Tag: Interest Rates

July 10, 2017

If you were to read only one thing…

NYT – Rooftop Solar Dims Under Pressure From Utility Lobbyists – Hiroko Tabuchi 7/8

  • “Over the past six years, rooftop solar panel installations have seen explosive growth — as much as 900% by one estimate.”
  • “That growth has come to a shuddering stop this year, with a projected decline in new installations of 2%, according to projections from Bloomberg New Energy Finance.”
  • “A number of factors are driving the reversal, from saturation in markets like California to financial woes at several top solar panel makers.”
  • “But the decline has also coincided with a concerted and well-funded lobbying campaign by traditional utilities, which have been working in state capitals across the country to reverse incentives for homeowners to install solar panels.”
  • “Utilities argue that rules allowing private solar customers to sell excess power back to the grid at the retail price — a practice known as net metering — can be unfair to homeowners who do not want or cannot afford their own solar installations.”
  • “Their effort has met with considerable success, dimming the prospects for renewable energy across the United States.”
  • “Prodded in part by the utilities’ campaign, nearly every state in the country is engaged in a review of its solar energy policies. Since 2013, Hawaii, Nevada, Arizona, Maine and Indiana have decided to phase out net metering, crippling programs that spurred explosive growth in the rooftop solar market. (Nevada recently reversed its decision.)”
  • “Many more states are considering new or higher fees on solar customers.”
  • “’We believe it is important to balance the needs of all customers,’ Jeffrey Ostermayer of the Edison Electric Institute, the most prominent utility lobbying group, said in a statement.”
  • “The same group of investor-owned utilities is now poised to sway solar policy at the federal level. Brian McCormack, a former top executive at the Edison institute, is Energy Secretary Rick Perry’s chief of staff.”
  • “Four years ago, the Edison institute, an industry group made up of the country’s largest investor-owned electric companies, declared that the business of generating electricity was in danger of being sucked into what has since become known as a ‘utility death spiral.’”
  • “As more consumers switched to rooftop solar and bought less electricity from the grid, the trade group worried in a 2013 document, the costs of running conventional coal, oil, gas or nuclear power plants would be shared among an ever-smaller customer base. That could cause rates to spike, chasing even more customers away.”
  • “Since then, the utilities have targeted state solar power incentives, particularly net metering, which credits solar customers for the electricity they generate but do not use and send back to the grid. That offsets the cost of electricity they may still buy from their local utility during cloudy days and at night, reducing or even eliminating their electricity bills.”
  • “Utilities argue that net metering, in place in over 40 states, turns many homeowners into free riders on the grid, giving them an unfair advantage over customers who do not want or cannot afford solar panels. The utilities say that means fewer ratepayers cover the huge costs of traditional power generation.”
  • “Utilities found a receptive audience in many states.”
  • “Arizona legislators voted in December to move away from net metering, lowering the credit solar customers receive for the excess energy they generate and limiting how long customers keep their favorable rates.”
  • “In Florida last year, the utility industry contributed more than $21 million to an ultimately unsuccessful ballot initiative to ban third-party sales or leasing of rooftop solar panels. A leaked audio recording appeared to reveal that the utility campaign deliberately misled pro-solar voters into voting for an anti-solar policy, a tactic one consultant called ‘political jujitsu.’”

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – Has Asia Learned From the 1997 Crisis? – Michael Schuman 6/15

Economist – 3D printers will change manufacturing 6/29

WSJ – So Long, Hamburger Helper: America’s Venerable Food Brands Are Struggling 7/6

Markets / Economy

WSJ – Daily Shot: Gold Eagle – Most Googled Car/Truck by State 7/7

Bloomberg – These U.S. States Still Haven’t Fully Recovered From Recession – Steve Matthews and Catarina Saraiva 7/5


WSJ – Daily Shot: UK 5yr Government Bond Yield 7/6

  • The world is turning hawkish.

WSJ – Daily Shot: German 10yr Government Bond Yield 7/6

WSJ – Daily Shot: US 10yr Government Bond Yield 7/6

WSJ – Daily Shot: Canadian 5yr Government Bond Yield 7/6

WSJ – Daily Shot: Japan 10yr Government Bond Yield 7/6

Middle East

WSJ – Daily Shot: Saudi Arabia Bank Lending Growth 7/7

July 6, 2017


FT – China changes tack on ‘social credit’ scheme plan – Lucy Hornby 7/4

  • “Beijing delays licenses for country’s tech champions amid conflict of interest fears.”

