Tag: Insurance

May 22, 2018

Perspective

howmuch.net – Hourly Wage Required to Rent a Two-Bedroom Home in Every State – Raul 5/13

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Do Long-Term Investors Need Bonds? – Ben Carlson 5/20

Economist – America must use sanctions cautiously – Leaders 5/17

  • “The dollar gives the Treasury extraordinary power over global finance. It should not be used lightly.”

FT – Batteries are the next frontier of industrial competition – Nick Butler 5/20

  • “Why the race is on to host the factories that will serve the electric vehicle market.”

FT – Tech lessons from Amazon’s battle in Seattle – Gillian Tett 5/17

Markets / Economy

FT – Ant Financial valued at $150bn in offering – Henny Sender and Louise Lucas 5/20

  • “The enthusiasm for Ant Financial is partly a reflection of the scale of the company’s operations in China, as well as the need among investors to deploy huge funds being raised.”
  • “’If you are too conservative, you lose a lot of opportunities,’ said one mainland Chinese investor, who is also involved in the transaction. ‘In the last few years, we were not gung-ho enough and left too much money on the table’.”

WSJ – Daily Shot: Moody’s – Youth Unemployment Rate – European Countries 5/21

Real Estate

FT Alphaville – Retail is not dead – Jamie Powell 5/20

This is one of the few instances when I’ve posted the article in its entirety…

  • “Readers may have seen a few articles about the ‘DEATH OF RETAIL’ (add exclamation marks where appropriate) recently. To say it’s been a popular meme in US economic commentary would be, well, quite an understatement. Courtesy of CBInsights, here’s a timeline of retail bankruptcies up to March 2018:”
  • “Bogey men blamed for the decline range from Amazon to pesky private equity to, erm, tourists. To get a feel for the distressed nature of the sector, as of March 2018, retailers make up nearly 20% of the companies which Standard & Poor’s awards a they-may-not-make-it CCC credit rating. In short, defaults are still coming.”
  • “Yet is it all doom and gloom for bricks and mortar retail? Adam Ozimek, of Moody’s Analytics, begs to differ — laying out his case in a blogpost yesterday. Let’s take a look at his reasoning.”
  • “First Mr Ozimek points to retail payrolls running at a near historical high at 15.3m jobs, only 22,000 positions short of the peak reached in 2017:”
  • “The hiring boom is despite physical retail having a relatively smaller share of the economy from its peak in the credit-fueled boom years under Ronald Reagan:”
  • “So retail is a touch less influential in the US economy, but it still a key supplier of jobs. Looking at the first chart, however, the doubling of retail jobs in absolute terms isn’t quite as impressive when you consider retail employment also came close to peaking in 2000, and since then the US economy has nearly doubled according to the St. Louis Federal Reserve:”
  • “As physical retail’s share of the economy has fallen, there has been a bleeding of the value which used to be captured by the sector. However a lot of this shift can be explained by employment moving to e-commerce, according to Mr Ozimek:”
    • “Employment gains in e-commerce are visible in warehousing and nonstore retailers, the latter of which includes e-commerce sellers like Amazon. Over the last decade, nonstore retailers have added 157,000 jobs and warehousing has added almost 369,000, which combined more than offset the job losses of 392,000 in department stores.”
  • “So why are people so obsessed with the ‘Death of Retail’ meme?”
  • “Perhaps one reason is the vast retail space left behind in the recent consolidation in the sector. Cowan Research recently found the US has circa 49 square feet of retail space per capita, double the UK’s 22 square feet and almost four times Canada’s 13 square feet.”
  • “So in any retail contraction, the empty units left behind will be more noticeable to the naked eye than say in, Canada, thanks to the sheer amount of constructed retail space. This may give the impression of the death of retail, even if the facts don’t back it up.”
  • “Public struggles for big brand names like Sears and JC Penny, which last year closed 141 stores, may also help re-enforce the impression of decrepitude.”
  • “In fact, the former bastion of the mall, the department store, seems to be the only form of retail really struggling.”
  • “Last year research house IHL published a compelling report titled ‘Debunking the Retail Apocalypse‘ (get a copy for free here) in which they helpfully chartered store openings versus closures across different types of retailer:”
  • “We know this data is a little old, but department stores were the only group not to plan to open new stores in 2017, re-enforcing the idea that the collapse of famous brands, such as Radioshack, has driven the idea of bricks and mortar stores struggling.”
  • “Our readers may be asking – who is doing well in this environment to offset the struggles of Sears, Kmart and Radioshack?”
  • “The answer, perhaps unsurprisingly given trends in inequality, is any retailer shifting merchandise at bargain basement prices. Think Primark and Aldi in the UK, or aptly named Dollar General and Dollar Tree in the US. Here’s another neat chart from IWC showing store openings in 2017:”
  • “Not exactly a sign of a healthy US consumer, right? This trend is also repeated across restaurants, with the cheap, convenient and filling providers of processed goodness leading the way:”
  • “Regardless of the evident collapse in both diet and spending power, this data is not indicative of retail dying a death.”
  • “A month ago, we published a piece examining the pivot many online only retailers, such as Warby Parker, are making to bricks and mortars stores. The reason? Stores are a surprisingly cheap way of acquiring affluent customers and building brand familiarity, compared with internet advertising.”
  • “Given the data above perhaps the death of retail is more a misunderstanding of a sector adapting to demand not just from the internet, but also a lopsided societal structure. A country where affluent urbanites shop for luxury hand luggage in LCD lit stores, while the masses get by on Dunkin Donuts and Dollar General.”

Energy

Bloomberg Businessweek – Solar Beats Coal on U.S. Jobs – Brian Eckhouse 5/16

WSJ – Solar-Panel Makers Ramp Up U.S. Manufacturing Plans – Erin Ailworth 5/11

WSJ – Daily Shot: Moody’s – Clean Energy Initiatives by US State 5/21

Finance

FT – The great Maryland pension fees gap – Chris Flood 5/20

  • However, in this case, it appears the drag is coming from elsewhere in the portfolio.

WSJ – U.S. Government Bonds Pay More Than Debt From Other Developed Nations – Daniel Kruger 5/20

WSJ – Daily Shot: Italy – Germany 10yr Government Bond Spread 5/18

Insurance

Economist – The life-insurance industry is in need of new vigor 5/17

  • “As the rich world ages and retires, total life-insurance premiums are flat or falling…”

Australia

FT – Australia divided over ‘Brazilian-scale’ land clearance – Jamie Smyth 5/20

  • “Pristine eucalyptus forest near Great Barrier Reef becomes political battleground.”

Other Interesting Links

Cannabis Benchmarks – State Price Delta to US Spot Index 5/18

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April 20, 2018

If you were only to read one thing…

WP – Too Many Men – Simon Denyer and Annie Gowen 4/18

  • “Nothing like this has happened in human history. A combination of cultural preferences, government decree and modern medical technology in the world’s two largest countries has created a gender imbalance on a continental scale. Men outnumber women by 70 million in China and India.”
  • “The consequences of having too many men, now coming of age, are far-reaching: Beyond an epidemic of loneliness, the imbalance distorts labor markets, drives up savings rates in China and drives down consumption, artificially inflates certain property values, and parallels increases in violent crime, trafficking or prostitution in a growing number of locations.”
  • “Those consequences are not confined to China and India, but reach deep into their Asian neighbors and distort the economies of Europe and the Americas, as well. Barely recognized, the ramifications of too many men are only starting to come into sight.”
  • “’In the future, there will be millions of men who can’t marry, and that could pose a very big risk to society,’ warns Li Shuzhuo, a leading demographer at Xi’an Jiaotong University.”
  • “Out of China’s population of 1.4 billion, there are nearly 34 million more males than females — the equivalent of almost the entire population of California, or Poland, who will never find wives and only rarely have sex. China’s official one-child policy, in effect from 1979 to 2015, was a huge factor in creating this imbalance, as millions of couples were determined that their child should be a son.”
  • “India, a country that has a deeply held preference for sons and male heirs, has an excess of 37 million males, according to its most recent census. The number of newborn female babies compared with males has continued to plummet, even as the country grows more developed and prosperous. The imbalance creates a surplus of bachelors and exacerbates human trafficking, both for brides and, possibly, prostitution. Officials attribute this to the advent of sex-selective technology in the last 30 years, which is now banned but still in widespread practice.”
  • “In the two countries, 50 million excess males are under age 20.”

