposits on which they pay just 1.5%—the benchmark rate—are being converted into flighty funds on which they must pay up to 5%. And even this source of funding may dry up. Last month, Yu’e Bao capped the size of new investments, likely under pressure from regulators alarmed at its rapid growth.”

Perspective

FT – Beer sales slide as global alcohol consumption falls – Scheherazade Daneshkhu 6/3

  • “The global market for alcoholic drinks contracted 1.3% last year, which was steeper than the average fall of 0.3% in the previous five years, according to figures from the International Wine and Spirits Research, the London-based industry group.”
  • “Alexander Smith, editor of IWSR magazine, said the drop was surprising given an improving global economy and the usually close correlation between global growth rates and drinking alcohol.”
  • “Global gross domestic product rose 3.1% last year, according to the International Monetary Fund, which forecasts a further improvement to 3.6% this year.”
  • “Beer sales fell 1.8%, compared with a five-year average decline of 0.6%. This was mainly because of weakness in China, the world’s biggest beer market by volumes, though sales in other large beer markets, such as Brazil and Russia which have both been in recession, were down.”
  • “In the US, ‘2017 is shaping up to be the worst year for beer volumes since 2009, when total industry volumes were down 2%’, according to Trevor Stirling, analyst at Bernstein.”
  • However, “the IWSR said it expected the alcohol industry to return to growth this year, predicting a rise in consumption of 0.8% until 2021, driven by whisky.”

Worthy Insights / Opinion Pieces / Advice

The Irrelevant Investor – Satisfaction Yield – Michael Batnick 6/6

  • “The utilitarian benefit of two investments are identical when they yield an identical return, but the satisfaction yield, reflecting expressive and emotional benefits, varies by the paths of identical returns.”
  • “The fact that the return of principal under different scenarios can evoke such different emotions tells us a lot about why investor behavior is the most important factor in determining success or failure.”

Real Estate

WSJ – Daily Shot: Wells Fargo – Origin of Foreign Capital buying US Real Estate 6/5

Bloomberg – Americans Are Pouring Money Into Their Homes Like It’s the 1990s – Vince Golle 6/6

Energy

Bloomberg – ‘Gas Apocalypse’ Looms Amid Power Plant Construction Boom – Naureen Malik and Brian Eckhouse 5/23

  • “The Marcellus Shale formation has added lots of supply to a major power grid, but demand is growing slowly.”

NYT – The Biggest, Strangest ‘Batteries’ – Diane Cardwell and Andrew Roberts 6/3

Africa

NYT – Nigeria’s Afrobeats Music Scene Is Booming, but Profits Go to Pirates – Dionne Searcey 6/3

  • “Artists across the world battle illegal sales of their work. But Nigeria’s piracy problem is so ingrained that music thieves worry about rip-offs of their rip-offs, slapping warning labels on pirated CDs to insist that ‘lending is not allowed.'”

Canada

FT – Toronto house price fall signals market is cooling – Ben McLannahan 6/5

  • “According to sales data released on Monday by the Toronto Real Estate Board, the average sale price for all home types in the Greater Toronto Area was C$863,910 ($640,674) in May, a drop of 6.2% from C$920,791 in April. The number of home sales fell by 12% over the month, while listings were up 19%.”
  • “Talk of tackling rapid price appreciation appears to have ‘changed market psychology’, said Jean-François Perrault, chief economist at Scotiabank in Toronto. ‘The benefits of holding on to a property, if you’re a speculator, have probably peaked. I think we’re moving to a healthier market.’”
  • A change from one month to the next does not make a trend. Keep your eye on this.

China

Economist – A provincial shuffle shows the power of China’s president 5/27

WSJ – Here’s How a Chinese Tech Firm Borrowed $2.1 Billion in a Hurry – Ryan McMorrow 6/3

  • “LeEco, a catchall name for a variety of businesses controlled by the internet tycoon Jia Yueting, poses little threat by itself to China’s financial system. But a review of the company’s finances shows the extent of the opaque ways Chinese firms can use to raise money — and how failures could ripple through the system.”

FT – China’s new graduates hit by falling wages – Tom Hancock 6/4

India

FT – India Inc walks a banking tightrope – Simon Mundy and Amy Kazmin 6/4

  • “A wave of defaults by struggling infrastructure companies, and others that borrowed heavily during much of the past decade, has left India’s public-sector banks saddled with a huge and growing bad loan burden that represents one of the most serious long-term threats to the country’s economic growth.”
  • “Even after the 1990s liberalization that allowed the entry of new private-sector banks, the state-owned lenders still hold more than two-thirds of banking sector assets. Impaired loans now account for 17.8% of assets, and well over 20% at several banks. As these banks now reel under the weight of $186bn in stressed assets, loan growth in the country has fallen dramatically, to 5.1% in the financial year ending in March — the slowest pace for 63 years — while corporate investment fell in three out of four quarters last year.”

South America

Economist – Bello: Argentina’s new, honest inflation statistics 5/25

  • “The end of bogus accounting.”