WSJ – Ill-Funded Police Pensions Put Cities in a Bind – Heather Gillers and Zusha Elinson 7/4

  • “Police pensions are among the worst-funded in the nation. Retirement systems for police and firefighters have just a median 71 cents for every dollar needed to cover future liabilities, according to a Wall Street Journal analysis of data provided by Merritt Research Services for cities of 30,000 or more.”
  • “The combined shortfall in the plans, which are the responsibility of municipal governments, is more than $80 billion, nearly equal to New York City’s annual budget.”
  • “Broader municipal pension plans have a median 78 cents of every dollar needed to cover future liabilities, according to data from Merritt. The 100 largest U.S. corporate pension plans have 85% of assets needed on hand, according to Milliman Inc. data as of March 31.”
  • “And yet any attempt to bring police pensions into line with today’s municipal budgets and stock-market performance runs into the reality that many officers won’t stand for it—and they often have the public behind them.”

Worthy Insights / Opinion Pieces / Advice

FT – Apple has built an office for grown-ups – Lucy Kellaway 7/2

Markets / Economy

FT – Fed ready to begin unwinding stimulus ‘within months’ 7/5


Economist – South African mining is in crisis – 7/4

  • “The industry faces tough times, made worse by foolish policies.”


FT – Hyundai’s China sales plunge 60% amid ‘anti-Korea sentiment’ – Song Jung-a 7/4

  • “Hyundai Motor’s problems in China are worsening as China’s backlash over the deployment of a controversial US missile shield continues to dent sales in one of its key overseas markets amid heightened competition with fast-growing local automakers.”
  • “Hyundai said on Tuesday its China sales dropped 64% to 35,000 in June from a year earlier while Kia’s fell 58% to about 19,000 units. ‘Because of the anti-Korea sentiment, fewer Chinese are visiting our showrooms these days,’ said a company spokeswoman.”

June 29, 2017


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.”


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


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.”


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


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 22, 2017


Data Is Beautiful – Adult Obesity rates in the United States – zonination 6/20

Worthy Insights / Opinion Pieces / Advice

Project Syndicate – Brexit In Reverse? – George Soros 6/19

  • “Economic reality is beginning to catch up with the false hopes of many Britons. One year ago, when a slim majority voted for the United Kingdom’s withdrawal from the European Union, they believed the promises of the popular press, and of the politicians who backed the Leave campaign, that Brexit would not reduce their living standards. Indeed, in the year since, they have managed to maintain those standards by running up household debt.”

A Teachable Moment – How Can We Fix a Broken 403(b) System? – Anthony Isola 6/21

Markets / Economy

Reuters – For thousands of U.S. auto workers, downturn is already here – Nick Carey 6/21

Real Estate

WSJ – Avocado Toast Looks a Better Bet Than Australian Housing – Jacky Wong 6/20

  • “Chinese buyers have been gobbling up houses all over the world in recent years. There could be some nasty surprises when the buying stops.”
  • “There are already signs of imminent pain for the global property market, thanks to China’s efforts to stop money pouring out of the country. Inquiries from China for foreign real estate fell 31% in the first quarter from a year ago, according to Juwai.com, a portal that connects potential Chinese buyers to property listings overseas. For some of the most popular destinations, the drop was even bigger—42% for the U.S. and 39% for Australia.”
  • “The property market Down Under looks particularly vulnerable. China accounts for four in every five foreign buyers in Australia, with their interest a prime reason why home prices have surged to unaffordable levels: Prices in Sydney, for example, are up 72% since 2012.”
  • “Some are waking up to the potential trouble ahead, with Australia’s household debt now nearing 200% of disposable income. Moody’s downgraded 12 Australian banks and their affiliates Monday, citing rising risks associated with the housing market, following a similar move by Standard & Poor’s last month. The country’s four biggest banks alone have a $1.1 trillion exposure to Australian housing loans, making up 55% of their total portfolios, according to Morgan Stanley.”
  • “Worse still, nearly 40% of home loans now are interest-only, meaning borrowers don’t need to repay the principal for a certain period, usually five years. Such loans work fine when house prices keep rising. The worry now is that prices will start falling as Chinese buying interest wanes: Meanwhile, homeowners who have only had to pay interest on mortgages could see a rise in payments as the interest-only period on their loans expires.”