Perspective

WSJ – Daily Shot: howmuch.net – Home Insurance Cost in Every State 4/19

WSJ – Daily Shot: howmuch.net – Health Insurance Rates by State 4/19

Worthy Insights / Opinion Pieces / Advice

BuzzFeed News – This PSA About Fake News From Barack Obama Is Not What It Appears – David Mack 4/17

  • “Oscar-winning filmmaker Jordan Peele has a warning for viewers about trusting material they encounter online.”

Visual Capitalist – America: An Economic Snapshot of Every U.S. State – Jeff Desjardins 4/19

Wolf Street – Subprime Carmageddon: Specialized Lenders Begin to Collapse – Wolf Richter 4/8

  • “The subprime auto lending business is highly cyclical. For example, according to Bloomberg, citing Moody’s data, 41 subprime lenders filed for bankruptcy during the subprime auto loan bust between 1997 and 1999.”
  • “But unlike subprime home mortgages, subprime auto loans won’t take down the financial system. About 25% of the auto loans written are subprime. For new cars, it’s about 20%. Of the $1.11 trillion in total auto loans outstanding at the end of 2017, about $280 billion were subprime – less than a quarter of the $1.3 trillion subprime mortgages before the financial crisis. Even if the total subprime portfolio produced a net loss of 50%, the losses would amount to only about $140 billion.”
  • “And there are other differences: Vehicles are quickly repossessed, usually after three months of missed payments. Even in bad times, there is a liquid market for the collateral at auctions around the country, and vehicles can be shipped to auctions with the greatest demand. The results are that lenders don’t end up holding these vehicles and loans on their balance sheet for years, as mortgage lenders did with defaulted home mortgages and homes.”
  • “But subprime will take down many more of the specialized lenders. And the survivors will tighten lending standards. This will prevent more car buyers from buying a new vehicles. Many of them will be switched to older used vehicles. Or they hang on to what they have.”
  • “So automakers get to grapple with the loss of these customers. When you lose a significant portion of your customers due to credit problems, it hurts. And this is where it adds to ‘Carmageddon.’ Investors and creditors, including PE firms, get to grapple with losses and bankruptcies. But given the limited magnitude of subprime auto loans, and the limited impact on the banks, the Fed will brush it off and continue its monetary tightening, and no one will get bailed out.”

Markets / Economy

FT – Sentiment sours for big brand consumer staples – Chloe Cornish 4/18

WSJ – Demand for Batteries Is Shrinking, Yet Prices Keep On Going and Going…Up – Sharon Terlep and Nicole Friedman 4/16

Tech

WSJ – Daily Shot: Bloomberg – IMF Says the Global Smartphone Boom Has Reached Its Peak – Andrew Mayeda 4/19

Britain

Bloomberg Businessweek – Britain Targets Russian Billionaires – Henry Meyer, Yuliya Fedorinova, and Irina Reznik 4/11

  • “As the U.S. goes after a handful of Russian oligarchs with its latest round of sanctions, the U.K. is under pressure domestically and from abroad to tighten controls and shed its reputation as a place to launder corrupt money. The U.K. National Crime Agency estimates that more than £90 billion ($127.5 billion) of such money enters the U.K. each year, feeding a vast industry of property companies, lawyers, bankers, and accountants. A lot of that comes from Russia, and ends up in high-end real estate. About a fifth of suspicious property purchases from 2008 to 2015, £729 million worth, were made by Russians, according to anticorruption watchdog Transparency International. ‘In terms of the levels of financial flows that go through London, it’s likely that it’s one of the biggest hubs of money laundering in the world,’ says Ben Cowdock, the group’s lead researcher on dirty money in the U.K.”

February 22, 2018

Markets / Economy

Bloomberg – Walmart’s Margins Hit Record Low as Fight With Amazon Takes Toll – Matthew Boyle 2/20

WSJ – Daily Shot: FAANG Basket vs S&P 500 – Relative Performance 2/20

WSJ – Daily Shot: Consumer Staples SPDR ETF vs S&P 500 – Relative Performance 2/20

WSJ – Daily Shot: Vanguard Real Estate ETF vs S&P 500 – Relative Performance 2/20

  • Rising bond yields…

WSJ – Daily Shot: Shifting Tastes – Coca-Cola 2/21

Insurance

WSJ – Reinsurers Hit by Catastrophe Losses, Rising Competition – William Wilkes 2/19

Construction

WSJ – Daily Shot: CME Lumber Futures 2/20

Education

WSJ – Daily Shot: The Rise of the Jumbo Student Loan – Josh Mitchell 2/16

February 16, 2018

新年快乐

Xīnnián kuàilè

Perspective

WSJ – Daily Shot: Do You Live Among Millionaires? – Eric Morath 2/9

Worthy Insights / Opinion Pieces / Advice

FT – Five reasons why universal basic income is a bad idea – Ian Goldin 2/11

  • “As the scale of the potential job losses arising from the artificial intelligence and robotics revolution becomes clearer, a chorus of otherwise disconnected billionaires, trade unionists and others are calling for universal basic income. Recognizing the threat posed by these dislocations is welcome and timely, but seeking solace in UBI is a bad idea.”
  • “It is misleading to think of this as yet another industrial revolution and take comfort in the fact that all previous industrial revolutions have resulted in more and better-quality jobs. This time is different, both in the pace and the reach of change. The growth of new jobs is slower than the destruction of old jobs — and their quality in many cases is inferior, as full-time career employment gives way to gig work or contingency contracts.”
  • “The places most vulnerable are also geographically isolated from the dynamic cities experiencing record earnings growth and low unemployment. Moving to these cities is increasingly difficult, as soaring housing and commuting costs reduce employment mobility. The result is rising geographical concentration of poverty and inequality in places left behind by change. The political reverberations are already being felt. The legitimate concerns of vulnerable workers must be addressed. But UBI is a red herring for five reasons.”
  • Reasons 3 and 4:
  • “Third, UBI will undermine social cohesion. Individuals gain not only income, but meaning, status, skills, networks and friendships through work. Delinking income and work, while rewarding people for staying at home, is what lies behind social decay. Crime, drugs, broken families and other socially destructive outcomes are more likely in places with high unemployment, as is evident in the drug pandemic in the US.”
  • “Fourth, UBI undermines incentives to participate. Stronger safety nets are vital. No decent society should tolerate dire poverty or starvation. But for those who are able, help should be designed to get individuals and families to participate in society; to help people overcome unemployment and find work, retrain, move cities. Wherever possible, safety nets should be a lifeline towards meaningful work and participation in society, not a guarantee of a lifetime of dependence.”

FT – Where is the Tea Party when you need it? – Edward Luce 2/14

Project Syndicate – The Social Media Threat to Society and Security – George Soros 2/14

  • “It takes significant effort to assert and defend what John Stuart Mill called the freedom of mind. And there is a real chance that, once lost, those who grow up in the digital age – in which the power to command and shape people’s attention is increasingly concentrated in the hands of a few companies – will have difficulty regaining it.”

Markets / Economy

FT – Why the 30-hour work week is almost here – Simon Kuper 2/14

  • “Qualified jobseekers are scarce. Finally, workers can make demands.”

Real Estate

WSJ – Mall Dividends Soar Above 15%, Tempting Big Investors – Esther Fung 2/13

  • “Some mall operators are paying high dividends to offset the lackluster outlook for the sector.”

Finance

WSJ – Harvard, Hawaii Gambled on Market Calm – Then Everything Changed – Gregory Zuckerman, Gunjan Banerji and Heather Gillers 2/14

  • “Harvard, Hawaii and others, pressed to improve returns, made risky bets that depended on low stock-market volatility.”

WSJ – Daily Shot: VIX index 2/14

  • “VIX has finally moved below 20 as the inflation/high-rates ‘bogeyman’ no longer looks as scary (for now).”

Insurance

FT – MetLife hires investigators in search for missing pensioners – Alistair Gray 2/14

  • “US insurer MetLife has hired investigators to track down thousands of pensioners as the company seeks to resolve a scandal over missing payouts that has wiped about $10bn off its market capitalization.”
  • “Executives on Wednesday said they were doing ‘everything humanly possible’ to locate almost 13,500 people — owed on average $20,000 each — after they acknowledged MetLife failed to make proper efforts find them over 25 years.”
  • “The failure arose because of practices dating back to the 1990s at MetLife’s pensions ‘risk transfer’ business, under which companies transfer their retirement liabilities to insurers.”
  • “MetLife sought to contact eligible pensioners only twice: when they turned 65, and again a few months after the age of 70. If these efforts were unsuccessful, the company presumed the individuals would never be found.”
  • “As a result, the insurer mistakenly released funds from reserves that support future annuity payouts.”