Other Links

BBC – How air conditioning changed the world – Tim Harford 6/5

May 17, 2017

If you were to read only one thing…

Economist – Sorry, we’re closed: The decline of established American retailing threatens jobs 5/13

  • “Consumer confidence is strong and unemployment is at its lowest level in a decade, yet S&P Global Ratings expects retailing defaults this year to surpass those in 2009 when the economy was in the depths of a recession.”
  • “The total amount of capital, both debt and equity, supporting American retailing (excluding Amazon) now exceeds $2.5tn, according to The Economist’s tally.”
  • Further, “the retailing industry employs 15.9m people, accounting for one in nine American jobs.”
  • Mr. Mathrani (Sandeep Mathrani, head of GGP one of the world’s largest mall real estate investment trusts) reckons that, for shopping centers to match demand, 30% of space should close permanently. In one particularly gloomy scenario, all retail property would shrink by as much. If staff dropped by the same proportion, 4.8m would be at risk of the sack—around half the number of American jobs lost during the financial crisis.”
  • “Retailing accounts for at least one in ten jobs in every American state. Not since the decline of manufacturing began in the 1980s has an industry with so many workers faced such a profound shift.”
  • “Across the world, 192m retailing jobs are threatened by automation, according to estimates by the Eurasia Group, a consulting firm.”
  • “Retailing jobs surpassed those in manufacturing 15 years ago and now exceed them by 28%. Wages may be low for salespeople—$13 an hour on average. Nevertheless, a job in retailing is a reliable way for those with little training to earn money. Just 20% of shop workers have a university degree.”
  • How does this relate to e-commerce? “For every percentage-point increase in their share of e-commerce sales, a retailer’s margins shrink by about half a point, according to estimates by Morgan Stanley, a bank.”
  • “The result is that America’s rich landscape of shops now looks like a dangerous glut.”
  • “Department stores’ floor space has contracted by 11.5% since 2006, but sales have shrunk more than twice as fast, according to Green Street Advisors, a real-estate research firm. To reach the inflation-adjusted sales productivity of 2006, at least another 800 department stores would need to close, reckons D.J. Busch at Green Street.”
  • “Even that might not solve retailers’ problems. Shutting unproductive stores is fraught with peril: shops risk losing their customers to competitors, both online and off. Karen Hoguet, Macy’s chief financial officer, has noted that when a chain closes a store in a particular area, online sales in that region often drop, too.”
  • “The Economist has calculated what might happen to retailing workers (excluding those who work in car and fuel sales), if e-commerce grows as Cowen expects. Assuming that employment in stores rises or falls with changes in those stores’ sales, and that labor productivity improves at historical rates, retailing jobs could shrink by 12%, or 1.5m jobs, by 2022. If e-commerce’s share of sales is 50% greater than what Cowen expects, employment could fall by 17%.”
  • “This slow melt has so far attracted little attention from politicians, despite jobs in retailing outnumbering those in coal mining, which has caught the political eye, by a factor of 300.”

Perspective

WSJ – Amazon’s 49,000% Gain: The Most ‘Super’ of ‘Superstocks’ Since 1926 – Jason Zweig 5/16

  • “From 1926 through 2015, only 30 stocks accounted for one-third of the cumulative wealth generated by the entire U.S. stock market; Amazon was one.”
  • “That’s 30 out of a grand total of 25,782 companies that were publicly traded over that period.”

Economist – Courting trouble: Why Trumponomics won’t make America great again 5/13

Economist – Citizen Kushner: Donald Trump’s family and a controversial visa scheme 5/11

Markets / Economy

Bloomberg Intelligence – The fall (and rise) of active management – Eric Balchunas and Sean Casey 5/12

FT – Pimco dims US inflation target after ‘noticeable softening’ – Adam Samson 5/15

Real Estate

WSJ – Fewer Home Builders Means Happier Home Builders – Justin Lahart 5/15

  • “One reason behind optimism among housing construction companies is there is less competition among them, which has limited supply.”

Energy

WSJ – The Real Winner From Oil Supply Cuts – Spencer Jakab 5/15

  • “The most surprising result of the anticipated deal among big oil producers to extend supply cuts might be that the U.S. re-emerges as the world’s biggest oil producer.”
  • “The ultimate free-rider on Saudi sacrifice is nimble U.S. shale. So much capital is now being deployed that the U.S. may become the world’s top oil producer by 2018, topping Russia and Saudi Arabia.”
  • “U.S. production of oil peaked almost a year after the crude bear market started, reaching 9.61 million barrels in June 2015. After dropping below 8.5 million by last summer, the old record may be exceeded in a matter of months. The U.S. Energy Information Administration recently updated its forecast and expects U.S. production to average 10 million barrels a day next year. Russia currently produces 10.3 million barrels and Saudi Arabia 9.95 million. If related liquids are included then the U.S. has been the top global petroleum producer since 2013.”

Asia – excluding China and Japan

Economist – Pluralism in Indonesia: An unfair trial leaves Chinese-Indonesians feeling vulnerable 5/13

China

Economist – A sorry tale: A migrant worker’s story of her travails is a huge hit in China 5/11

India

Economist – State of disrepair: India needs to curb borrowing by profligate state governments 5/11

South America

Economist – Bello: Venezuela’s crisis spills over 5/11

  • “Latin America wakes up to its biggest headache.”

