Tag: India

September 8, 2017

Perspective

WSJ – Daily Shot: US Auto Fuel Efficiency 9/7

NYT – An Enormous, Urgent Task: Hauling Away Harvey’s Debris – John Schwartz and Alan Blinder 9/6

  • “Of all the challenges that southeast Texas faces after Hurricane Harvey, few will linger longer or more visibly than the millions of pounds of debris already crowding curbs and edging onto streets. The cleanup, needed from northeast Houston’s neighborhoods to the wealthy suburbs southwest of the city, will take months and cost billions of dollars.”
  • “At the same time, Houston officials are asking residents to separate their Harvey-related waste into five piles: appliances; electronics; construction and demolition debris; household hazardous waste; and vegetative debris. A look at these streets suggested that few people seemed to be heeding the city’s pleas.”
  • “Other cities have been through this battle with a storm’s leavings. After floodwaters inundated East Baton Rouge Parish, La., last year, crews collected about two million cubic yards of debris. Superstorm Sandy, in 2012, led to about six million cubic yards of debris in New York State — the equivalent of four Empire State Buildings, according to the Federal Emergency Management Agency. Katrina left behind 38 million cubic yards. Getting the stuff gone is a long process. It was only last month that Baton Rouge finished the debris removal process it organized in the wake of last year’s flooding there.”
  • “In Houston, where city officials say that some eight million cubic yards of debris will need to be hauled away, collection is farther along in some neighborhoods than in others.”
  • “The job of deciding how to move these mountains has been left to county and local officials, who hire debris removal companies to help them dig out. FEMA will reimburse the local governments for 90% of the cost.”

Economist – How government policy exacerbates hurricanes like Harvey 9/2

  • “The bad news is that storms and floods still account for almost three-quarters of weather-related disasters, and they are becoming more common. According to the Munich Re, a reinsurer, their number around the world has increased from about 200 in 1980 to over 600 last year. Harvey was the third ‘500-year’ storm to strike Houston since 1979.”
  • In regard to encouraging less than desirable behavior, “the National Flood Insurance Program (NFIP) has been forced to borrow because it fails to charge enough to cover its risk of losses. Underpricing encourages the building of new houses and discourages existing owners from renovating or moving out. According to the Federal Emergency Management Agency, houses that repeatedly flood account for 1% of NFIP’s properties but 25-30% of its claims.”

Worthy Insights / Opinion Pieces / Advice

Economist – Lexington: Our columnist bids farewell 9/7

  • “After five years, which included reporting trips to 46 states, this Lexington offers some parting thoughts on American politics.”

Economist – How to provide a protein-rich diet to a growing population 8/31

  • “What goes onto people’s plates matters. So does what gets fed to animals.”

Markets / Economy

WSJ – Daily Shot: Goldman Sachs – Ownership of US equity market since 1945 9/7

NYT – Milestone for BMI: More Than $1 Billion in Music Royalties – Ben Sisario 9/7

  • “The organization, whose hundreds of thousands of members include stars like Taylor Swift, Ed Sheeran and Sting, announced on Thursday that it had $1.13 billion in revenue and distributed $1.02 billion in royalties during its most recent fiscal year, which ended in June. BMI and other performing rights organizations, like its rival Ascap, collect money whenever songs are played on the radio, streamed online or piped into a restaurant.”

Real Estate

Bloomberg Quint – India Trumps Hong Kong as No. 1 for Home-Price Gains in Asia – Pooja Thakur 9/6

  • But when you look at the last 5 years…

Finance

WSJ – Daily Shot: Global High-Yield (HY) Corporate Bond Issuance 9/7

Bloomberg – Bennett Goodman Builds $95 Billion Credit Machine – Nabila Ahmed, Sridhar Natarajan, and David Carey 9/5

China

WSJ – China’s Bad Banks Show It Still Has a Big Bad Loan Problem – Anjani Trivedi 9/7

  • “There are Chinese banks and then there are China’s bad banks. To understand just how worrying the country’s bad-loan problem has become, it’s worth taking a look at the latter.”
  • “China Cinda Asset Management , the second-largest of four asset managers set up in the 1990s to clean up China’s then already large pile of souring loans, is still at it two decades on, managing and restructuring distressed assets offloaded by banks. The company’s latest results offer a lens into the rapidly deteriorating asset quality in China, that’s at odds with the relatively rosy picture of China painted for investors by its near-7% growth and corporate profits that have surged to multiyear highs.”
  • “The current pace at which Cinda is acquiring distressed assets is far outpacing the rate at which it can dispose of these assets. That has pushed down the price at which it can sell bad-loan portfolios to close to 20 cents on the dollar from 30 cents this time last year. Its income from disposing bad assets dropped 64% on the year, with returns on restructured assets falling to 8.7%in the first half from 10.6% a year ago. Losses from impairments on its assets more than doubled in the first half, driven by a more-than 10-fold increase in provisions.”
  • “These trends suggest China’s bad-loan problem is rather more severe than investors would guess from looking at the big banks’ results: The likes of ICBC and Bank of China actually reported improving nonperforming loan ratios in the first half. One reason they were able to do so is that they have been offloading bad assets to the likes of Cinda, which picks up around 60% of its distressed assets from the big banks.”

Japan

Bloomberg – Japanese Companies Cut Bonuses, Pushing Overall Wages Lower – Yuko Takeo and Yoshiaki Nohara 9/5

Russia

FT – Russia seeks to close Ukraine’s window to the west – Jeffery Mankoff and Jonathan Hillman 9/6

  • “Last month, Russia completed a railway that bypasses Ukraine. The project was entrusted to a special military unit and completed a year ahead of schedule, underscoring its importance to the Kremlin. It is the latest of several Russian-led infrastructure projects that, coupled with the devastation wrought by the conflict with Russian-backed separatists in the Donbas region, risk turning Ukraine, historically a bridge between east and west, into an island.”
  • “Isolation from emerging east-west connectivity could be one of the most enduring and most damaging consequences of the war for Ukraine, one that both Kiev and its western partners need to pay more attention to overcoming.”
  • “A UN assessment in November 2014 found that 53 bridges, 45 road sections, and 190 railway facilities had been damaged. Altogether, infrastructure losses were estimated at $440m, and while some repairs have been carried out, funding constraints and security challenges have limited reconstruction.”
  • “For both sides in the conflict, altering patterns of trade and transit is a means of shaping Ukraine’s political and economic destiny. While military forces have destroyed critical infrastructure such as bridges and railways, the governments in both Kiev and Moscow are building new connections that will re-orientate trade flows.”