China

FT – Wanda’s hopes for global lifestyle empire fade as it beats retreat – Emily Feng 2/14

  • “Dalian Wanda, the company Mr. Wang (Wang Jianlin) founded and transformed from a small-town real estate company into the world’s largest owner of cinemas and one of China’s biggest private property developers, has been steadily offloading assets over the past nine months.”
  • “The latest divestment came on Wednesday, when Wanda announced it had agreed to sell its 17% stake in Spanish football club Atlético Madrid.”
  • “The group says it will ‘refocus’ on its core business, domestic commercial property, including a plan to build or license 1,000 malls in China.” 
  • “This is a reversal for a group that invested roughly $22bn in offshore trophy assets over the past five years, according to data from Dealogic, as part of a push to bring a western lifestyle to an ever more wealthy Chinese middle class.” 
  • “In June 2017, the China Banking Regulatory Commission asked banks to examine loans to four companies known for offshore trophy investments, including Wanda, as Beijing pushed back on investments it deemed frivolous, excessive and out of line with the government’s development goals.”
  • “Wanda has pivoted sharply since the June crackdown. The group has sold about $10.8bn of assets in the past nine months, according to data from Dealogic and an FT review of recent transactions.”
  • “Debt pressures on Wanda are prompting the group to review its foreign investments, as Beijing’s capital controls restrict groups’ abilities to service their overseas liabilities.”
  • “Wanda says it is in talks with the country’s foreign exchange regulator, which had approved offshore remittances to service its loans but suspended clearance after Beijing launched its probe into the companies’ liabilities.”
  • “’The company’s financial resources — including cash proceeds from sales and cash balance — should be able to fulfil its onshore obligations. But the key now is how they can remit any onshore cash to offshore,’ says Dennis Lee, an associate director at rating agency S&P Global.”
  • “Mr. Lee adds that the group’s need for offshore cash is prompting Wanda to consider its options, including the sale of overseas properties.”
  • “The group also needs to maintain the confidence of investors. Total liabilities for Wanda were $11.7bn at the end of 2016, according to the group.”
  • “The strategy may be less glamorous, but Wanda’s year-end numbers suggest that its asset-light strategy is paying off. Even as overall revenues for its main property subsidiary plummeted by more than a fifth to $17.8bn last year, its revenue from rental income grew by about a third to $4bn, according to its results in January.”
  • “Despite the recent divestments, the group still retains its biggest offshore assets and Mr. Wang remains extraordinarily rich — Hurun estimates the wealth of Mr. Wang and his family at $23bn. Wanda is preparing for a Shanghai relisting of DWCP once its offshore debt is cleared, and that promises to be a major funding event.”

India

FT – Punjab National Bank discovers $1.8bn fraud in Mumbai branch – Simon Mundy 2/14

  • “Scam resulted in money being advanced to a handful of accounts overseas.”

January 19, 2018

Perspective

Freedom House – Freedom in the World 2018 – Democracy in Crisis 1/17

WSJ – Daily Shot: Maps on the Web – Global Fertility Rates 1/17

Worthy Insights / Opinion Pieces / Advice

The Atlantic – Raising a Social-Media Star – Taylor Lorenz 1/17

  • “The parents of teen internet celebrities get a crash course in a new kind of fame while trying to maintain boundaries for their newly rich and powerful children.”

Washington Monthly – How to Fix Facebook – Before It Fixes Us – Roger McNamee 1/7

  • “An early investor explains why the social media platform’s business model is such a threat – and what to do about it.”

WP – In Venezuela, money has stopped working – Francisco Toro 1/17

  • “Hyperinflation is disorienting. Five or six years ago, the 500 bolivars on the floor would’ve bought you a meal for two with wine at the best restaurant in Caracas. As late as early last year, they would’ve bought you at least a cup of coffee. At the end of 2016, they still bought you a cup of café con leche, at least. Today, they buy you essentially nothing … well, except for 132 gallons of the world’s most extravagantly subsidized gasoline.”
  • “Prices are now rising more than 80 percent per month, according to the opposition-led National Assembly’s Finance Committee. (The government itself stopped publishing official inflation data long ago.) At that rate, prices double every 34 days or so. Salaries lag far behind, leaving more and more of the country to face outright hunger. Thus, the looting.”
  • “Rule No. 1 of surviving hyperinflation is simple: Get rid of your money. Given the speed with which money is shedding its value, holding on to it means you’re losing out. The second you’re paid you run out as fast as you can to buy something – anything – while you can still afford it. It’s better to hold almost any asset than money, because assets hold their value and money doesn’t.”
  • “I think this is what’s so hard to wrap your mind around if you’ve never experienced hyperinflation. It sounds like it’s about prices rising fast, but it really isn’t. It’s about money breaking down. Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. It stops being something you want to have and turns into something you’ll do anything to avoid having: something so worthless you won’t even bend down and scoop it up off the floor while you’re looting.”

Markets / Economy

Bloomberg – Beware the $500 Billion Bond Exodus – Liz McCormick and Molly Smith 1/17

  • “For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.”
  • “The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.”
  • “It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.”
  • “The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.”
  • “Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come — an expense that taxpayers would ultimately have to bear.”
  • “And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595% this month.”
  • “Of course, it’s important to understand that for most multinationals, offshore cash is really only ‘offshore’ for accounting purposes. Under the old tax system, earnings attributed to foreign subsidiaries, often based in jurisdictions with low taxes or lax regulations like Ireland or Luxembourg, could be repatriated and remain earmarked as ‘held overseas’ — so long as it was stashed in U.S. securities. Apple, for example, manages its hoard from Reno, Nevada, where its internal investment firm, Braeburn Capital, is located.”
  • “’The term overseas cash can be a bit of a misnomer, as it doesn’t have to be overseas and in fact a lot of it isn’t,’ said Michael Cahill, a strategist at Goldman Sachs Group Inc. That should limit any appreciation in the dollar related to repatriation over the longer term.”
  • “Big multinationals have good reason to bide their time, according to Richard Lane, a senior analyst at Moody’s Investors Service. Because their debt investments are so extensive, companies could end up inflicting losses on themselves with any large-scale selling.”
  • “’I don’t think there will be a rush to the door by these companies to sell this debt and causing increasing yields and lower pricing,’ said Lane.”

WSJ – Apple Plans to Pay $38 Billion in Repatriation Taxes – Imani Moise 1/17

  • “It also said Wednesday it would spend more than $30 billion to create 20,000 jobs and open a new campus at a U.S. location to be announced later this year.”

Real Estate

WSJ – A Slowdown Is in Store for the Self-Storage Business – Peter Grant 1/16

  • “A flood of new supply is crimping growth in the self-storage sector.”

Finance

Bloomberg Gadfly – Discount Brokers Act Like Wall Street on Fee Conflicts – Nir Kalssar 1/16

  • “One sign of a frenzied stock market rally is a sharp outperformance of retail brokers.” – WSJ Daily Shot 1/18

Bloomberg – Venture Capital Investing Hits Highest Since Dot-Com Boom – Julie Verhage 1/8

Insurance

Economist – Natural disasters made 2017 a year of record insurance losses 1/11

  • “According to figures released on January 4th by Munich Re, a reinsurer, global, inflation-adjusted insured catastrophe losses reached an all-time high of $135bn in 2017. Total losses (including uninsured ones) reached $330bn, second only to losses of $354bn in 2011.”
  • “A large portion of the losses in 2011 was caused by one catastrophe: the earthquake and tsunami in Japan. Losses in 2017 were largely traceable to extreme weather. Fully 97% were weather-related, well above the average since 1980 of 85%.”
  • “Last year’s disasters were particularly concentrated in North America (including the Caribbean), with 83% of global losses; half of those were in America alone, hitting that country’s insurers particularly hard. Fitch, a ratings agency, expects the ‘combined ratio’ for American property-and-casualty insurers to rise from 100.7% in 2016, meaning costs and claim payouts just exceeded premium revenue, to 104.4% in 2017. That implies a substantial underwriting loss for the industry. Even Warren Buffett’s Berkshire Hathaway looks poised for its first full-year underwriting loss in 15 years. It took a $3bn hit from the three hurricanes and an earthquake in Mexico.”
  • “For all the gloom, the 2017 losses were also proof of the resilience of the reinsurance industry. Insurers have long spread catastrophe risk by taking out reinsurance policies. This time, reinsurers had such ample capital buffers that they are expected to suffer only a small dent, of around 5-7% of capital.”