March 31 – April 6, 2017

Increases in 401(k) leakage do not bode well for US retirements. Australian house price bubble. The hard facts about coal.

Headlines

NYT – Venezuela Muzzles Legislature, Moving Closer to One-Man Rule 3/30. It’s been a few decades since a Latin American country has regressed into a dictatorship.

Bloomberg – Venezuelan Top Court Reverses Shock Ruling on Congress Authority 4/1. Well then they reversed the ruling “… after the nation’s top prosecutor, a Maduro ally, labeled the Supreme Court’s March 29 move unconstitutional.” There may be hope for Venezuela yet.

Reuters – Venezuela money supply up 200 percent in year, fastest rise on record 4/3. When coupled with declining output of goods and service, it means inflation – for “contrast, the United States’ money supply was up 6.4% in the same period.”

NYT – Within Hours, Plans for a Quiet Corner of China Send Home Prices Soaring 4/3. And just like that the county of Xiongxian was anointed. 

FT – Businesses stirred by new Indian alcohol curbs 4/3. The Supreme Court in India just banned alcohol sales within 500m of a national highway causing a vast number of business establishments (hotels, restaurants, bars, etc.) to reel.

FT – Xi’s crackdown on corruption is a boon to corporate China 4/3. The corruption crackdown is working and companies are finding that they are having to set aside less to cover the vig.

Special Reports / Opinion Pieces

Briefs

  • Yuan Yang and Xinning Liu the Financial Times highlighted Didi Chuxing’s existential crisis in China.
    • “Didi Chuxing may have defeated Uber, but China’s dominant ride-hailing platform is no match for the country’s local governments after being forced to gut its urban fleet to comply with regulations.”
    • “Didi is the world’s fourth-biggest private tech group with a $34bn valuation last September. It has raised more than $10bn from investors including Apple, who invested $1bn in the company last year.”
    • But… there is the issue of recent regulation from Beijing and Shanghai: “local cars, local drivers.”  Issue is that the majority of Didi’s drivers and especially the vast majority of its low paid drivers were migrants.
    • We’ve seen the model. Didi and Uber rely on marginalizing it’s drivers or losing its investor’s money, hence the push for autonomous cars to reduce its labor costs.
    • As the company put it “because our transportation capacity has been reduced recently, there may be some impact…on the chances of successfully hailing a ride and on waiting times, which Didi apologizes for.”
    • “Shaun Rein of China Market Research Group said: ‘The new measures have a serious impact on Didi’s business. It threatens their ability to grow because it’s hard to find drivers.'”
    • Hence, “in February Didi announced it was moving into high-end car-hailing services, a consequence of losing its pricing advantage against taxis.”
    • “Analysts say that the company has no choice but to go upmarket and look for other sources of growth.”
    • And of course, they have to be mindful that other cities are likely to implement similar regulations.
    • “Didi’s new direction is also likely to bring it into closer co-operation with the traditional taxi companies it once competed with, and even take it back to its roots as a taxi-hiring platform.”
  • The team at the Economist covered the global shortage in one commodity that most rarely think of – sand.
    • “India’s ‘sand mafia’ is doing a roaring trade. The Times of India estimates that the illicit market for sand is worth around 150bn rupees ($2.3bn) a year; at one site in Tamil Nadu alone, 50,000 lorryloads [truck loads] are mined every day and smuggled to nearby states. Gangs around the country frequently turn to violence as they vie to continue cashing in on a building boom.”
    • “Most of the modern global economy depends on sand. Most of it pours into the construction industry, where it is used to make concrete and asphalt. A smaller quantity of fine-grade sand is used to produce glass and electronics, and, particularly in America, to extract oil from shale in the fracking industry. No wonder, then, that sand and gravel are the most extracted materials in the world. A 2014 report by the United Nations Environmental Program (UNEP) estimates they account for up to 85% by weight of everything mined globally each year.”
    • “…Of the 13.7bn tons of sand mined worldwide for construction last year, 70% was used in Asia. Half was used in China alone, where the government estimates that it built 32.3m houses and 4.5m km (2.8m miles) of road between 2011 and 2015.”
    • “Sand often makes up the very ground that is built on, too. By virtue of dumping vast quantities of sand into the sea, Singapore is now over 20% larger than it was when it became independent in 1965.”
    • Thing is “sand may appear plentiful, but is in fact become scarce. Not all types are useful: desert sand is too fine for most commercial purposes (Qatar is a big importer and the Burj Khalifa skyscraper in Dubai was built using Australian imports). Reserves also need to be located near construction sites; as transportation costs are high compared with the price…”
    • “Substitutes for sand do exist. Mud can be used for reclamation, straw and wood to build houses, and crushed rock to make concrete. Asphalt and concrete can be recycled. Production processes will shift towards these alternatives as the price of sand rises…”
    • Further, select countries are seeking to do their part. “Reduced demand from Singapore might discourage illegal mining in nearby countries. Rising prices will eventually force developing-country builders to explore alternatives to sand. But without better law enforcement, high sand prices also make illicit mining more lucrative. Despite the damaging consequences, the sand mafia will continue raking it in for a while.”