South America

WSJ – Daily Shot: Brazilian CPI YoY Change 9/7

  • “Brazil’s CPI was lower than expected, which solidified the expectations for another rate cut.”

September 5, 2017

Perspective

Howmuch.net – The Working Class Can (Not) Afford the American Dream – Raul 8/31

Howmuch.net – The Rising Costs of Sending Your Kids to a Private School – Raul 8/20

Howmuch.net – Status of US State Economies – Raul 8/15

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Why Private Equity Has $963 Billion in Dry Powder – Melissa Mittelman 8/31

  • “Investors give private equity managers their capital with the expectation that they’ll make it grow. But today these managers are sitting on a record $963.3 billion of dry powder, as they call money that they’ve raised but have yet to invest. The size of that pile, and the fact that it keeps rising, is making everyone antsy. A little dry powder is great if managers are holding out for better deals. But a lot can make for overly itchy trigger fingers, or can start to make investors wonder if there are cheaper ways to do nothing with cash.”

LA Times – Yes, ExxonMobil misled the public – Naomi Oreskes and Geoffrey Supran 9/1

NYT – To Understand Rising Inequality, Consider the Janitors at Two Top Companies, Then and Now – Neil Irwin 9/3

Bloomberg View – The Flaws in India’s Growth Model Are Becoming Clear – Mihir Sharma 9/3

  • “India has a way of confounding expectations. Analysts agreed that, months after Prime Minister Narendra Modi’s ill-fated decision to withdraw 86 percent of currency from circulation overnight, growth would bounce back. Economists polled by Bloomberg expected growth in the April to June quarter to be 6.5%; other estimates were even higher. So when the government’s official statisticians released the real number last week — 5.7% over the equivalent quarter of the previous year — there was general surprise, even shock.”
  • “India’s economy has been growing less and less healthy for awhile. GDP growth has now declined steadily for six straight quarters. This is a slowdown caused by factors deeper than the cash ban or any other temporary phenomenon. Something is broken in the Indian government’s policy mix.”
  • “…Government spending and low oil prices have deceptively boosted the growth numbers, masking the true state of the economy. In fact, if public spending is excluded, growth in the past quarter barely topped 4%. Export growth is terrible and industrial growth is the lowest in five years. And the government will struggle to keep investing at these levels; it started spending big unusually early in India’s financial year, which starts in April, and has already run through 93% of its budgeted fiscal deficit.”
  • “…Effective reform — and political will — is precisely what’s needed now. The government’s first task should be to clean up bad debts far quicker than it has so far — even if powerful people, including company owners, lose money in the process. Second: The government needs to stop chasing after foreign capital to replace shy domestic capital, if it means that the rupee stays high and exports struggle. And third: Officials must quickly fix those parts of the GST that are putting small companies and exporters out of business.”

Finance

Visual Capitalist – The Unparalleled Explosion in Cryptocurrencies – Jeff Desjardins 9/1

FT – University start-ups aim for the Facebook formula – Hugo Greenhalgh 8/31

  • Rather than watch their students leave University to pursue a worthwhile business start-up, Universities are getting in on the venture capital business seeking to support and nurture the talent within.

FT – Credit cards: dealing with delinquency – Lex 8/31

Tech

Fortune – Everything You Needed to Know About Overvalued Unicorns in One Chart – Anne VanderMey 8/24

Fortune – 5 Ways Businesses Are Already Using Blockchains – Jeff John Roberts – 8/21

Health / Medicine

NYT – The First Count of Fentanyl Deaths in 2016: Up 540% in Three Years – Josh Katz 9/2

  • “The first governmental account of nationwide drug deaths in 2016 shows overdose deaths growing even faster than previously thought.”
  • “Drug overdoses killed roughly 64,000 people in the United States last year, according to the first governmental account of nationwide drug deaths to cover all of 2016. It’s a staggering rise of more than 22% over the 52,404 drug deaths recorded the previous year.”
  • “Drug overdoses are expected to remain the leading cause of death for Americans under 50, as synthetic opioids — primarily fentanyl and its analogues — continue to push the death count higher. Drug deaths involving fentanyl more than doubled from 2015 to 2016, accompanied by an upturn in deaths involving cocaine and methamphetamines. Together they add up to an epidemic of drug overdoses that is killing people at a faster rate than the H.I.V. epidemic at its peak.“
  • “It’s an epidemic hitting different parts of the country in different ways. People are accustomed to thinking of the opioid crisis as a rural white problem, with accounts of Appalachian despair and the plight of New England heroin addicts. But fentanyls are changing the equation: The death rate in Maryland last year outpaced that in both Kentucky and Maine.”

Canada

WSJ – The Underappreciated Risks to Canadian Banks – Aaron Back 8/31

  • “Americans looking north to Canada see a housing market that echoes their own before the financial crisis. While there are substantial differences that make Canadian lenders more resilient, investors still should be on guard.”
  • “Canadian housing prices have been rapidly rising for years, prompting local governments in frothy areas to take draconian measures such as a 15% tax on foreign buyers.”
  • “It isn’t all foreign cash—Canadian debt levels also have soared. Last year its households had debt equivalent to 176% of disposable income, according to the OECD. That compares to 112% in the U.S., down from a 2007 peak of 144%.”
  • “Canada’s banks, however, are showing no signs of stress. The country’s six biggest lenders that dominate this highly concentrated market have just reported solid quarterly earnings. Mortgage delinquency rates are remarkably low, at only around 0.2%.”
  • “It helps that most Canadian mortgages are ‘full recourse’ loans, making it much harder for borrowers to default and walk away. Around half of the mortgages written by the big six banks are also insured, directly or indirectly, by the Canadian government.”
  • “Nonetheless, the risks are substantial. Unlike in the U.S., where 30-year fixed rates are the norm, the standard Canadian mortgage rate resets every five years. In July, Canada’s central bank raised rates for the first time in seven years. Analysts expect more hikes, especially after Canada reported strong 4.5% annualized gross domestic product growth for the second quarter. That will make regular debt payments even more burdensome for Canadian households.”