WSJ – Oil Returns to Bear Market – Stephanie Yang, Alison Sider, and Timothy Puko 6/20

  • “Prices are down 20.6% since Feb. 23, marking the sixth bear market for crude in four years and the first since August. Crude prices have lost 62% since settling at $115.06 a barrel three years ago. A bear market is typically defined as a decline of 20% or more from a recent peak, while a bull market is a gain of 20% or more from a recent trough.”


FT – Argentina’s 100-year bond cannot defy EM playbook forever – Jonathan Wheatley 6/20

  • “Really? A dollar-denominated bond that pays back 100 years from now, from a junk-rated country that has barely managed to stay solvent for more than half that time in its entire history as a creditor? While there is certainly an investment case for taking part, several analysts warn that this issue is a classic sign of a market getting ahead of itself.”
  • “The point, though, is not the 100 years. The complexities of bond math mean that, once maturities go beyond 30 years, the investment case barely changes. Barring default, with a yield of nearly 8%, the bond will repay investors in full in about 12 years, all else (such as inflation) being equal — and that’s leaving aside its resale value. Many investors will have much shorter horizons.”
  • “In a world starved of yield, the 7.91% on offer proved to be quite a pull and the bond attracted orders of $9.75bn for the $2.75bn issued. ‘People are looking out over the next 12 to 24 months and see a pretty positive outlook [for Argentina],’ says David Robbins, head of emerging markets at TCW in New York. ‘Duration in high yield is something they are more comfortable with.’ Argentina, he notes, is in effect selling equity in its economic recovery.”
  • “Sérgio Trigo Paz, head of emerging market fixed income portfolio management at BlackRock, says the rationale and the pricing are all good. But, he adds: ‘When you put it into perspective, it gives you a sense of déjà vu.’”
  • “He sees two scenarios. In one, the Fed is right about inflation and rates will continue to rise. This would turn the Argentine bond into ‘a bad experience’. In the other, markets are right, US inflation and payrolls will disappoint and we will be back in a low rate environment, which will be good for the bonds — until deflation rears its head again, hurting the Argentine economy and its ability to pay.”
  • “In the meantime, he says, there is a ‘Goldilocks’ middle ground in which investors can suck up an 8% coupon. Beyond that: ‘It doesn’t look good either way — which is why you get an inflection point.'”


FT – Toshiba picks government-backed group as chip unit buyer – Kana Inagaki and Leo Lewis 6/20

  • “After a chaotic months-long search for a buyer, Toshiba has picked a consortium led by a Japanese government-backed fund as the preferred bidder for its prized memory chip business.”
  • “The group — which includes the Innovation Network Corporation of Japan fund, private equity group Bain Capital and the Development Bank of Japan — competed against rival offers topping ¥2tn ($18bn) from US chipmaker Broadcom and Apple supplier Foxconn.”
  • “’Toshiba has determined that the consortium has presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees, and maintenance of sensitive technology within Japan,’ the company said in a statement on Wednesday.”

South America

NYT – Venezuela Opens Inquiry Into a Critic: Its Attorney General – Nicholas Casey 6/20

  • Long a Chavista, attorney general Luisa Ortega is being investigated now that she has expressed concern at how far those in power are willing to go to quiet dissent.

June 13, 2017

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Bulls, Bears & Charlatans – Ben Carlson 6/11

  • “A market crash is always a possibility. But using scare tactics to get people out of the markets (or keep them in) isn’t helpful to anyone.”

NYT – Stop Pretending You’re Not Rich – Richard Reeves 6/10

Markets / Economy

WSJ – Daily Shot: Change in U.S. Retail Jobs 6/12

Real Estate

WSJ – Daily Shot: Canadian Real Estate Assoc. – Home resales above $1 million 6/12

WSJ – Does Anyone Remember How to Make a Subprime Mortgage? – Kirsten Grind 6/12


WSJ – Daily Shot: Capital Economics – 10-Year Gov’t Bond Yields 6/12

  • “Take a look at this Capital Economics forecast for German government bond yields – a 1.75% increase in 2.5 years. Note that a 1% increase in the 10-year German yield will result in nearly a 10% mark-to-market loss. Time to short these bonds?”