Graphics

WSJ – Daily Shot: Employment in video-tape and DVD rental stores 3/30

Pew Research – Key findings about Puerto Rico – Jens Manuel Krogstad, Kelsey Jo Starr and Aleksandra Sandstrom 3/29

WSJ – Fed Sees Car Trouble Down South – Aaron Back 3/30

FT – Low oil price and currency controls hit Nigeria hard – Siona Jenkins 3/31

WSJ – Daily Shot: FRED – Loans and Leases, All Commercial Banks 4/2

Slowing credit growth in the U.S.

WSJ – Daily Shot: FRED – Commercial and Industrial Loans 4/2

WSJ – Daily Shot: FRED – Consumer Loans – Other and Automobile Loans 4/2

WSJ – Daily Shot: FRED – Real Estate Loans, All Commercial Banks 4/2

WSJ – Daily Shot: Vox – US Opioid Usage 4/2

WSJ – Daily Shot: Vox – US Opioid Prescription per capita 4/2

Visual Capitalist – How Much State Debt Rests on Your Shoulders? – Jeff Desjardins 4/3

WSJ – Daily Shot: John Burns Real Estate Consulting – US Annual Medical Costs 4/3

WSJ – Daily Shot: NY Fed – US Consumer Debt 4/3

WSJ – Daily Shot: NY Fed – US Consumer Debt by Age of Borrower 4/3

WSJ – Daily Shot: China Credit Boom 4/3

Featured

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

The Rising Retirement Perils of 401(k) ‘Leakage.’ Anne Tergesen. The Wall Street Journal. 2 Apr. 2017.

“American companies are trying to stop employees from raiding their 401(k)s, in an attempt to ensure that older workers can afford to retire and make room for younger, less-expensive hires.”

“Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.”

“‘Employers have done a lot to encourage people to save in 401(k) plans, such as automatically enrolling them. But there is a growing recognition that if the money isn’t staying in the system, the objective of helping employees reach their retirement goals isn’t being met,’ says Lori Lucas, defined-contribution practice leader at investment-consulting firm Callan Associates Inc.”

“Employees who grew accustomed to borrowing from their 401(k)s during the recession are tempted by the rising balances in these types of plans, which currently hold $7 trillion, up from $4.2 trillion in 2009, experts say.”

Further, when employees change jobs there is the temptation not to rollover their 401(k) balances.

“On average, about 30% to 40% of people leaving jobs to elect to cash out their accounts and pay taxes and often penalties rather than leave the money or transfer it to another tax-advantaged retirement plan, according to recordkeepers and economists.”

“Most plans also allow people to pull out their savings-after paying taxes and typically a penalty-for reasons including buying a home, preventing foreclosure, and paying medical bills and college expenses, something relatively few participants do annually. These are known as hardship distributions and the employee must demonstrate an ‘immediate and heavy financial need,’ according to the Internal Revenue Service.”

“Employees can also generally choose to borrow up to half of their 401(k) balance or $50,000, whichever is less, without having to state a reason. According to the Employee Benefit Research Institute, a nonprofit research group, 87% of participants are in plans that let them take 401(k) loans.”

“About a fifth of 401(k) participants with access to 401(k) loans take them, according to the Investment Company Institute, a mutual-fund industry trade group. While most 401(k) borrowers repay themselves with interest, about 10% default on about $5 billion a year, says Olivia Mitchell, an economist at the University of Pennsylvania’s Wharton School.”

“‘4019(k) plan leakage amounts to a worryingly large sum of money that threatens to undermine retirement security,’ says Jake Spiegel, senior research analyst at research firm Morningstar Inc. His calculations show that employees pulled $68 billion from their 401(k) accounts taking loans and cashing out when changing jobs in 2013, up from $36 billion they withdrew in 2004.”

Fears of bubble as Australian house prices surge. Jamie Smyth. Financial Times. 2 Apr. 2017.

“Australia’s house prices are rising at their fastest pace in seven years, igniting fears of an emerging property bubble and prompting regulators to crack down on risky bank lending.”

“New figures on Monday show residential property prices have increased 12.9% in the past 12 months, with prices in Sydney surging 18.9% – the fastest rate of growth in almost 15 years.”

“House prices in Sydney have more than doubled since the financial crisis hit in January 2009 while prices in Melbourne are up 92.4%. This has occurred despite sluggish consumer price inflation, tepid rates of business investment and economic growth.”

“Surging house prices are a concern for global regulators as they seek to prevent the asset price bubbles in an ear of ultra-low interest rates ushered in by the financial crisis in 2008. Regulators in Australia, Ireland, New Zealand and a host of other countries have introduced macroprudential rules in a bid to slow house price inflation.”

“In 2014 Australian regulators placed a 10% limit on growth in new lending to investors, a move that initially slowed bank lending to the buy-to-let sector. But a recent increase in lending to investors prompted regulators on Friday to issue new rules limiting the flow of ‘interest only’ mortgage lending by banks to 30% of new loans issued.”

“About 40% of new mortgages are issued on ‘interest only’ terms, under which borrowers do not have to pay back the principal of the loan for a specific period.”