China

FT – Beijing’s uneasy deals with overseas car groups under strain – Charles Clover 8/31

  • “A spate of new foreign joint ventures in China’s car industry has revived debate about an often criticized three-decade-old policy of trading market access for technology.”
  • “This week, the Renault-Nissan alliance became the latest car group to sign a joint venture to produce electric vehicles with longtime partner Dongfeng Motor Corporation, based in Wuhan, following an announcement by Ford in August that it plans to partner with little-known Zotye Auto to make EVs.” 
  • “The Renault-Nissan Dongfeng partnership is significant because it goes further than other JVs and calls for the groups to share a common technological platform. It is not clear whether other overseas car groups will follow this course because of issues over trust on the sharing of technology.”
  • “The new EV joint ventures are part of a Chinese effort to master the technology for electric vehicles — and rely on a tried and tested model of working with the global car industry since the 1980s. In a nutshell, joint ventures are the only way for foreign groups to access the world’s largest and most lucrative market. China gives the overseas companies the right to sell cars in exchange for their technology, management expertise and a share of their profits.” 
  • “’China’s central planners said ‘how can we basically force global automakers to participate and bring their very best electric vehicle technology to China?’’ says Michael Dunne, president of Dunne Automotive, a Hong Kong-based car consultancy.” 
  • “Since 1984, starting with Jeeps, foreign carmakers have been allowed to produce cars in China — but only in concert with a local partner holding at least 50 per cent of the venture. In practice, this is almost always one of six anointed state companies.”
  • “The results of the three-decade-old policy have been mixed. Rather than transforming Chinese car companies into technology giants, the joint venture companies have arguably made Chinese carmakers complacent, according to Chinese policymakers. He Guangyang, a former minister of industry, controversially described the JVs as ‘like opium’ in an interview five years ago.”
  • “Bart Demandt of carsalesbase.com says this is a legacy of the joint ventures. ‘The state-owned companies, especially those which have 50/50 joint ventures with foreign automakers, have had little incentive to invest in their domestic brands as the profits have been pouring in from producing import-brand cars for their partners.’” 
  • “However, the Chinese government is still relying on this model, and recently set its sights on the nascent battery powered car industry. Last year it included EVs as one of 10 sectors that it wants to be internationally competitive by 2025 as part of a new industrial policy ‘Made in China 2025’.” 
  • “Foreign carmakers are wary of the new requirements and have pressed on China to delay the EV quotas by at least a year. But they have few alternatives. ‘The global automakers say ‘wow, this really has teeth, because if we want to grow in this market we don’t have a choice. There is no work around’,’ says Mr Dunne.” 
  • “The second prong of the policy is to pressure foreign carmakers to ‘localize’ their electric vehicle technology, meaning in practice to share it with their joint venture partners.” 
  • “Bill Russo, head of Gao Feng Advisory in Shanghai, calls this ‘a real game-changer for the multinational carmakers’.” 
  • “’They must comply with a new set of regulations for both component localization and credits for EV sales in order to be in the game. As carmakers will be required to pay fines if they are not selling EVs, they will be required to add EV production in order to sustain their existing business in China.’” 
  • “This has created fears that their proprietary technology could be stolen. Over the past two decades, foreign makers of everything from high-speed trains to fighter planes have licensed the technology to local Chinese partners only to find a few years later that their partner is a major international competitor.” 

FT – Anbang sells stakes in Chinese megabanks amid troubles – Gabriel Wildau 8/31

  • “Anbang Insurance Group, the Chinese conglomerate that captured global attention with splashy foreign acquisitions, sold stakes worth as much as $1bn in the country’s largest banks this year, as the company struggles with a sudden drop in premiums.”
  • “In May, China’s insurance regulator banned Anbang’s life insurance unit from selling policies for three months and accused the group of ‘wreaking havoc’ on the market with aggressive pricing.” 
  • “Anbang had relied on sales of high-yield investment products to fund foreign private-equity acquisitions as well as stakes in Chinese listed companies. Chinese investors flocked to so-called ‘universal insurance’, which combined high yields with short maturities and bore little resemblance to traditional insurance.” 
  • “But an industry-wide crackdown on universal insurance has caused premiums from such products to drop more than half in the first half of the year, according to data from the China Insurance Regulatory Commission. At Anbang, such premiums fell 98%, due in part to the CIRC ban.” 
  • “The sales of shares in China’s ‘big four’ state-owned commercial banks appear to suggest that, with cash inflows from product sales drying up, Anbang sold assets to meet payouts on maturing products. Anbang said the share sales did not reflect cash flow problems.” 
  • “Last month, a Chinese credit-rating agency downgraded Anbang’s Life Insurance, saying that ‘income has fallen substantially [and] the availability of debt financing is reduced’. The agency also noted that Anbang Life posted a net loss in the first half.” 
  • “Anbang dropped off the lists of the top 10 shareholders in three of China’s big four state-owned commercial banks in the second quarter, according to the banks’ financial statements released this week. In the fourth bank, Anbang also reduced holdings but remained in the top 10.” 
  • “Anbang is also not the only insurer to sell stakes in big banks in the second quarter. Ping An Insurance, the country’s largest insurer by assets, sold down in ICBC.”

NYT – As Bike-Sharing Brings Out Bad Manners, China Asks, What’s Wrong With Us? – Javier Hernandez 9/2

  • “There are now more than 16 million shared bicycles on the road in China’s traffic-clogged cities, thanks to a fierce battle for market share among 70-plus companies backed by a total of more than $1 billion in financing. These start-ups have reshaped the urban landscape, putting bikes equipped with GPS and digital locks on almost every street corner in a way that Silicon Valley can only dream of.”
  • “But their popularity has been accompanied by a wave of misbehavior. Because the start-ups do not use fixed docking stations, riders abandon bicycles haphazardly along streets and public squares, snarling traffic and cluttering sidewalks. Thieves have taken them by the tens of thousands, for personal use or selling them for parts. Angry and mischievous vandals hang them in trees, bury them in construction sites and throw them into lakes and rivers.”
  • “Such problems have raised questions about the sustainability of China’s bike-share boom. But the debacle has also led many Chinese to look for deeper explanations and ask if bike-sharing has revealed essential flaws in the national character, prompting a far-reaching debate about social decay and the decline of decorum and morality in the country.”
  • “Some say abuse of the bicycles reflects an every-man-for-himself mentality in China that has its roots in the extreme poverty of the last century. Others are bothered by what they see as a lack of concern for strangers and public resources. The transgressions have been chronicled in the local news media with a tone of disbelief, in part because Chinese generally see themselves as a law-abiding society and crime rates are relatively low.”
  • “In many cities, the supply of bicycles far exceeds demand, bringing chaos to sidewalks, bus stops and intersections and prompting grumbles that excessive competitiveness — seen as a national trait — is spoiling a good thing. In Shanghai, where officials have struggled to maintain order, there is now one shared bike for every 16 people, according to government statistics.“
  • “In some places, the authorities have confiscated tens of thousands of bicycles and imposed parking restrictions. News outlets have documented the waste with astounding images of mountains of candy-colored bicycles, each hue representing a different bike-share company.”