WSJ – Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice – Leslie Scism 1/17

  • “Battered by losses, long-term-care insurers hit policyholders with steep rate increases that many never saw coming.”
  • “Only a dozen or so insurers still sell the coverage, down from more than 100. General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI.”
  • “When sales of long-term-care insurance were ramping up in the 1980s and 1990s, companies thought they had found the perfect product for middle-class families—and that’s how they pitched it.”
  • “The annual premium was designed to hold steady until a claim was filed and premiums then halted, though the rates weren’t guaranteed. Many policies paid out benefits for life.”
  • “Families flocked to what seemed like affordable peace of mind that would save them from draining their lifetime savings, leaning on children or enrolling in the federal-state Medicaid program for the poor.”
  • “Long-term care often costs more than $100,000 a year a person, financial advisers say. The nationwide total exceeds $200 billion, according to analysts at LTCG, a third-party administrator of long-term-care policies.”
  • “Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected.”
  • “After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.”

Cryptocurrency

Economist – Bitcoin is no longer the only game in crypto-currency town 1/13

  • “A new crypto-currency is born almost daily, often through an ‘initial coin offering’ (ICO), a form of online crowdfunding. CoinMarketCap, a website, lists about 1,400 digital coins or tokens, including PutinCoin, Sexcoin and InsaneCoin (worth $7m). Most are no more than curiosities, but by January 10th, around 40 had a market capitalization of more than $1bn.”
  • “Might any of these one day replace bitcoin as crypto-land reserve currency, something insiders call theflippening‘? Given bitcoin’s governance problems (another ‘fork’, or split, may be in the offing) and limited capacity (a transaction now costs nearly $30, on average, in fees), this cannot be excluded. But the others have problems, too. Ethereum’s user fees have soared and the system has again hit technical snags. As for Ripple, some question the extent to which XRPs are actually used.”

WSJ – Daily Shot: Ripple 1/17

WSJ – Daily Shot: Capital Economics – Transactions Per Second 1/17

Tech

Forbes – Which Online Platforms Do Americans Want Killed Off? – Niall McCarthy 1/10

China

Economist – How China won the battle of the yuan 1/11

Japan

Economist – A small Japanese city shrinks with dignity 1/11

  • Authorities in the Japanese city of Toyama are encouraging migration to its city center through incentives. The goal being to reduce the cost of maintaining lightly-used infrastructure as its population declines.
  • “About 30% of Toyama’s 418,000 residents are 65 or older, an even higher proportion than in Japan as a whole, where it is 27%. By 2025, the proportion in Toyama is projected to be 32%. In addition to greying, the population is also declining. The city had 421,000 people in 2005; by 2025, it will have 390,000.”
  • “As the population ages and shrinks, the services residents need have changed. The Kadokawa Centre, for example, is built on the site of a primary school that closed in 2004. But overhauling public services is costly, and the declining number of people of working age means there is ever less tax revenue to help pay for the shift. To remain solvent, the city has decided to shrink not just in population, but in size, concentrating residents and services in the center.”
  • “Most of Japan is in a similar quandary. About 400 schools shut every year; some are being converted into retirement homes. In 2016 there were 300,000 more deaths than births. If Japan continues on its present course, it will have shed nearly a third of its population (and four out of every ten workers) by … 2065.”

Economist – Why modern Japan’s founding moment still divides a nation – Banyan 1/11

  • “The Meiji restoration initiated not just modernization, but also militarism.”

South America

CNN Money – You can’t get $1 out of the bank in Venezuela. I tried. – Stefano Pozzebon 1/17

Reuters – Wave of looting shutters stores, spreads fear in Venezuela – Alexandra Ulmer and Anggy Polanco 1/17

December 19, 2017

Perspective

WSJ – Daily Shot: Credit Suisse – US Household Net worth by quantile 12/15

WSJ – Daily Shot: Credit Suisse – US Household Ownership of Equities by quantile 12/15

Bloomberg – He Stole $100 Million From His Clients. Now He’s Living in Luxury on the Cote d’Azur – Liam Vaughan 12/17

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Seeing Both Sides – Ben Carlson 12/17

Economist – Why is America more tolerant of inequality than many rich countries? – C.K. 12/18

  • “Ignorance about the scale of the problem is part of the answer.”

Huffpost – Why millennials are facing the scariest financial future of any generation since the Great Depression – Michael Hobbes 12/14

  • A summary of the numbers provided by Erica Pandey of Axios on 12/17:
  • “300% more student debt than their parents, on average.”
  • “1/2 as likely to own a home as young people — ages 25–34 — were in 1975.”
  • “One in five of young adults live in poverty.”
  • “2.9% average annual returns on 401(k) plans, compared to 6.3% returns for baby boomers.”
  • “Many millennials will have to work until the age of 75, based on an analysis of federal data.”
  • “A typical 2009 college graduate could earn up to $58,600 less than a typical 2007 college graduate over a decade, based on current trends.”
  • “The American racial wealth gap is widening, with the median white household projected to have 86 times more wealth than the median black household by 2020.”

NYT – World’s Most Expensive Home? Another Bauble for a Saudi Prince – Nicholas Kulish and Michael Forsythe 12/16

NYT – What Is Bitcoin Really Worth? Don’t Even Ask. – Robert Shiller 12/15

Project Syndicate – Complacency Will Be Tested in 2018 – Stephen S. Roach 12/14

  • “Alas, there is an important twist today that wasn’t in play back then –central banks’ swollen balance sheets. From 2008 to 2017, the combined asset holdings of central banks in the major advanced economies (the United States, the eurozone, and Japan) expanded by $8.3 trillion, according to the Bank for International Settlements. With nominal GDP in these same economies increasing by just $2.1 trillion over the same period, the remaining $6.2 trillion of excess liquidity has distorted asset prices around the world.”
  • “Therein lies the crux of the problem. Real economies have been artificially propped up by these distorted asset prices, and glacial normalization will only prolong this dependency. Yet when central banks’ balance sheets finally start to shrink, asset-dependent economies will once again be in peril. And the risks are likely to be far more serious today than a decade ago, owing not only to the overhang of swollen central bank balance sheets, but also to the overvaluation of assets.”

The Reformed Broker – Sometimes it’s not complicated – Joshua M. Brown 12/15

Vanity Fair – Of the 1%, By the 1%, For the 1% – Joseph Stiglitz, May 2011

Markets / Economy

FT – Wildfires in California add to ‘horrific year’ of disaster losses – Alistair Gray and Oliver Ralph 12/17

  • “String of catastrophes expected to drive insurance prices higher.”

Real Estate

MarketWatch – We’re still building the wrong kind of homes for renters – Andrea Riquier 12/14

  • “11 million Americans spend more than 50% of their income on rent.”

NYT – The Next Crisis for Puerto Rico: A Crush of Foreclosures – Matthew Goldstein 12/16

  • “About one-third of the island’s 425,000 homeowners are behind on their mortgage payments to banks and Wall Street firms that previously bought up distressed mortgages. Tens of thousands have not made payments for months. Some 90,000 borrowers became delinquent as a consequence of Hurricane Maria, according to Black Knight Inc., a data firm formerly known as Black Knight Financial Services.”
  • “Puerto Rico’s 35% foreclosure and delinquency rate is more than double the 14.4% national rate during the depths of the housing implosion in January 2010. And there is no prospect of the problem’s solving itself or quickly.”
  • “At the moment, dealing with a mortgage lender about a missed payment may be a distant concern for many of the 3.4 million people in Puerto Rico. They are literally still picking up the pieces, struggling to live without electricity or trying to get insurance companies to pay claims to repair their homes. More than 100,000 people are believed to have left to go live with friends and family on the mainland.”
  • “Residents won a reprieve when the federal government imposed a temporary moratorium on foreclosures, which stops banks and investors that bought mortgages at cut-rate prices from evicting delinquent borrowers or starting new foreclosures. Many lenders also have agreed to waive missed payments during the moratorium.”
  • “But that moratorium is scheduled to expire in early 2018, and lawyers and housing counselors expect that to trigger a surge in foreclosures.”

Finance

WSJ – Daily Shot: Investing.com – Bitcoin 12/18

  • “The cryptocurrency is gunning for $20k as it hit another record high over the weekend.”

Health / Medicine

WP – ‘We feel like our system was hijacked’: DEA agents say a huge opioid case ended in a whimper – Lenny Bernstein and Scott Higham 12/17

South America

NYT – As Venezuela Collapses, Children Are Dying of Hunger – Meridith Kohut and Isayen Herrera 12/17

November 13, 2017

Perspective

FT – How Germany got its gold back – Claire Jones 11/10

  • “It was kept abroad to escape the Soviet Union. But then Germany decided to bring it home.”