May 1, 2017

If you were to read only one thing…

NYT – China’s Appetite Pushes Fisheries to the Brink – Andrew Jacobs 4/30

  • “Overfishing is depleting oceans across the globe, with 90% of the world’s fisheries fully exploited or facing collapse, according to the United Nations Food and Agriculture Organization. From Russian king crab fishermen in the west Bering Sea to Mexican ships that poach red snapper off the coast of Florida, unsustainable fishing practices threaten the well-being of millions of people in the developing world who depend on the sea for income and food, experts say.”
  • “But China, with its enormous population, growing wealth to buy seafood and the world’s largest fleet of deep-sea fishing vessels, is having an outsize impact on the globe’s oceans.”
  • “Having depleted the seas close to home, Chinese fishermen are sailing farther to exploit the waters of other countries, their journeys often subsidized by a government more concerned with domestic unemployment and food security than the health of the world’s oceans and the countries that depend on them.”
  • “Increasingly, China’s growing armada of distant-water fishing vessels is heading to the waters of West Africa, drawn by corruption and weak enforcement by local governments. West Africa, experts say, now provides the vast majority of the fish caught by China’s distant-water fleet. And by some estimates, as many as two-thirds of those boats engage in fishing that contravenes international or national laws.”
  • “China’s distant-water fishing fleet has grown to nearly 2,600 vessels (the United States has fewer than one-tenth as many), with 400 boats coming into service between 2014 and 2016 alone. Most of the Chinese ships are so large that they scoop up as many fish in one week as Senegalese boats catch in a year, costing West African economies $2 billion a year, according to a new study published by the journal Frontiers in Marine Science.”
  • “Many of the Chinese boat owners rely on government money to build vessels and fuel their journeys to Senegal, a monthlong trip from crowded ports in China. Over all, government subsidies to the fishing industry reached nearly $22 billion between 2011 and 2015, nearly triple the amount spent during the previous four years, according to Zhang Hongzhou, a research fellow at Nanyang Technological University in Singapore.”
  • “That figure, he said, does not include the tens of millions in subsidies and tax breaks that coastal Chinese cities and provinces provide to support local fishing companies.”
  • “When it comes to global fishing operations, China is the indisputable king of the sea. It is the world’s biggest seafood exporter, and its population accounts for more than a third of all fish consumption worldwide, a figure growing by 6% a year.”
  • “The nation’s fishing industry employs more than 14 million people, up from five million in 1979, with 30 million others relying on fish for their livelihood.”
  • “But as they press toward other countries, Chinese fishermen have become entangled in a growing number of maritime disputes.”
  • “Indonesia has impounded scores of Chinese boats caught poaching in its waters, and in March last year, the Argentine authorities sank a Chinese vessel that tried to ram a coast guard boat. Violent clashes between Chinese fishermen and the South Korean authorities have left a half-dozen people dead.”
  • The good news is that “Beijing has become sensitive to accusations that its huge fishing fleet is helping push fish stocks to the brink of collapse.”
  • “The government says it is aggressively reducing fuel subsidies — by 2019 they will have been cut by 60%, according to a fishery officialand pending legislation would require all distant-water vessels manufactured in China to register with the government, enabling better monitoring.”
  • “’The era of fishing any way you want, wherever you want, has passed,’ Liu Xinzhong, deputy general director of the Bureau of Fisheries in Beijing, said. ‘We now need to fish by the rules.’”
  • “But criticism of China’s fishing practices, he added, is sometimes exaggerated, arguing that Chinese vessels traveling to Africa were simply responding to the demand for seafood from developed countries, which have been reducing their own fleets.”
  • “’People come to me and ask, ‘If China doesn’t fish, where would Americans get their fish to eat?’’ he said.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Whatever You Do, Don’t Read This Column – Jason Zweig 4/28

  • “Investors have a hard time looking truth square in the face.”

NYT – Internment, America’s Great Mistake – George Takei 4/28

FT – London housing: too hot for young buyers – Nathan Brooker 4/26

  • “Some first-timers need to borrow 40 times their salary to buy in parts of the city.”
  • Clearly this isn’t an affliction unique to London.