FT – China’s migrant workers feel pinch as Beijing pulls back on wages – Tom Hancock 9/3

Europe

Bloomberg Businessweek – Germany’s Housing Market is Red Hot, But Don’t Call It a Bubble – Stephan Kahl and Andrew Blackman 8/21

  • A different way of engaging with rising real estate values…

South America

Bloomberg Businessweek – Brazil’s Lost Decade: The Invisible Costs of an Epic Recession – David Biller and Gabriel Shinohara 8/21

  • “Once the emerging-market darling of Wall Street, Brazil’s economy went from growth of 7.5% in 2010 to shrink by virtually the same amount in the last two years. Unemployment has risen to a near-record high, GDP per capita fell to 2009 levels and the budget deficit is hovering around 10% of GDP. There is no sign the Latin American giant will recover its investment-grade status any time soon.”
  • Fortunately…

FT – Brazil ends worst recession as GDP expands for second straight quarter – Joe Leahy 9/1

  • “Brazil’s gross domestic product expanded for the second consecutive quarter in the three months ended June, officially ending the worst recession in Latin America’s largest economy.”
  • “GDP grew just 0.2% in the quarter compared to the first three months of the year and 0.3% compared with the same quarter a year earlier, the state statistics agency, IBGE, said.”

August 31, 2017

Perspective

WP – A close-up view of the flooding in Houston – Denise Lu, Aaron Williams, Dan Keating, Jack Gillum and Laris Karklis 8/29

WSJ – Harvey’s Test: Businesses Struggle With Flawed Insurance as Floods Multiply 8/29

WSJ – Harvey Makes Landfall in Louisiana as Waters Keep Rising in Texas – Russell Gold, Dan Frosch, Ben Kesling, and Christopher Matthews 8/30

Worthy Insights / Opinion Pieces / Advice

FT – Five charts show why millennials are worse off than their parents – Lauren Leatherby 8/29

Markets / Economy

WSJ – Daily Shot: Tracy Alloway – Major Bubbles Since 1990 vs Bitcoin 8/30

Real Estate

Freddie Mac: What is Causing the Lean Inventory of Houses? – July 2017

  • “The price of land (acquisition and preparation for construction) has risen more rapidly than the price of the structures built on the land. This trend has driven up the share of land cost as a proportion of house price. Since the cost of land is largely a fixed cost in a building project, the increase in the cost of land tends to make entry-level housing less profitable and thus tilts development toward higher-end housing.”
  • “Over the last three decades, land-use regulations have become more burdensome in the U.S., making developable land costlier. As an example, in areas with strict land-use regulation, builders face long delays in obtaining permit approvals. In New Orleans, where regulation is relatively lenient, permit approval is received in 3.5 months on average. In Honolulu, where regulations are particularly strict, permit approval takes around 17 months on average. The 2016 White House Report on land use regulation argues that lengthy approval processes have reduced the ability to respond to growing housing demand in many markets.”

China

FT – Credit default swaps are storing up trouble for China – Joe Zhang 8/29

  • “The China Financing Guarantee Association, a quasi-governmental body that regulates the guarantee companies (in other words, the issuers of the swaps), says it has 194 member institutions, though their ranks have thinned in recent years. Many guarantee companies have simply not bothered to become members of this club.”
  • “In a parallel with the American obsession with home ownership that led to the formation of Fannie Mae and Freddie Mac, the federal housing finance agencies, the Chinese government has in the past few decades done its best to promote small and medium-sized enterprises by providing them with credit guarantees. Tens of thousands of state-owned, private and hybrid guarantee companies have come into being.”
  • “And just like Fannie Mae and Freddie Mac, China’s guarantee companies are all thinly capitalized. This is due partly to the misconception that a third-party guarantee is sufficient for SMEs to tap commercial credit.”
  • “Mispricing in China’s CDS market is severe and chronic. The guarantee companies typically charge only 2-3% to the borrowers, but assume the full risk of their loan delinquency. When the economy was growing fast, from the 1980s through to the early 2010s, these guarantee fees seemed like manna from heaven — so much free money. But when the economy began to slow from 2012 onwards, default rates rose, and many guarantee companies disappeared.”
  • “Unlike CDS in the US, credit guarantees in China have the following deficiency: usually, they cannot be traded. Some observers argue this is probably an advantage for the industry because it forces deal originators to ‘eat what they cook’, minimizing irresponsibility and recklessness in their origination process.”
  • “It is estimated that the total size of China’s market for such instruments is more than $500bn, excluding the credit enhancement these guarantee companies provide to SMEs’ bond sales and asset-backed securities. But no one knows the size of the market for sure.”
  • “Why should this story be of interest to the Chinese public and, indeed, to outside observers? Because it is key to understanding the strange longevity of China’s credit bubble.”
  • “It is true that the country’s credit market is far too big, but against the doomsday scenarios some analysts have painted, it has refused to burst because of the many non-bank financial institutions that have served as plumbers for the banks.”
  • “China’s economic slowdown in the past five years has decimated its microcredit sector and, to a lesser extent, the trust companies. Their destruction has also helped shield the commercial banks.”