NYT – After Weinstein: A List of Men Accused of Sexual Misconduct and the Fallout for Each – Sarah Almukhtar, Larry Buchanan, and Michael Gold 11/12

Worthy Insights / Opinion Pieces / Advice

FT – Little room for error as investors chase leveraged loan boom – Ben McLannahan 11/9

  • “Riskier ‘covenant-lite’ loans now account for about 70% of new leveraged loans, up from 30% before the Lehman Brothers crisis. Protections that were standard back then have now vanished altogether.”
  • “’As long as investors keep buying these loans, there’s nothing really to put the brakes on,’ says Derek Gluckman, a vice-president at Moody’s. ‘Things just keep getting worse.’”
  • “’Loan terms never got this bad in ‘07,’ says Mr. Cohen (founder and CEO of Covenant Review). ‘The contracts … are the worst they’ve ever been. Period, full stop.’”

Markets / Economy

WSJ – A Starbucks Coffee Costs What? – Chelsey Dulaney and Ira Iosebashvili 11/9

  • You’ve heard of the Big Mac Index, this is the Starbucks proxy.

WSJ – Daily Shot: FRED – Financial Stress Index 11/10

FT – Catastrophes wipe $35bn from insurers’ profits – Oliver Ralph and Alistair Gray 11/12

  • “A string of natural disasters from Hurricane Harvey in the US to earthquakes in Mexico have left the insurance industry facing one of its most expensive years on record.”
  • “The catastrophes have wiped more than $35bn from insurers’ profits, according to a Financial Times analysis of third-quarter results that have laid bare the scale of the damage. Berkshire Hathaway, run by billionaire Warren Buffett, and AIG were among the hardest hit in the US, while in Europe Swiss Re and Munich Re face large claims. Lloyd’s, the London-based insurance market, expects to pay out a total of $4.5bn.” 
  • “Insurers say the final cost is likely to be larger and push up premiums. Commercial insurance and reinsurance have suffered from years of falling rates, as excess capacity and a lack of big claims combined to drive prices down.”
  • “’The losses have been extensive across reinsurance, commercial insurance and personal lines,’ said Kurt Karl, chief economist at Swiss Re. ‘There were $20bn of natural catastrophe losses across the industry in the first half. Hurricanes Harvey, Irma and Maria, combined with the earthquakes in Mexico, will create about $95bn of insured losses.’”
  • “Added together, the industry is facing more than $110bn of insured losses from natural catastrophes. Only 2005 — when Hurricane Katrina hit the US — and 2011 — when there were earthquakes in Japan and New Zealand — were more costly.”
  • “The $35bn figure, taken from company reports, does not include losses from unlisted companies, or from insurance-linked securities in which investors’ capital is used to directly back insurance risk.” 

Tech

Statista – Attack of the Clones – Felix Richter 11/9

Environment / Science

WP – The Earth’s ozone hole is shrinking and is the smallest it has been since 1988 – Marwa Eltagouri 11/3

  • “This year, the ozone hole is the smallest it has been since 1985. NASA and NOAA scientists have been studying the ozone layer and monitoring its hole over Antarctica for years. This year, the ozone hole is the smallest it has been since 1985.”
  • “Here’s a rare piece of good news about the environment: The giant hole in the Earth’s protective ozone layer is shrinking and has shriveled to its smallest peak since 1988, NASA scientists said.”
  • “The largest the hole became this year was about 7.6 million square miles wide, about two and a half times the size of the United States, in September. But it was still 1.3 million square miles smaller than last year, scientists said, and has shrunk more since September.”
  • “Warmer-than-usual weather conditions in the stratosphere are to thank for the shrinkage since 2016, as the warmer air helped fend off chemicals like chlorine and bromine that eat away at the ozone layer, scientists said. But the hole’s overall reduction can be traced to global efforts since the mid-1980s to ban the emission of ozone-depleting chemicals.”
  • “The ozone hole was largest in 2000, when it was 11.5 million square miles wide, according to NASA.”

Health / Medicine

WP – Aaron Hernandez suffered from most severe CTE ever found in a person his age – Adam Kilgore 11/9

India

FT – Smog-cloaked Delhi looks with envy at Beijing’s cleaner air – Kiran Stacey, Emily Feng, and Archie Zhang 11/10

  • “As Indian politicians squabble over who is to blame for the thick smog that has descended over the north of the country this week, citizens have been looking enviously over the border at China, where particulate levels have been falling for years.”
  • “Many in India believe Beijing has been better able to combat its air pollution problem because it does not get bogged down in political infighting. They blame India’s problems on the country’s raucous but inefficient democracy.”
  • This week, pollution in Delhi literally went off the charts, hitting the top reading of 999 on the US embassy’s air quality index. Anything over a reading of 100 is considered unhealthy.” 
  • By Wednesday afternoon, Delhi saw airborne levels of tiny damaging particles known as PM2.5 hit 833 parts per million, while in Beijing the level was 76. Anything over 50 is considered unhealthy, and anything over 300 hazardous.
  • “The difference between the two cities reflects a broader divergence over recent years, during which Delhi has taken over from Beijing as the world’s most polluted megacity.” 
  • “’Indian politicians have this very weird idea that we will do something about pollution when we are developed, but we won’t develop unless they invest in public health,’ says TK Joshi, director of the Centre for Occupational and Environmental Health in Delhi.”
  • “He adds: ‘Beijing has tackled this problem much better, but then it is much easier to control things in an authoritarian regime than in a democracy, especially one like India, where 50% of the people are so badly educated about the problem.’”

Middle East

WSJ – Saudi Crackdown Targets Up to $800 Billion in Assets – Margherita Stancati and Summer Said 11/7

  • “The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter.”
  • “The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of ‘persons of interest’ and said the move is ‘in response to the Attorney General’s request pending the legal cases against them.’”
  • “Much of that money is abroad, which will complicate efforts to reclaim it, people familiar with the matter said. But even a portion of that amount could help Saudi Arabia’s finances. A prolonged period of low oil prices forced the government to borrow money on the international bond market and to draw extensively from the country’s foreign reserves, which dropped from $730 billion at their peak in 2014 to $487.6 billion in August, the latest available government data.”

FT – Greed and intrigue grip Saudi Arabia – Simeon Kerr 11/10

October 4, 2017

Perspective

USA Today – $5 to access your own money? ATM fees jump to record high and these cities are the worst – David Carrig 10/2

  • “Among the top 25 metropolitan areas, Pittsburgh residents encountered the highest fees. The top 25 metro areas with the highest average ATM fee, according to Bankrate.com:
    1. Pittsburgh: $5.19
    2. New York: $5.14
    3. Washington D.C.: $5.11
    1. Cleveland: $5.11
    2. Atlanta: $5.05″

Vox – These charts show Fox News really did ignore Puerto Rico’s crisis – Alvin Chang 10/2

Vox – Gun violence in America, explained in 17 maps and charts – German Lopez 10/2

VC – The Most Congested Cities in the World – Jeff Desjardins 10/3

Worthy Insights / Opinion Pieces / Advice

NYT – Nothing Will Change After the Las Vegas Shooting – Steve Israel 10/2

Bloomberg – Puerto Rico Governor’s Dire Warning: Millions May Flee the Island – Jonathan Levin 10/3

  • “You’re not going to get hundreds of thousands of Puerto Ricans moving to the states – you’re going to get millions.” Puerto Rican Governor Ricardo Rossello

Markets / Economy

WSJ – Hurricane Maria Packs a One-Two Punch for Insurance – Paul J. Davies 10/3

China

WSJ – China, With Methodical Discipline, Conjures a Market for Electric Cars – Trefor Moss 10/2