“The regulator also placed limits on the volume of ‘interest only’ lending at loan-to-value ratios above 80% and flagged closer scrutiny of lending at loan-to-value ratios above 90%.”

More importantly, economists are pointing to the Australian tax system that needs some reform. Specifically “Australia’s system of ‘negative gearing’ provides investors with a tax break allowing them to claim as losses the financing and other costs of their rental properties against other income. The tax break has become so popular that 15% of the electorate have become buy-to-let investors.”

“Investor loans make up just over one-third of the A$1.49tn (US$1.13tn) residential property market, according to Australia’s prudential regulator.”

Reminds of me of the U.S. tax system before the Tax Reform Act of 1986 – when professionals of all sorts would invest in real estate simply for the sake of the tax write-off. If the property made money or went up, all the better. Easy to see how valuations can become disconnected from their fundamentals.
Alternative truths and some hard facts about coal. Nick Butler. Financial Times. 2 Apr. 2017.

The facts:

  • “The share of electricity production in the UK accounted for by coal fell to just 3.5% in the third quarter of 2016.”
  • “Worldwide, the number of new coal-fired power stations starting construction fell by over 60% in 2016.”
  • “Over-supply has pushed thermal coal prices down to half the level reached in 2010.”

At the same time

  • “Some 42,000MW of new coal-fired generating capacity was brought on stream in China last year and Beijing announced that coal consumption was set to rise by 19% over the next five years, despite rapid growth in the use of renewable sources.”
  • “In spite of extensive subsidies for renewables, 40% of electricity in Germany last year came from coal, leading to an increase in carbon emissions in 2016.”
  • “Across the world 50% of aluminum, 70% of steel and 40% of electricity are produced from coal.”

In the UK, regulation is systematically phasing out coal energy.  In Germany, there is enough political support from the Social Democratic party to keep coal use going.

“In the US, the main threat to coal is not environmental regulation but price competition from low-cost natural gas. Coal is the principal victim of the shale gas revolution and the revival of the shale industry will intensify that competitive challenge over the next decade.”

“China is the world’s largest user of coal (burning more than 50% of the global total) and is pursuing a serious policy of encouraging renewables and setting a ceiling on coal demand growth.”

“The biggest challenge and the most important factor in the global coal market is India.” While the country is serious about renewable energy initiatives, the country wants economic growth.  “The problem is that to grow, it needs the cheapest possible form of power on a large scale and for the moment that is coal. Nuclear, solar and wind will all contribute but coal is the pre-eminent source of supply and Indian imports will shape the world market.”

“Coal is plentiful and cheap and will be made cheaper still if US producers, under pressure from gas in their domestic market, export more.”

“Until the new sources of energy supply can beat the current low prices coal will remain the leading source of heat and power and will meet something like a third of the world’s energy needs. The proportion burnt in high efficiency, low emission plants will rise but that will remain a fraction of the total for the foreseeable future, not least because coal users cannot afford the upgrades necessary. Coal is the energy source of choice, through necessity, of the poorer half of the world.”

“Times may be tough for the industry, and the continued use of coal in sub-critical technology may be bad for the environment, but like it or not coal is not in free fall.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

 

A Wealth of Common Sense – The Dependability of Cycles 4/2

Bloomberg – People Are Paying to Work From Bars and Restaurants 4/3

FT – Active investing: a new hope 3/31

FT – Fed may start normalizing balance sheet later this year, Dudley says 3/31

FT – China’s Hollywood war chest threatened by poor ticket sales 4/1

FT – China cracks down on ‘financial ants’ smuggling cash to Hong Kong 4/1

FT – China’s Huishan tapped shadow banks as condition worsened 4/2

FT – China’s ‘bad banks’ thrive as alternative lenders 4/3

FT – Casino bosses will bet big to open Japan’s gaming industry 4/4

FT – Huishan saga exposes China’s tycoon finance risk 4/4

FT – Venezuelan bond sell-off accelerates as $2bn payment looms 4/4

FT – Cambodia scraps US military aid deal in latest snub to Washington 4/5

FT – Shanghai-listed shares have best day since August 4/5

FT – Middle Eastern oil producers still have strong hand 4/5

FT – Information asymmetry bedevils the oil market 4/5

MarketWatch – Americans are taking out the largest mortgages on record 4/5

NYT – Sears and Its Hedge Fund Owner, in Slow Decline Together 3/30

NYT – Stores Take Flight From Fifth Avenue in Manhattan 4/4

WP – The troubles at the American mall are coming to a boil 4/5

WSJ – Fed Sees Car Trouble Down South 3/30

WSJ – Why Americans Aren’t Spending Like They Used To 3/31

WSJ – If You Have 29 Credit Cards, You’re Probably a Millennial 3/31

WSJ – Buying a Home This Spring Will Be Hardest in Years 4/1

WSJ – Trouble Bubbling Under at Chinese Banks 4/3

WSJ – Why ECB’s Negative-Rate Policy Is Out of Order 4/3

WSJ – This Volatility Warning Has a Different Ring to It Today 4/3

WSJ – Macau Gambles on the High Rollers 4/3

WSJ – Economy Will Miss That New-Car Smell 4/4

December 23 – December 29, 2016

A review – how India and Indonesia have gone about chasing tax revenue. Global bond sales hit a record in 2016 led by corporations. US housing gains highlight the growing economic divide.