India

Bloomberg Quint – RBI Annual Report: 99% of Demonetized Currency Returned – Ira Dugal 8/30

  • “Indian citizens deposited almost all the currency that was scrapped during demonetization, shows data released by the Reserve Bank of India (RBI) as part of its annual report. The government’s abrupt decision to withdraw legal tender status for Rs 500 and Rs 1000 notes, announced on November 8, 2016, was intended to extinguish so-called black money from the economy and curtail the problem of counterfeit notes. The fact that almost all the scrapped currency has been returned puts paid to both those arguments.”
  • “According to the report, specified bank notes (SBNs), or notes that were demonetized, worth Rs 15.28 lakh crore had been received as of June 30, 2017. When demonetization was announced, the currency in circulation stood at Rs 17.97 lakh crore. 86% of this, or Rs 15.45 lakh crore, was rendered invalid by demonetization.”

August 30, 2017

Perspective

WSJ – Daily Shot: Houston is on some the nation’s least absorbent soil 8/29

Worthy Insights / Opinion Pieces / Advice

NYT – Harvey, the Storm That Humans Helped Cause – David Leonhardt 8/29

FT – A happier Japan is a concern for investors – Leo Lewis 8/28

  • “A record 74% of Japanese are satisfied with their lives, and, for the first time in two decades, a majority are content with their income, says a Cabinet Office survey.”
  • “The trouble with all this reported satisfaction, from a market point of view, is that it has happened too early.”
  • “One of the biggest fears is that a too-easily-pleased Japan will lose its hunger for serious reform and salary increases after a couple of years of superficial tinkering. That would undermine many of the big thematic investment cases that have been in place since 2013 — corporate governance reform, womenomics, unwinding of cross-shareholdings and inducing Japanese households to take more investment risk.”
  • On top of that Japanese corporates are basking in the limelight again. “The danger is that, in the glow of public satisfaction they are tending back to the investor-repellent habit of hoarding cash away from the pockets of both their shareholders and employees.”

FT – China’s tech groups are building too much power – Henny Sender 8/28

  • “There is no Silicon Valley comparison to the dominance of Alibaba and Tencent.”

Markets / Economy

FT – US home ownership fall hits young and minorities hardest – Lauren Leatherby 8/28

Energy

WSJ – Harvey’s Lessons for America’s Stretched Energy Infrastructure – Spencer Jakab 8/28

  • “For more than 40 years, the U.S. has worried about the security of its oil supply. Hurricane Harvey is another reminder that the infrastructure that processes and delivers oil is in many ways more important.”
  • “The U.S. has 141 operable oil refineries today, which is 79 fewer than 30 years ago. Those refineries have nearly 30% more capacity and are used much more heavily, about 90% on average over the past 12 months. The heaviest concentration is along the Gulf Coast where the industry has deep roots and has been allowed to expand. Harvey has temporarily knocked out about 15% of U.S. refining capacity.”

Finance

FT – Wall St’s top bankers sell own groups’ shares as Trump rally reverses – Ben McLannahan 8/27

  • “Wall Street analysts have been urging investors all year to buy stocks in the big US banks. But Wall Street itself is not listening.” 
  • “Executives and board members at the top six US banks have been consistent sellers of their own banks’ shares this year, according to an Financial Times analysis of disclosures tracked by Bloomberg.” 
  • “Insiders at the big six banks by assets — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley — have in total sold a net 9.32m shares on the open market since the turn of the year. Even excluding Warren Buffett’s big dumping of shares in Wells in April, to avoid tripping over rules capping ownership by a non-bank, sales by insiders outnumber purchases by about 14 to one.” 
  • “That is an unusually long streak of net sales, across each of the big six. Last year, for example, insiders at JPMorgan, Citigroup and Bank of America bought more shares than they sold.”

Environment / Science

FT – Blue dogs of Mumbai expose poor pollution controls – Simon Mundy 8/28

  • “Roaming packs of stray dogs are an established part of the landscape of Taloja, an industrial district to the north-east of Mumbai. But when a group of them turned blue this month, environmental activists sounded the alarm at this vivid evidence of industrial failure to adhere to proper standards of pollution control.”
  • Photo from National Geographic
  • “Investigation of the phenomenon by Mumbai’s pollution control board (MPCB) led it to a more prosaic explanation: the dogs had wandered into the grounds of a factory run by Ducol Organics, a local paint and plastic producer.”
  • “The outcry over the colored dogs reflects rising concerns about pollution in India. A study in February by the US-based research group Health Effects Institute found that India was poised to overtake China as the country with the most deaths caused by air pollution.” 
  • “A study this year by researchers at the Indian Institute of Technology in Mumbai estimated premature deaths due to air pollution in Mumbai rose 62% to 32,014 between 1995 and 2015, outstripping the 41% population increase in the same period.”
  • “In New Delhi — which according to some estimates has the worst air of any major city in the world — the estimated death toll rose 147%, to 48,651.”

Economist – Louisiana fights the sea, and loses 8/26

  • “Between 1932 and 2010 the state [Louisiana] lost more than 1,800 square miles (470,000 hectares) of land to the sea, representing about 80% of America’s coastal erosion over the period. Recent losses have been especially severe because of an increase in big storms raging in from the Gulf of Mexico—such as Hurricane Katrina, in 2005, which led to the inundation of New Orleans and 1,836 deaths. Between 2004 and 2008 alone, Louisiana shrank by more than 300 square miles.”
  • For reference to the Hawaii readers, Oahu is 597 square miles and Maui is 727 square miles.
  • “According to a new report by RAND Corporation, a think-tank, infrastructure in the state worth up to $136bn could be threatened by land loss and increased storm damage, a related threat.”
  • “Starved of silt, and with less new organic matter to counteract its settling, coastal Louisiana is sinking back into its former watery state. Meanwhile, because of melting polar ice caps and thermal expansion, the sea level is rising. In the past decade the observed relative sea-level rise in coastal Louisiana—a figure that combines the effects of rising seas and subsiding land—was over a centimeter a year, or around four times the global average. The delta’s system of land creation has thus been thrown into reverse. In 1930, despite much engineering of the Mississippi’s channel, Louisiana was expanding by almost a square mile a year. Since then, an area the size of Delaware has been lost to the Gulf.”
  • One of the principal causes is due to the levees established by the Army Corps of Engineers along the Mississippi river to protect the flood basins back in the day. Trade-offs…
  • “The damaging effect of the levees was predicted. Weighing the benefits of engineering the Mississippi in 1897, a former president of the American Society of Civil Engineers, E.L. Corthell, noted the need to take into account ‘withholding by the levees…of the annual contributions of sedimentary matters” and, because of this, ‘subsidence of the Gulf delta lands below the level of the sea and their gradual abandonment.’ But while he warned that “the present generation should not be selfish,’ Mr Corthell assumed the economic benefits of protecting the flood zone would ‘be so remarkable that people of the whole United States can well afford, when the time comes, to build a protective levee against the Gulf waters.’”
  • “That illustrates two related weaknesses in much environmental policymaking: an assumption that future politicians will take a longer-term view than current ones, and an excessive willingness to discount the future costs of solving environmental problems caused today… In any event, it is doubtful such a scheme would be affordable or otherwise practical, considering the effects of rising sea levels and fiercer storms, both consequences of global warming…”

Britain

WSJ – Daily Shot: Datastream – UK Household Savings Ratio 8/29

  • “UK’s households are struggling. With real wage growth in negative territory, the household savings ratio is collapsing.”