  • “In the U.S. and elsewhere, there is some skepticism about whether electric vehicles will be a significant market soon. China has made up its mind. One goal is to curb pollution and reduce reliance on foreign oil. China’s chief aim, though, is to use the emerging electric market to improve the patchy quality of its domestic auto makers. To that end, it is using industrial-policy measures to create a giant test bed for its companies’ designs and technology.”
  • “Already, Chinese-made models dominate. More than 100 electric models are on the domestic market. Sales of plug-in passenger vehicles reached 351,000 in 2016—nearly half the global total, according to EV-Volumes, a research group that tracks electric-car sales.”
  • “Foreign manufacturers were already making millions of gasoline cars in China annually, but they had held off building electric cars in the country until recently, and imports were discouraged by a 25% tariff. Bill Russo, a former Chrysler executive who is now managing director of auto consultancy Gao Fung Advisory Co. in Shanghai, said they had been reluctant to plunge into a market that didn’t yet offer significant scale.”
  • “Hints of scale are appearing. Sales of plug-in passenger cars in China have increased 40% this year, EV-Volumes said. They will make up 22% of Chinese auto purchases by 2025, projects Bernstein Research, up from 1% to 2% this year.”
  • “Volkswagen AG was firmly committed to diesel engines until it recently announced a sharp shift to embrace electric vehicles after its diesel-emissions scandal forced it to rethink strategy. China accounts for half its revenues, and VW Chief Executive Matthias Müller at last month’s Frankfurt auto show indicated China will help drive VW’s global transformation: ‘China and California are leading the way.’”
  • “Propelled by a China sales target of 1.5 million annual electric cars by 2025, VW will invest $83 billion rolling out 300 electric models world-wide by 2030, he said.”
  • “Some auto makers wonder if China’s electric-car demand growth will slow as the government dials back subsidies, as it has begun doing.”
  • “China began actively promoting electric cars in 2009 by introducing subsidies and setting sales targets. Sales began to take off in 2013. Electric vehicles took center stage in China’s industrial strategy with the 2015 launch of the Made in China 2025 plan, which calls for China to become a world leader in 10 future industries, including electric-vehicle production. China has provided $8 billion in subsidies so far.”
  • “China has gone a step beyond with its incentives. Authorities have guaranteed sales for Chinese makers, in part by buying vehicles for public fleets. Beijing’s municipal government has earmarked $1.3 billion to replace 70,000 city taxicabs with electric models.”
  • “China will have 4.8 million charging points by 2020, the government forecasts, up from 156,000 in March. The U.S. had 43,000 points in June, according to a University of Michigan study.”
  • “At those rates, China has roughly one charging point for every six electric cars, versus about one for every 17 in the U.S. and Norway.”
  • “Beijing’s most persuasive tool—and a reason foreign makers are eager to start producing in China—is restricting license plates for new gasoline-powered cars in seven cities. In Beijing, more than 11 million people typically enter a monthly lottery for 14,000 gasoline-car plates. Shanghai auctions them to the highest bidders. Electric-vehicle buyers in the cities can get tags almost instantly at no cost.”
  • Essentially, cars are going to happen. China has decided.

February 24 – March 2, 2017

The insurance industry in China has been good business – too good. What is the magic number for China’s foreign exchange reserves? What gives – why haven’t the share buybacks by US corporates juiced returns (passive investing)?

Headlines

FT – Samsung heir Lee Jae-yong charged with bribery 2/28. Lee Jae-young is actually looking at jail time.

FT – China capital crackdown threatens wave of overseas buyouts 2/27. Dalian Wanda’s $1bn acquisition of Dick Clark Productions is in question even though the argument can be made that it is strategic to its cinema business (AMC, Carmike Cinemas, Odeon & UCI theatres, Legendary Entertainment) and even though it is being made by one of China’s most connected and richest individuals.

WSJ – London’s ‘Cheesegrater’ Sold to Chinese Firm for $1.4 Billion 3/1. Hong Kong property tycoon Cheung Chung Kiu’s CC Land Holdings just stumped £1.15bn up for the Leadenhall Building in London – recently appraised at £915m at the end of September. Well, the office yields in London at around 4.6% are near double the 2.6% in Hong Kong and the yuan is up 12% on sterling since the Brexit vote.

Special Reports / Opinion Pieces

Briefs

  • Robin Harding and Elaine Moore of the Financial Times covered that the Bank of Japan has telegraphed to the world that it plans to keep buying bonds to keep yields at 0%.
    • “The Bank of Japan published detailed schedules of planned asset purchases for the first time on Tuesday as it seeks to prove its commitment to a zero per cent cap on 10-year government bond yields.”
    • “Japan’s central bank said it will buy a minimum of ¥1.375tn and a maximum of ¥2.175tn of government bonds during March, giving a series of dates and estimated sizes for its planned bond auctions at different maturities.”
    • “The BoJ gave a strong hint that its announcement is meant to signal a minimum plan for purchases, rather than a maximum, saying it ‘may increase the frequency as needed.'”
    • “Japan’s 10-year yield is currently trading at 0.04%, having reached 0.11% at one point earlier this month before the BoJ stepped in and offered to buy in unlimited quantity to prevent it from rising any higher.”
    • Bottom line, the BoJ is all-in on maintaining 0% yields and the market can be assured of that.

Graphics

WSJ – Daily Shot: US Total Oil Exports 2/23

wsj_daily-shot_us-total-oil-exports_2-23-17

WSJ – Daily Shot: China – WMP Product Investment Categories 2/23

  • “…Pressure on corporate bonds poses risks to Wealth Management Products (WMPs). One could argue that these offerings are a form of Ponzi scheme because when investors redeem their holdings, managers rely on other money to come into the product. If more people redeem than invest, the managers will be forced to liquidate and it’s not clear there will be enough to repay the last guys out.”

wsj_daily-shot_china-wmp-product-investment-categories_2-23-17

WSJ – Daily Shot: Chinese Bank WMP Deposit Percentage 2/23

wsj_daily-shot_chinese-bank-wmp-deposit-percentage_2-23-17

WSJ – Daily Shot: FRED – US Home Price Index v Avg. Hourly Earnings 2/23

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Economist – Longevity in rich countries – The Data Team 2/23

economist_longevity-in-rich-countries_2-23-17

Visual Capitalist – Millionaire Migrants: Countries That Rich People Are Flocking To – Jeff Desjardins 2/24

visual-capitalist_millionaire-migrants_2-24-17

WSJ – Daily Shot: Snap Value Progression 3/1

wsj_daily-shot_snap-value-progression_3-1-17

WSJ – Daily Shot: Maptitude – Largest coffee chains by US County 3/1

wsj_daily-shot_maptitude-largest-coffee-chains-by-county_3-1-17

Featured

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

China bans fourth richest man from insurance sector for 10 years. Gabriel Wildau. Financial Times. 24 Feb. 2017.

“China’s fourth richest man [Yao Zhenhua, chairman of Baoneng Group] has been banned from the country’s insurance industry for 10 years, in the most aggressive move yet by regulators to tame borrowing and hostile corporate takeovers by insurers.”

“Much of the funding for Baoneng’s…investments came from investments gathered by its life insurance unit, Foresea Life Insurance, which Mr Yao also chairs.”

“Foresea quickly scaled the premium rankings of China’s life insurance industry by selling so-called ‘universal insurance’ products, which are essentially wealth management vehicles with a small protection component.”

“Insurers are able to offer higher yields than those available on comparable vehicles from banks and other fund managers because they have the freedom to invest in a wider range of assets. Anbang Insurance Group has also relied on sales of universal insurance products to fund a high-profile global shopping spree.”

“But analysts have warned against the strategy. Such products essentially force insurers to seek out risky, high-yielding assets in order to meet future payouts. Analysts are also concerned by a liquidity risk when short-duration products are matched to long-term illiquid assets such as real estate or large equity stakes.”

“Rarely seen in public, Mr Yao was China’s fourth richest man in 2016 with a fortune of $17bn, up more than ninefold from a year earlier, according to the Hurun Report. Local media say he started as a vegetable seller before making his first fortune as a property developer in the freewheeling city of Shenzhen in the 1990s.”

Previously, the China Insurance Regulatory Commission chairman Xiang Junbo had “warned that insurers cannot be ‘ATM machines’ for corporate raiders.”

“Mr Xiang also promised on Wednesday to curb ‘aggressive’ pricing and ‘unreasonably’ high returns on some insurance products. He said insurers should not interfere with the management of listed companies. Instead, the industry should focus on its core function of providing risk protection.”

China curbs capital outflows to keep renminbi stable. James Kynge. Financial Times. 28 Feb. 2017.

“China successfully curbed the flow of money cascading out of the country in January following the imposition of administrative controls, raising the potential for Beijing to prevail in its efforts to keep the renminbi stable against the US dollar this year, analyst said.”

“In January, capital outflows fell to $30bn from $55bn in December, according to estimates by Goldman Sachs, an investment bank.”

“This represented a considerable reduction on the monthly average in a country that has experienced a leakage of $1.2tn between August 2015 and January this year, yielding a monthly average of $71bn.”

ft_china-capital-outflows_2-28-17

“‘Given the still-large size of China’s reserves, this pace of outflows in unlikely to stop the central bank from pursuing its current exchange-rate policy, which can be sustained for another couple of years,’ said Long Chen, analyst at Gavekal Dragonomics, a research company.”

The reasons for the slow down are varied; however, where there is disagreement is on what would be considered a sufficient amount of foreign exchange reserves.