First, Happy New Year! 

Headlines

Special Reports / Opinion Pieces

Briefs

  • Yuan Yang and Sherry Fei Ju of the Financial Times highlighted how China city governments have collided with Didi over migrant drivers.
    • “China’s ride-sharing platforms face their biggest regulatory test so far after city governments in Beijing and Shanghai approved a policy of ‘local cars, local drivers’ on Wednesday.”
    • “Migrants from rural China constitute the core of the workforce for not only car-hailing apps but some of the country’s largest internet groups including Alibaba and Meituan-Dianping, all of which rely on low-paid drivers and couriers.”
    • “The regulations say you can be fined Rmb10,000 ($1,440) if you are discovered. But 99% of passengers don’t want us to be checked, or they wouldn’t be able to take taxis, so they won’t report us.” – Mr. Huang, a driver in Shanghai originally from Jiangsu
    • “About 40% of Beijing’s and Shanghai’s combined 43m residents are from outside the city, according to the cities’ statistics bureaus.”
    • “China has over 270m rural migrants who have moved to cities to seek a better livelihood. But they are kept under firm restrictions by China’s internal passport rules, the hukou system, under which people receive different benefits depending on whether they have an urban or rural registration and where they are registered.”
    • So two things: 1) you have a huge section on the economy that operates at an equilibrium that requires subsidized labor and investor losses in order to provide products at a price point where consumers will pay for them, and 2) there are millions of people that are forced into a “second-class” citizenship (with rights similar to those of illegal immigrants in the US) by a registration system that seeks to control migration patterns.  Think about it.
  • Tom Mitchell of the Financial Times covered how the lease renewals in Wenzhou have eased homeowner fears.
    • “In an announcement at the weekend, the land ministry said that 20-year residential property leases in the eastern city of Wenzhou would be automatically extended without charge, ending speculations that homeowners would face steep renewal fees equivalent to one-third of their property’s value.”
    • “Ever since Deng Xiaoping’s landmark economic reforms were introduced in the early 1980s, allowing people to buy land and property for the first time since the 1949 communist revolution, titles in the world’s most populous country have been limited by fixed-term leases.”
    • Wenzhou was the first to the fixed-term leases to expire – clearly garnering national and global interest.  Granted, the city is unusual with its 20-year leases versus the norm of 70-years; “the shorter leases were introduced in Wenzhou in the 1990s to make properties more affordable.”
    • The bigger issue at hand is the moral hazard that it represents. Presumably buyers believed that the government would come to their rescue at the end of their lease terms – probably the punters selling the units assured the buyers of the same – and low and behold, they did.  While the lease rollovers represent a huge revenue source for municipalities, actually letting market forces take hold would put many homeowners in dire straits when their leases expire.  Further such a course of action would send shivers across the country when all property owners suddenly realize how precarious their land tenures are… which of course would limit property appreciation – likely to send it down meaningfully, and so on and so forth.
    • To be sure the special case of Wenzhou “does not signal a final resolution of the issue.” The government is “studying a new law that would regulate lease renewals nationwide.”
  • Bruce Einhorn, Peter Pae, Jungah Lee, Kanga Kong, and Abhishek Vishnoi of Bloomberg Businessweek featured the current unrest in South Korea as the country seeks to rein in its corporate elite.
    • The recent impeachment of South Korean President Park Geun-hye and the scandal surrounding it has brought to the surface the anger and frustration “of a population struggling with the transition to a slow-growth era.”
    • “Economists expect South Korean gross domestic product this year to expand 2.7%, marking the first five-year period with growth below 3.5% since the 1950s. Manufacturers are suffering from the slowdown in China, South Korea’s top export market, and soft demand elsewhere. Export growth has declined in 21 of the past 23 months. Youth unemployment is 9.3%, in part because rigid labor laws discourage employers from hiring young graduates. ‘ Without some serious restructuring,’ says Emily Dabbs, an economist for Moody’s Analytics in Sydney, the outlook ‘is going to be quite weak.'”
    • “Monthly household incomes for urban salary and wage earners grew 1.7% in the third quarter from a year earlier. As recently as 2012, income growth regularly topped 5%.”
    • Worse, “many jobs are low-paying temporary positions without the insurance, pensions, and other benefits regular workers enjoy. Temporary employees, who make up one-third of the workforce, earn on average about 41% of what a full-fledged employee does.
    • “Since the end of military rule in the late 1980s, an unwritten social compact has allowed corruption among the political and corporate elite as long as ordinary Koreans enjoyed solid economic growth.”
    • This story line is being played out all around the globe…

 Graphics

WSJ – Paying to Lend: The Negative-Yield Story of 2016 – Richard Barley 12/27

wsj_lowest-closes-for-10-year-govt-bond-yields_12-27-16

WSJ – The Mystery of Japan’s Stagnant Wages – Anjani Trivedi 12/27

wsj_mystery-of-japans-stagnant-wages_12-27-16

WSJ – As Home Prices Rise, Flippers Make a Comeback – Kirsten Grind and Peter Rudegeair 12/28

wsj_house-flippers_12-28-16

WSJ – Daily Shot: FRED Declining US Homeownership Rate 12/28

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WSJ – Daily Shot: FRED US Home price growth vs. Wage growth 12/28