China

WSJ – Evergrande’s Ever More Risky Bet on Chinese Housing – Jacky Wong 8/28

FT – China orders videotaping of retail investment sales – Tom Mitchell 8/29

  • “China’s banking regulator has issued new rules requiring financial institutions to make video and audio recordings of all investment product sales, saying they were needed to ‘further regulate market order and protect customer rights’.” 
  • “The recordings will also help state-owned banks and the government fend off compensation demands from retail customers when their investments turn sour.” 
  • “’If investors make irrational choices after sales staff have clearly explained the risks, then they will have to accept the consequences,’ said Zhao Xijun, a finance professor at Renmin University in Beijing. ‘In the event there is a dispute, the recordings can be used as evidence’.” 
  • “The new surveillance rules issued by the China Banking Regulatory Commission require financial institutions to preserve the recordings for six months after the relevant investment product has expired. Banks are also not allowed to market investments to customers who refuse to be recorded.” 
  • “The value of outstanding [Wealth Management Products] WMPs has soared from Rmb4.6tn ($690bn) at the end of 2011 to Rmb29tn last year, according to data from Wind Information. But year-on-year growth moderated in 2016 to 23%, compared to a 56% increase in the value of outstanding WMPs in 2015.” 
  • “Data for the value of WMP products sold this year are not yet available. In volume terms, Chinese financial institutions sold 43% more WMP contracts through August 25 compared to the same period a year earlier.” 

FT – Huarong chief warns of bubble in China’s distressed debt market – Don Weinland 8/28

  • “Bubbles in credit and real estate have led to a steady flow of bad debt in China for years. But now a bubble is forming in the market for the bad loans themselves, says the chairman of China’s largest state-controlled ‘bad bank’.”
  • “Banks in China are dealing with an onslaught of non-performing loans that have resulted from poor risk controls and years of loose monetary policy. Investors estimate that China’s stock of bad debt has risen to $3tn this year, in step with a decelerating economy. One prominent analyst said recently that the figure could be as high as $6.8tn.”
  • “As the pool of bad assets rises, so too has the number of Chinese investors willing to chase after bad debt portfolios.”
  • “But many of the newcomers had little experience investing in distressed debt and were pushing up prices for the assets at auctions, said Lai Xiaomin, chairman of China Huarong Asset Management, and a deputy to the 12th National People’s Congress.”
  • “Inexperienced investors presented the risk of creating new losses while also failing to resolve troubled loans, he said.”
  • “China has experienced steady deregulation in how distressed debt is bought and sold since the industry was launched 18 years ago.”
  • “Huarong, along with three other centrally controlled asset managers, was created by the ministry of finance in 1999 to absorb perilously high levels of bad debt from China’s largest commercial banks. At the time, the government directed banks to transfer $1.4tn to the four groups.”
  • “Since then, the asset managers have greatly expanded their businesses in China and globally, operating more like investment banks than bad debt investors. Huarong went public in Hong Kong in late 2015.”

India

Economist – Undue reverence for company founders harms Indian firms 8/26

August 18, 2017

Perspective

FT – Over $9tn of bonds trade with negative yields – Eric Platt 8/16

  • “Along with central bank interest rate cuts — including setting unprecedented negative rates in Europe and Japan — the bond-buying programs explain why $9tn still trades with a negative yield, and why sub-zero rates are a reality that investors likely have to contend with for years to come.”

Tax Foundation – Which States Benefit Most from the Home Mortgage Interest Deduction? – Amir El-Sibaie 8/10

WSJ – Daily Shot: The New Right-Wing Extremism: Unified, Tech-Savvy and Emboldened – Dan Frosch, Cameron McWhirter and Ben Kesling 8/16

Worthy Insights / Opinion Pieces / Advice

Economist – The death of the internal combustion engine 8/12

  • “…electrification has thrown the car industry into turmoil. Its best brands are founded on their engineering heritage—especially in Germany. Compared with existing vehicles, electric cars are much simpler and have fewer parts; they are more like computers on wheels. That means they need fewer people to assemble them and fewer subsidiary systems from specialist suppliers. Car workers at factories that do not make electric cars are worried that they could be for the chop. With less to go wrong, the market for maintenance and spare parts will shrink. While today’s carmakers grapple with their costly legacy of old factories and swollen workforces, new entrants will be unencumbered. Premium brands may be able to stand out through styling and handling, but low-margin, mass-market carmakers will have to compete chiefly on cost.”
  • “Assuming, of course, that people want to own cars at all. Electric propulsion, along with ride-hailing and self-driving technology, could mean that ownership is largely replaced by “transport as a service”, in which fleets of cars offer rides on demand. On the most extreme estimates, that could shrink the industry by as much as 90%. Lots of shared, self-driving electric cars would let cities replace car parks (up to 24% of the area in some places) with new housing, and let people commute from far away as they sleep—suburbanization in reverse.”
  • “Even without a shift to safe, self-driving vehicles, electric propulsion will offer enormous environmental and health benefits. Charging car batteries from central power stations is more efficient than burning fuel in separate engines. Existing electric cars reduce carbon emissions by 54% compared with petrol-powered ones, according to America’s National Resources Defense Council. That figure will rise as electric cars become more efficient and grid-generation becomes greener. Local air pollution will fall, too. The World Health Organization says that it is the single largest environmental health risk, with outdoor air pollution contributing to 3.7m deaths a year. One study found that car emissions kill 53,000 Americans each year, against 34,000 who die in traffic accidents.”