“China’s foreign exchange reserves fell $12bn in January to below the psychologically important $3tn level to $2.99tn, representing almost a $1tn reduction from its level of July 2014.”

“The issue of China’s reserves adequacy has arisen from applying the International Monetary Fund’s new reserve metric to the country.”

“Under this calculation, the proposed minimum reserves for China is $2.7tn…”

“But Brad Setser, senior fellow at the Council on Foreign Relations (CFR), a New York-based think-tank, said that China had ample room to defend its currency.”

“‘The world would be in a better place if there was a broad recognition that China can burn through another $1tn in reserves and, with $2tn still in reserves, be above nearly all metrics of reserve adequacy,’ Mr. Setser wrote in a CFR blog.”

“Jeremy Stevens, Asia economist at Standard Bank, holds a similar view. ‘It seems fair to argue that in terms of foreign exchange reserves, somewhere between $1.56tn and $2.2tn would be adequate for China’s working capital,’ he said.”

It is to be seen what China itself considers the ‘right’ amount of reserves. Regardless, part of the capital curbs have been aimed at encouraging more discretion by Chinese investors and companies in their foreign acquisitions.

“Pan Gongsheng, head of SAFE [State Administration of Foreign Exchange], was quoted as telling a Chinese newspaper this month that some overseas acquisitions by Chinese companies had been carried out with a ‘strong element of blindness.'”

ft_china-direct-investment-flows_2-28-17

US share buybacks punch below their weight. Robin Wigglesworth. Financial Times. 1 Mar. 2017.

In questioning whether corporate share buybacks have been on the whole a net positive, there has been a host of views presented. The concerns being that buybacks are short-sighted, returning cash to shareholders rather than pursuing growth initiatives. The implication being that these companies don’t have sufficient growth opportunities. However, in some cases companies simply have too much cash and recognize that they would do their owners a disservice by holding on to all of it.

“But perhaps the most notable thing about the buyback spree – more than $2tn of shares have been purchased in the past five years – is how it has arguably provided only a modest boost to equity prices, at least compared to the scale of the purchases.”

“Indeed, the share price performance of the most generous and consistent buyback companies paint a surprisingly muddied picture.”

ft_biggest-us-corporate-buyback-programs_3-1-17

“The S&P 500 Buybacks Index has rallied 96% over the past five years, outpacing the broader market’s 73% gain since. This is an outperformance of 2.8% annually. However, next to the sheer scale of the buybacks – the estimated $2tn spent is equal to a tenth of the S&P 500’s current value – it has underwhelmed.”

“Worse, the Nasdaq Buybacks index has even underperformed the broader Nasdaq Composite gauge over the past five years, with the former rising 86.3% and the latter by 90.3% – an annualized undershooting of 1.3%.”

“Goldman Sachs’s chief US equity strategist David Kostin has calculated that buybacks have been the single biggest source of demand for US stocks since the financial crisis, providing a vital pillar of demand at a time when domestic pension funds and foreign investors have largely been selling.”

“For example, last year overseas investors and US pension funds respectively offloaded $148bn and $127bn of American stocks. But US companies snapped up a record $644bn of their own shares, Goldman estimates.”

Further, “Goldman Sachs earlier this year [2017] lifted its forecast for S&P 500 share repurchases from an already lofty $780bn to $800bn.”

So why the muddied outcome… Charles Cara, head of quantitative strategy at Absolute Strategy Research has an “…intriguing reason for what he calls the ‘buyback anomaly’ of share repurchases not proving as big an uplift as the sheer volume would suggest: the rise of passive investing.”

“Passive investment vehicles do not react to share price moves. As equity prices move so do their index weights by an equal amount, provided that the share count remains constant. In other words, if Apple’s shares rise by $10, then an exchange-traded fund need do nothing, as its existing holdings of Apple stock obviously rises by the same amount.”

“Buybacks reduce the numbers of outstanding shares. If those shares rise as a result of the buyback, then an ETF or index-tracking fund – which do not sell to companies buying back their stocks – will find itself overweight compared to its benchmark, and will be forced to sell some of the shares and buy the rest of the stock market to rebalance.”

As Mr. Cara puts it, “buybacks are a prop to the whole stock market, but have a subdued impact on individual stocks because there is a countervailing force from passive investors.”

Other Interesting Articles

The Economist

 

FT – Chinese manufacturing jobs vanish as robots take over 2/23

FT – China seeks baby boom to counter sluggish birth rates 2/24

FT – Private equity losing out to cash-rich buyers on the big deals 2/26

FT – China economic strength allows shift from stimulus 3/1

FT – SF Express chief shakes up China’s rich list as shares soar 3/1

FT – The private equity party is overcrowded 3/1

Guardian – Scraping by on six figures? Tech workers feel poor in Silicon Valley’s wealth bubble 2/27

NewsMax – Yale’s Robert Shiller: Pull Back Now From Overpriced Bull Stock Market 2/24

NYT – Snapchat Founders’ Grip Tightened After a Spat With an Early Investor 2/23

NYT – What Booming Markets Are Telling Us About the Global Economy 3/1

WSJ – Why Chinese Men Are Dying 2/24

WSJ – How Dangerous Is a Stock Market of Mindless Robots? 2/24

WSJ – Trumpflation vs Negative Rates: The Battle Endures 2/28

WSJ – World’s Most Indebted Developer Keeps Piling It On 2/28

WSJ – The Urban Condo Boom Has Reached Its Final Frontier: Detroit 3/1

WSJ – How Chinese Companies Finance Their Ambitions Abroad 3/2

 

December 30, 2016 – January 5, 2017

China insurance crackdown – meaningful implications. Fewer and fewer U.S. public companies.

Headlines

 Special Reports / Opinion Pieces

Briefs

  • Yuan Yang of the Financial Times highlighted recent promises made by Beijing’s mayor that house prices will not rise in 2017.
    • So here’s a new approach, with prices haven risen by more than 25% in 2016 “Beijing’s mayor has promised that house prices in the capital will not rise in 2017 in an attempt to ease concerns over the city’s property bubble.”
    • Good for people wanting to get in on the action, bad for those that own property.
    • “We must be firm in stamping out speculative investment [in property], increase the supply of residential housing, and guarantee that there will be no month-on-month increases in house prices.” – Mayor Cai Qi
    • This message is consistent with national policy that “houses are for living in, not for speculating with.”
    • The trick though will be to apply the break and the gas in a manner that keeps pricing static and not falling.
  • Tom Hancock of the Financial Times covered the new NGO regulation in effect in China.
    • In a previous post I highlighted Edward Wong’s article on China’s new regulations on Non-Government Organizations (NGOs) requiring each NGO within the country to have an official sponsor.  Well the policy is in effect as of January 1, and guess what…
    • “China’s Ministry of Public Security (MPS) waited until last week to publish a list of eligible sponsors, meaning that almost none of the thousands of foreign non-profits in China – ranging from charities such as Greenpeace and Oxfam to funds such as the Ford Foundation – will meet the law’s conditions before the January 1 deadline.”
    • Oh and there is no grace period.
    • As a result organizations are dialing down their operations to shuttling out personnel before December 31.
    • At issue is that “the law puts foreign organizations under direct supervision of Chinese police, who in the last two years have detained scores of human rights lawyers and cracked down on local groups advocating for reform via the courts. This month an office of the MPS promoted a video accusing foreign governments of using civil society to promote ‘color revolution’ in China.”
    • Bottom line, “the law says: ‘Foreign NGOS carrying out activities within mainland China shall abide by Chinese laws, must not endanger China’s national unity, security or ethnic unity; and must not harm China’s national interests.'”
    • As it stands “the MPS has said there are 7,000 foreign NGOs in China, suggesting it has a more expansive definition of the term than foreign experts who put the number closer to 1,000.”
  • Jacky Wong of The Wall Street Journal illustrated an interesting ploy by China Evergrande to sell equity that acts a lot like debt.
    • In a word, shenanigans.
    • “China Evergrande Group, the country’s largest developer by assets, said Monday that it has agreed to sell a 13.2% stake in its major subsidiary, Hengda Real Estate, to eight investors for 30 billion yuan ($4.3 billion). This values Hengda, which owns Evergrande’s core property development business, at $33 billion – almost four times the parent’s current market capitalization.”
    • So the rest of the company is worth much less than $0?
    • “The investment is basically a form of bridge financing in preparation for the company to list Hengda in mainland China, something the developer proposed back in October.”
    • Basically, the company is “effectively guaranteeing the investors an average 7.8% yield for the next three years. That is more cash drain for a company that hasn’t had a full year of positive operating cash flow since 2009 and has net debt equal to more than four times its equity, counting perpetuals as debt, among the highest in the sector.”
    • wsj_china-evergrande-operating-cash-flow_1-3-17
  • Dave Gershgorn of Quartz pointed to the automation of Japanese white-collar workers in the insurance industry.
    • “One Japanese insurance company, Fukoku Mutual Life Insurance, is reportedly replacing 34 human insurance claim workers with ‘IBM Watson Explorer,’ starting January 2017.”
    • “Fukoku Mutual will spend $1.7 million (200 million yen) to install the AI system, and $128,000 per year for maintenance, according to Japan’s The Mainichi. The company saves roughly $1.1 million per year on employee salaries by using the IBM software, meaning it hopes to see a return on investment in less than two years.”
    • “Watson AI is expected to improve productivity by 30%, Fukoku Mutual says.”
    • “Artificial intelligence systems like IBM’s are poised to upend knowledge-based professions, like insurance and financial services, according to the Harvard Business Review, due to the fact that many jobs can be ‘composed of work that can be codified into standard steps and of decisions based on cleanly formatted data.’ But whether that means augmenting workers’ ability to be productive, or replacing them entirely remains to be seen.”