Doesn’t help that rents and home prices are outpacing wage growth

wsj_daily-shot_house-prices-v-incomes_12-28-16

WSJ – Daily Shot: FRED US Housing Cost Inflation 12/28

wsj_daily-shot_rent-inflation_12-28-16

WSJ – Daily Shot: Prescription Drug Price Inflation 12/28

Another place inflation has been taking off

wsj_daily-shot_prescription-drug-price-inflation_12-28-16

WSJ – Daily Shot: US Food Deflation 12/28

And a place where it is not

wsj_daily-shot_food-deflation_12-28-16

WSJ – Daily Shot: Declining Cost of Chinese Imports 12/28

wsj_daily-shot_cost-of-china-imports_12-28-16

WSJ – Daily Shot: Value of US Manufacturing Shipments 12/28

wsj_daily-shot_manufacturers-suffering_12-28-16

WSJ – Daily Shot: China Central Government Stimulus 12/28

As things are slowing down in China, the government has been stepping up its stimulus

wsj_daily-shot_china-govt-stimulus_12-28-16

WSJ – Daily Shot: China Private investment growth 12/28

While the private sector has been hitting the breaks

wsj_daily-shot_china-private-sector-investment-down_12-28-16

WSJ – Daily Shot: China 20yr Government Bond Yield 12/28

Doesn’t help that the cost of funds is jumping

wsj_daily-shot_china-20yr-govt-bond-yiedl_12-28-16

WSJ – Daily Shot: China AA+ Corporate Bond Yield (Index) 12/28

wsj_daily-shot_china-corporate-bond-yield_12-28-16

WSJ – Daily Shot: Family Incomes spent on childcare 12/28

I can relate to this.

wsj_daily-shot_childcare-costs_12-28-16

Comstock’s – California to Pay Billions More After CalPERS Cuts Assumed Rate – Romy Varghese 12/29

comstock_calpers-pension-requirements-12-29-16

Bloomberg Businessweek – Mapping the Growth of Disability Claims in America – Brendan Greeley 12/16

bloomberg_american-disability-claims-map_12-16-16

Visual Capitalist – These 5 Big Companies Control the World’s Beer – Jeff Desjardins 8/4

vc_these-5-companies-control-the-worlds-beer_8-4-16

Featured

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

How India and Indonesia are chasing tax revenue. Erwida Maulia and Kiran Sharma. Financial Times – Nikkei Asian Review. 25 Dec. 2016.

The Financial Times put together an interesting article on Indonesia’s and India’s efforts to increase their tax revenue base.

In Indonesia, they have “calculated that political stability and a dramatic drop in the tax rate could help to bring home an estimated 11,400tn rupiah ($851bn) parked overseas.”

To help repatriate this wealth, Indonesian President Joko Widodo has launched a massive tax amnesty campaign. “More than 10,000 people a day answered the president’s pitch in September: declare assets now and take advantage of a discounted tax rate – as little as 2% compared with 25% – and, in turn, be part of Indonesia’s future.”

The good news for some of this money is that “beyond the new low rates, the amnesty doesn’t require tax officials to trace the origins of the assets and it prohibits the disclosure of information, even to law enforcement.”

Granted, not everyone is happy about the repatriation. “The efforts to corral big assets unsettled Singapore, one of Asia’s leading financial centers, which is estimated to hold more than $200bn in assets for Indonesians. Account holders who notified financial institutions in Singapore that they would apply for the amnesty suddenly found the financial police involved. Singapore policy and the Monetary Authority of Singapore, the financial industry watchdog, had informed banks there to file suspicious transaction reports whenever anyone sought to participate in the amnesty.”

“According to financial sources, Singapore banks offered some of the wealthiest Indonesians better interest rates if they would declare but not repatriate their money.”

ft_assets-repatriated-to-indonesia_12-25-16

“As of December 19, 141tn rupiah had been committed for repatriation, just 14% of the target. The number of participants declaring assets, though, has been far more encouraging. From July to mid-December, there were 508,000 participants and a total of 4,035tn rupiah of assets declared, equal to 30% of the country’s gross domestic product.”

“While Indonesia has pursued a single, clear and well-publicized program to find hidden assets, India has launched a multi-faceted assault to find revenue in a country where only 1% of the 1.25bn population pays income tax.”

“It has made for a tumultuous year for nearly every Indian household.”

“From June to September, the government embarked on a much-publicized program for people to self-declare secret assets. The first such tax amnesty in nearly 20 years drew in a disappointing 673bn rupees ($9.93bn) from 71,726 people. Soon after, Modi (Prime Minister Narendra Modi) authorized raids of high-net-worth individual’s homes and offices.”