Economist – The merits of going English – 8/10

  • “Why educationalists like the English system of tuition fees financed by loans on easy terms.”

LinkedIn – Acknowledging My Own Straight White American Male Privilege – Jim McCarthy 8/11

Markets / Economy

WSJ – Daily Shot: Bitcoin Valuation 8/16

Bloomberg – ‘Deep’ Subprime Car Loans Hit Crisis-Era Milestone – Adam Tempkin 8/15

  • “There’s a section of the auto-loan market — known in industry parlance as deep subprime — where delinquency rates have ticked up to levels last seen in 2007, according to data compiled by credit reporting bureau Equifax.”
  • “Analysts have been warning for years that subprime car loans pose a threat to lenders as delinquency rates have edged higher since reaching a post-recession low in 2012. But it wasn’t until last quarter that the least creditworthy borrowers started to show the kinds of late payment profiles that accompanied the start of the financial crisis.”
  • “’We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,’ Chief Economist Amy Crews Cutts said in an email Tuesday. ‘In deep subprime, the rise is more substantial. What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.’”
  • “The reason for the increase, she posited, is that lenders have loosened underwriting requirements as more firms tap into a declining market for car loans, not that there are more customers with worsening credit profiles.”
  • “Cutts said Equifax data show that lenders are extending repayment periods and offering longer terms, with many starting to exceed seven years.”
  • “That’s not to say a repeat of the financial crisis is nigh. There might not even be cause for major concern over the auto loan market, Cutts said. Monolines and dealer-finance lenders accounted for just 4% of new originations in the second quarter.”
  • “Meanwhile, the overall rate of late payments exceeding 60 days on all types of auto loans came in at a still-healthy 0.91%, up just eight basis points from last year. The rate on prime loans was at 0.33%, an increase of three basis points.”
  • “’Risk in auto lending is actually very balanced,’ Cutts said. More than 90% of overall auto loans are made by banks, credit unions, and captive auto finance companies, and these entities have become increasingly conservative and discerning in their underwriting.”
  • “Still, the ‘rapid rise’ in deep subprime delinquencies should not go unnoticed, Cutts said.”
  • “’As soon as lenders (and the investors behind them) get overconfident that they have better models and can make excess profits by disrespecting credit risk, they always get their hats handed to them sooner or later,’ Cutts said. ‘The mortgage market learned this lesson at the expense of the entire global financial system, and it is playing out now in a micro-level, in the ABS market for subprime auto loans.’”

Real Estate

WSJ – Daily Shot: FRED – Multifamily Housing Under Construction 8/17

  • “Multifamily housing that is already under construction will be flooding the rental market in the months to come.”

WSJ – Daily Shot: Capital Economics – US National Home Price / Income Ratios 8/17

Finance

WSJ – Sale of Once Hot High-Frequency Trading Frim Reflects Industry Troubles – Alexander Osipovich 8/16

  • “These upstart firms use sophisticated computer algorithms to move in and out of stocks, futures and other positions in fractions of a second. Known as high-frequency traders, or HFT, they thrived in the years following the financial crisis by exploiting the markets’ big price swings.”
  • “But more recently, there have been fewer dramatic swings in stocks, commodities and other markets. The CBOE Volatility Index, a widely followed measure of expected U.S. stock-market volatility, has hovered near historic lows this year.”
  • “Now, one electronic trading firm’s deal to acquire a struggling rival shows how this persistently low volatility is upending the HFT world and forcing out weaker players.”

FT – Private equity fundraising hits post-crisis high – Attracta Mooney 8/16

  • “Private equity fundraising is at its highest level since the boom years in the run-up to the financial crisis, leaving companies in a ‘precarious position’ as they struggle to invest record sums.”
  • “More than $240bn has been raised across private equity and venture capital funds in North America and Europe in the seven months to the start of August, according to a report from Pitchbook, a data provider.”
  • “The company believes private market fundraising in 2017 could eclipse last year, when $344.8bn was raised. The last time private equity did this well was 2007, when managers attracted $419bn.”
  • “According to Pitchbook’s research, private equity funds are sitting on record ‘dry powder’ — sums that have yet to be invested — as managers struggle to find suitable businesses. Pitchbook estimates that the amounts were $739bn at the end of 2016, higher than in 2007-08.”

Tech

FT – Uber crafts share sale plan to prop up valuation – Richard Waters 8/16

  • “Uber is planning a new round of fundraising that would at least match the $68bn peak valuation it reached before this year’s round of scandals — though investors who take part would be able to buy into the ride hailing company at a lower overall price than the headline number suggests.”
  • “The plan would include a secondary sale of shares by existing investors at a current market valuation that is likely to be some way below $68bn.”
  • “The fundraising plan is part of an attempt by Uber’s board to bring more stability to the company’s shareholder base as it tries to recover from the departure of founder Travis Kalanick as chief executive officer.”
  • “Pairing it with a secondary share sale would also give existing investors, including employees, a chance to cash in part of their holdings at a time when the chances of an initial public offering in the near-term appear to be receding.”
  • “It could also reduce the influence of venture capital firm Benchmark, which owns 13% of Uber’s stock and earlier this month mounted a high-profile lawsuit against Mr. Kalanick.”
  • “The sale by Uber itself would raise about $1bn and be set at or above the valuation Uber achieved in June last year, when it sold a 5% stake to Saudi Arabia for $3.5bn. The secondary share sale, on the other hand, would be for as much as $10bn, and would reflect a market price that took into account the company’s struggles this year.”
  • “To enable Uber to sell the higher-priced shares, investors who bought in would be offered the chance to buy the secondary stock on a pro-rata basis, resulting in an average price per share at a discount to the headline valuation.”
  • “The arrangement — showing that Uber itself could still raise some money at the $68bn valuation — would save face for Saudi Arabia, which otherwise would be seen as having overpaid for its stake in the company last year, according to one person familiar with the plan.”
  • “Another person said the structure would also save other Uber investors from being forced to write down the value of their existing holdings.”