 Graphics

WSJ – Daily Shot: Cities Where Rent Swallows Your Salary 12/29

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WSJ – Daily Shot: Selfie-Fatalities 12/29

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FT – China/US real estate: safe as houses – Lex 12/30

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WSJ – China and the Debt-Refinancing Game in 2017 – Nathaniel Taplin 1/3

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WSJ – Luxury Apartment Boom Looks Set to Fizzle in 2017 – Laura Kusisto 1/2

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Featured

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

How China’s Insurance Crackdown Spawns More Risks. Anjani Trivedi. The Wall Street Journal. 4 Jan. 2017.

“Following a year in which Chinese insurers aggressively built risky and illiquid portfolios, acquired real estate, companies and stakes in companies at home and across the world, under loose regulation, China’s insurance regulator has taken to severe tightening measures in recent weeks. Regulators have effectively barred insurers from making risking investments and banned certain insurers and insurance products with high cash value and low protection.”

“The repercussions could cause trouble far and wide. Almost 60% of China’s wealth-management products are invested in bond and money-market funds and a growing portion of these products are backed by bonds. And, they account for almost 20% of banking-system deposits.”

“China’s unlisted insurers-infamous among them, Anbang-will now see their wealth-management, product-backed financing platforms squeezed under new rules that bar investing cash raised from investment products. With policyholder deposits accounting for more than 70% of written premiums, more asset-selling may be on the cards.”

Chinese insurers under pressure to rein in overseas deals. Henny Sender. Financial Times. 3 Jan. 2017.

Adding to the WSJ article.

“Regulators now say that any deal with a price tag of more than $5m needs approval; while big strategic acquisitions are likely to receive the nod, acquisitions of noncore assets, such as real estate, are not. Meanwhile, the slide in the renminbi, which makes diversification offshore more attractive, also makes deals increasingly expensive.”

“Until recently, many analysts expected Chinese insurers to increase their offshore activity.”

Further, due to low interest rates worldwide, insurance companies have been seeking higher return investment categories. As Boston-based consultancy Cerulli Associates notes “investments in the ‘others’ category – which includes listed and unlisted long-term equity investments, bank wealth management products, trusts, private equity, venture capital, loans and real estate – rose from 23.7% in 2014 to 34.2% in June 2016.”

“Fitch Ratings, meanwhile, is worried about the overall health of Chinese insurers, which have largely been overlooked amid concerns about the country’s banks. Its analysts noted that ‘the insurers have shifted to investing in riskier assets to sustain investment yields. This make their credit profiles more vulnerable to unfavorable capital market fluctuations and potential credit-quality deteriorations amid an economic slowdown.”

Thus considering these insurers will find it quite difficult purchase overseas assets with capital from China, they will have to already have the cash overseas, have a means to raise cash abroad, or they will need to sell overseas assets to pursue continued investments.

“Anbang, which does not have an offshore equity listing, has not sold any large overseas assets so far. People briefed on its plans said it would probably not proceed with an international bond offer after US ratings agencies suggested that it was likely to receive a non-investment grade rating.”

In fact, “Anbang may also have trouble finding the financing it needs to complete some of the overseas acquisitions it has already agreed (to). That in turn would crimp its ability to buy more.”

“In recent years, bankers with assets to sell have often counted on bidders from China to help push up the price. With commodity prices subdued (hurting SWF liquidity), and the US focused inward, it is not clear who will take their place.”

America’s Roster of Public Companies Is Shrinking Before Our Eyes. Maureen Farrell. The Wall Street Journal. 4 Jan. 2017.

“With interest rates hovering near record lows, big investment funds seeking higher returns are showering private companies with cash. Companies also are leaving the stock market in near-record numbers through mergers and acquisitions.”

“The U.S. is becoming ‘de-equitized,’ putting some of the best investing prospects out of the reach of ordinary Americans.”

“The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997, according to the University of Chicago’s Center for Research in Security Prices. As of June, there were 5,734 such public companies, little more than in 1982, when the economy was less than half its current size. Meanwhile, the average public company’s valuation has ballooned.”

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“In the technology industry, the private fundraising market now dwarfs its public counterpart. There were just 26 U.S.-listed technology IPOs last year, raising $4.3 billion, according to Dealogic. Meanwhile, private U.S. tech companies tapped the late-stage funding market 809 times last year, raising $19 billion, Dow Jones VentureSource’s data show.”

“‘There’s no great advantage of being public,’ says Jerry Davis, a professor at the University of Michigan’s Ross School of Business and author of ‘The Vanishing American Corporation.’ ‘The dangers of being a public company are really evident.'”

“Among them, Mr. Davis and other say: having an investor base that clamors for short-term stock gains and being forced to disclose information that could be useful to competitors.”

“While it is difficult to quantify, there has been an explosion in private investment capital in recent years. Sovereign-wealth funds-pools of capital invested by nations-have roughly $7.4 trillion under management, more than double the $3.5 trillion they held in 2007, according to the Sovereign Wealth Fund Institute, a research and data firm. Assets under management at U.S. private-equity firms totaled $1.4 trillion, an increase of more than 30% since 2007 and nearly four times the tally in 2000, according to the most recent data from PitchBook, a data provider and research unit of Morningstar Inc.”

Last year, 111 companies went public on U.S. exchanges, raising $24.2 billion, a dollar-volume drop of 33% from the previous year and the lowest dollar volume since 2003, according to Dealogic.”

“Meanwhile, M&A activity targeting U.S. listed companies has risen since 2012 to more than 9,300 transactions a year, on a 10-year rolling average. Before 2012, the average ranged from 8,000 to 9,200.”

“With fewer places for investors to spread their cash and more companies combining, the average size of a public company in the U.S. has swelled, hitting an all-time high of $4.7 billion in 2014… the average public company is more than three times as large as it was in 1997, after adjusting for inflation.”

Unfortunately for investors, it is unlikely that they’re going to be able to invest in a start-up with huge upside potential through the public markets…

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Other Interesting Articles

Bloomberg Businessweek

Bloomberg – Wall Street, America’s New Landlord, Kicks Tenants to the Curb 1/3

Bloomberg – Harvard Academic Sees Debt Rout Worse Than 1994 ‘Bond Massacre’ 1/4

FT – French luxury hotels woo daytime lovers 12/29

FT – Chinese government enters storm over domestic filmmaking 12/30

FT – Stalling Chinese box office raises Hollywood fears 12/30

FT – Uber and Airbnb business models come under scrutiny 12/30

FT – Tesla falls short of vehicle delivery target in 2016 1/3

FT – Apple removes New York Times app from its China store 1/4

FT – Apple-SoftBank: noncore bets 1/4

FT – German push for home ownership drives price bubble fears 1/4

NYT – A Peek Inside the Strange World of Fake Academia 12/29

NYT – Uncertainty Over New Chinese Law Rattles Foreign Nonprofits 12/29

NYT – In a Brutal Year in Venezuela, Even Crime Fighters Are Killers 12/30

Visual Capitalist – Infographic: Vancouver Real Estate Mania 6/2/16

WSJ – The Chinese Theme-Park Honey Trap 1/3

WSJ – Shanghai Tower Fails to Meet High Leasing Hopes 1/3

WSJ – Slippery Logic to Russia’s Oil-Cut Claim 1/4

WSJ – Ignore Tesla’s Latest Slip at Your Peril 1/4