And then “November 8 was the game-changer. From midnight, the government declared a withdrawal of high-denomination notes, sucking out 86% of the currency in circulation by value from a predominantly cash economy. People were given until December 30 to deposit the banned notes into their bank accounts.”

ft_indias-currency-in-circulation_12-25-16

The affects are still being felt, especially as new notes have been slow in their roll out. “Former Prime Minister Manmohan Singh, an economist, said the national income could decline by 2%.”

ft_counterfeit-bank-notes-in-india_12-25-16

Hopefully it was worth it.

Bottom line, “sophisticated investors and wealthy families will always be searching for privacy and confidence in how their money is secured and governments will be hard pressed to keep pace. ‘Thinking of Indonesia in 1998 or India’s latest currency reforms gives you a good idea as to why people in these two countries want a safe place for their money,’ said Jason Sharman, professor of governance and public policy at Griffith University in Australia. ‘Offshore is often told as a story of greed, which it often is, but it’s even more a story of fear. Often justified fear.'”

ft_offshore-wealth-by-region-in-2015_12-25-16

Corporates lead surge to record $6.6tn debt issuance. Eric Platt. Financial Times. 27 Dec. 2016.

“The bond rally that dominated the first half of the year helped entice borrowers that issued debt via banks to take on just over $6.6tn, according to data provider Dealogic, breaking the previous annual record set in 2006.”

“Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest-rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.”

“While US government bond yields touched their low in July, the prospect of Mr Trump cutting taxes and injecting fiscal stimulus has accelerated a move higher in interest rates that some investors fear will make debt burdens harder to bear in 2017.”

“After touching a record low of 1.32% in July, the yield on the 10-year US Treasury – an important benchmark for corporate borrowing costs – has surged more than a percentage point to 2.57%.”

ft_global-bond-sales-2016_12-27-16

“With the universe of negative-yielding bonds touching almost $14tn at one point, money managers were willing to stomach lower returns. The year’s debt sales were buoyed by China and Japan-based issuers, up 23% and 30% respectively, from a year earlier.”

“Investors say they expect 2016 is likely to prove a high-water mark for debt issuance in this cycle, with the Fed forecast to raise rates further and question marks growing over the future of bond-buying programs from the BoJ and the ECB.”

Housing Gains Highlight Economic Divide. Laura Kusisto. Wall Street Journal. 27 Dec. 2016.

“The volatile housing market of the past 15 years is widening the divide between pricey urban and coastal areas and more affordable inland regions, creating large swaths of winners and losers based largely on geography.”

While the S&P CoreLogic Case-Shiller National Home Price Index is up 5.6% in the last twelve months through October, however, “adjusted for inflation, prices are still roughly 15% below the peak.”

“Much of the spoils have been concentrated on the high end. A study by Weiss Analytics, a housing-data firm, found homes in ZIP Codes where the median value is $500,000 to $1 million are now worth 103% more than they were 16 years ago, before a boom in the mid-2000s was followed by the worst housing crash since the Great Depression. Home prices in those areas have shot up 39% since the bust.”

“In ZIP Codes where the median home was worth $100,000 to $150,000, prices have risen 16% since the trough of the market and are now worth 24% more than they were in 2000.”

wsj_housing-markets-divide_12-27-16

Adding a political lens to this, “in counties that voted for Mr. Trump, home prices have been largely flat for the past 15 years, according to a county-by-county analysis of home values and voting patterns by real-estate tracker Zillow.”

“In January 2000, just before the housing market’s boom-bust cycle began, homes in counties that voted for Mrs. Clinton in 2016 were worth $36,000 more than those in the counties that voted for Mr. Trump, according to the Zillow analysis. Today, the gap stands at almost $97,000.”

“The difference is even starker in counties that changed how they voted in this election. In counties that swung for Mrs. Clinton, homes are worth about $147,000 more than homes in counties that swung for Trump.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Forget Rogue One, Disney Is Rebuilding the Entire Star Wars Universe 12/15

Bloomberg – It Was Going to Be the Year of the REIT 12/27

FT – Five industries under threat from technology 12/25

FT – Cristina Fernandez charged in Argentina corruption case 12/27
FT – Toshiba writedown warning revives financial stability fears 12/27

FT – China debt: long time coming 12/27

FT – Bond investors must accept low-for-long era is over 12/27

FT – US hits Russia with tough sanctions over election hacking 12/29

Investment News – Coming off a disastrous 2016, sales of nontraded REITs could bounce back in 2017 12/27

Naked capitalism – A Tale of Two Retirements: The Great Divide Between CEOs and Everyone Else 12/28

NYT – Growth of U.S. Population Is at Slowest Pace Since 1937 12/22

NYT – Obama Strikes Back at Russia for Election Hacking 12/29

WP – The Arctic is showing stunning winter warmth, and these scientists think they know why 12/23

WSJ – Italy’s Bank Rescue Is a Precarious Balancing Act 12/23

WSJ – Xi’s Power Play Foreshadows Historic Transformation of How China is Ruled 12/26

WSJ – The Real Story About Rising Home Prices 12/26

WSJ – Plain-Vanilla Real Estate Gains Clout With Chinese 12/27

WSJ – Aluminum Billionaire Planning Escape From China: Lawyer 12/28

WSJ – China’s Currency Drops But Pressure Still Builds 12/28