Construction

Economist – Efficiency eludes the construction industry – 8/17

  • “The global market is worth $10trn. Euler Hermes, an insurer, expects 3.5% growth this year. Yet more than 90% of the world’s infrastructure projects are either late or over-budget, says Bent Flyvbjerg of Saïd Business School at Oxford University. Even the sharpest of tech firms suffer. Apple’s new headquarters in Silicon Valley opened two years behind schedule and cost $2bn more than budgeted. Smaller projects have similar woes. One survey of British architects found that 60% of their buildings were late.”
  • “Construction holds the dubious honor of having the lowest productivity gains of any industry, according to McKinsey, a consultancy. In the past 20 years the global average for the value-added per hour has inched up by 1% a year, about one-quarter the rate of growth in manufacturing. Trends in rich countries are especially bad. Over the same period Germany and Japan, paragons of industrial efficiency, have seen nearly no growth in construction productivity. In France and Italy productivity has fallen by one-sixth. In America, astonishingly, it has plunged by half since the late 1960s.”
  • “Prices for building materials are not to blame. They are subtracted from measures of value-added (and have not risen in any case). The burden over time of complying with regulation—applying for permits, for instance—is only partly responsible. In America such rules account for one-eighth of the productivity lost since 1987, according to the Bureau of Labor Statistics.”
  • “More culpable are two broader structural trends. First, the industry has become less capital-intensive, with workers replacing machinery. This shift is more understandable in countries with access to inexpensive labor. In Saudi Arabia, for example, it is cheaper to import workers from India or Pakistan than to buy machinery. In many countries, however, labor costs might be expected to spur firms to substitute workers with capital.”
  • “Instead, volatility in demand for construction has trained builders to curb investment. ‘The industry has learned through bitter experience to prepare for the next recession,’ says Luc Luyten of Bain & Company, a consultancy. Capital-heavy approaches to construction bring high fixed costs that are difficult to cut in downturns. Workers, in contrast, can be fired.“
  • “The second big problem is that the industry has, for the most part, failed to consolidate. Efficient firms should theoretically squash laggards, yielding bigger, more productive companies. ‘But construction is an industry that appears to have defied Adam Smith,’ says Mr Luyten. That is partly because building codes differ not just between countries but within them, which makes it harder to reap the benefits of scale. The customized nature of most projects further limits the usual advantages of size. Because the designs of most projects differ, contractors have to start from scratch for each one.”
  • “America now has about 730,000 building outfits, with an average of ten employees each. In Europe there are 3.3m with an average of just four workers. Competition is fierce and profit margins are thinner than for any industry except retail. This fragmentation creates its own problems. Slim margins make investment even less likely. Often projects have more than a dozen subcontractors, each keen to maximize profit rather than collaborate to contain costs, says Thijs Asselbergs, a professor at Delft University of Technology.”
  • “The result is an industry that raises prices for clients and mostly ignores tools that might improve productivity. ‘While we are all using iPhones, construction is still in the Walkman phase,’ says Ben van Berkel, a Dutch architect. Many building professionals use hand-drawn plans riddled with errors. A builder of concrete-framed towers from the 1960s would find little has changed on building sites today, except for better safety standards.”
  • “Examples of how the industry might move forward are not hard to find. More builders could use computer-aided design, as is standard among architects. Other methods are in earlier stages, but show promise, such as remote-controlled cranes and self-driving bulldozers (Komatsu, a Japanese equipment-maker, is developing the latter). A few niches, such as maritime construction, have shown how investments in technology and mass production can boost efficiency.”
  • “On land, a few firms are mass-producing homes. BoKlok, a spin-off from IKEA, a Swedish flat-pack-furniture seller, does only one-fifth of its construction work on site; the rest is done in factories. Parts can be standardized and costs cut as a result. BoKlok reckons that it builds twice as quickly as the industry norm. An American firm called Katerra also builds prefabricated sections of apartments at a factory in Arizona. It helps that each firm does every stage of construction itself, rather than relying on a tangle of subcontractors.”
  • “However, such techniques remain unusual. For most firms, slim margins and the specter of future downturns continue to restrain investment. Even for companies that do adopt new methods, growth may be limited by doubts about the quality of new techniques. A few modular towers in China have seen water seep between units. In Britain, past attempts at mass-produced housing are a sour memory: poorly built modular social housing from the 1960s has been demolished. British mortgage lenders shun homes built with ‘non-traditional construction methods’. BoKlok and Katerra hope their buildings will last a century. But perceptions, like so much else in construction, can be slow to change.”

China

FT – Prominent China debt bear warns of $6.8tn in hidden losses – Gabriel Wildau 8/16

  • “One of the most influential analysts of China’s financial system believes that bad debt is $6.8tn above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked.”
  • “In her latest report, Ms. (Charlene) Chu (with Autonomous Research) estimates that bad debt in China’s financial system will reach as much as Rmb51tn ($7.6tn) by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above. That estimate implies a bad-debt ratio of 34%, well above the official 5.3% ratio for those two categories at the end of June.”
  • “But Chen Long, China economist at Gavekal Dragonomics in Beijing, said this methodology implicitly assumes that an economic crash will eventually occur in China.”
  • “Mr. Chen argues that credit losses are highly correlated with economic performance: bad loans rise when growth slows. If China can prevent a sharp downturn, credit losses will be much smaller, despite the extraordinary increase in leverage.”
  • “Ms. Chu acknowledges that an acute crisis does not appear imminent. Government influence over both borrowers and lenders has allowed Beijing to delay problems much longer than would be possible in a more market-driven system.” 
  • “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities. The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.” – Charlene Chu

WSJ – Cleaning Up China With a Mountain of Debt – Nathaniel Taplin 8/16

Economist – The Communist Party is redefining what it means to be Chinese 8/17

  • “For most of its history the Communist Party wanted to smash China’s past, not celebrate it. During the Cultural Revolution in the 1960s and 1970s it sought to overturn the ‘four olds’: old customs, old culture, old habits and old ideas. Temples, mansions and tombstones were ravaged, along with any artefacts or people associated with the bourgeois way of life. Small wonder that Communist ideology lost its appeal. The blistering pace of change in recent decades has kindled an anxiety that China is suffering from moral decay and a concomitant yearning for a revival of ancient values. The government is harnessing those feelings, using ancient rites and customs to spread favored values.”

India

WSJ – How India’s Debt Could Kill Its Growth – Daniel Stacey, Kara Dapena and Jessica Kuronen 8/17

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.”