Real Estate

WSJ – Daily Shot: John Burns Consulting – Home Building Material Cost Increases 4/28

WSJ – Daily Shot: FRED – US Household Growth 4/28

WSJ – Daily Shot: FRED – Household Debt / GDP – Australia, Canada, & US 4/28

CoStar – Smaller Non-Traded REITs Scrambling to Catch Up with Institutional Players Shaking Up Sector – Mark Heschmeyer 4/27


WSJ – Daily Shot: eia – US Dry Shale Production 4/28


FT – China’s short-term money market rate hits 2-year high – Jennifer Hughes, Hudson Lockett, and James Kynge 4/28

  • “Since taking up his post in late February, Guo Shuqing, chair of the China Banking Regulatory Commission, has issued a stream of directives aimed at, among other issues, clamping down on shadow banking practices and raising lending standards in the interbank market.”
  • “Applying a squeeze on interbank market liquidity by guiding short-term rates higher has become the strategy of choice for Chinese monetary authorities trying to rein in the country’s credit bubble without causing it to burst.”
  • “One of the main targets of the squeeze is a huge proliferation of ‘wealth management products’ issued by banks but often kept off their balance sheets to elude capital regulations. These WMPs, the outstanding amount of which stands at Rmb29tn ($4.2tn) or equivalent to 40% of GDP, are regarded as culprits behind the swelling of China’s unregulated shadow finance market in recent years.”
  • “The danger for China, though, is that by squeezing liquidity to curb WMP issuance, Beijing is also jeopardizing a key funding source for some of the weakest institutions in the financial system, namely small and medium-sized banks. A scramble among such banks for liquidity has prompted a surge in issuance of bank certificates of deposit, increasingly at higher interest rates than such banks are receiving from their WMP investors.”

April 10, 2017

If you were to read only one thing…

The US college debt bubble is becoming dangerous. Rana Foroohar. Financial Times. 9 Apr. 2017.

“Rapid run-ups in debt are the single biggest predictor of market trouble. So it is worth noting that over the past 10 years the amount of student loan debt in the US has grown by 170%, to a whopping $1.4tn — more than car loans, or credit card debt. Indeed, as an expert at the Consumer Financial Protection Bureau recently pointed out to me, since 2008 we have basically swapped a housing debt bubble for a student loan bubble. No wonder NY Federal Reserve president Bill Dudley fretted last week that high levels of student debt and default are a ‘headwind to economic activity.'”

“In America, 44m people have student debt. Eight million of those borrowers are in default. That’s a default rate which is still higher than pre-crisis levels — unlike the default rate for mortgages, credit cards or even car loans.”

“Rising college education costs will not help shrink those numbers. While the headline consumer price index is 2.7%, between 2016 and 2017 published tuition and fee prices rose by 9% at four-year state institutions, and 13% at posher private colleges.”

“The average debt load individual graduates carry is up 70% over the past decade, to about $34,000.”

“Growing student debt has been linked to everything from decreased rates of first time home ownership, to higher rental prices, to lower purchases of white goods and all the things that people buy to fill homes. Indeed, given their debt loads, I wonder how much of the ‘rent not buy’ spending habits of Millennials are a matter of choice.”

“But there are even more worrisome links between high student debt loads and health issues like depression, and marital failures. The whole thing is compounded by the fact that a large chunk of those holding massive debt do not end up with degrees, having had to drop out from the stress of trying to study, work, and pay back massive loans at the same time. That means they will never even get the income boost that a college degree still provides — creating a snowball cycle of downward mobility in the country’s most vulnerable populations.”

“How did we get here?”

Essentially, “beleaguered governments are pushing more and more of the responsibility for the things that make a person middle class — education, healthcare and pension — on to individuals.”

“What are the fixes? For starters, we should look closely at the for-profit sector, where default rates are more than double those at average private colleges. These institutions receive federal subsidies but typically spend a minuscule part of their budgets on instruction; in the US, nearly 50% goes on marketing to new students. It looks all too much like an educational Ponzi scheme.”

“Transparency is also key — the student loan market as a whole is hopelessly opaque. In one recent US study, only a quarter of first year college students could predict their own debt load to within 10% of the correct amount.  Truth in lending documents would help, as would loan counselling paid for by colleges. Sadly, the agency that is leading the fight on both — the CFPB — is under attack from Trump himself.”

“But the administration will not be able to hide from the student debt bubble. In an eerie echo of the housing crisis, debt is already flowing out of the private sector, and into the public. Before 2007, most student loans were underwritten by banks or other private sector financial institutions. Today, 90% of new loans originate with the Department of Education. Socialization of risk continues to be the way America deals with its debt bubbles. “

“Would that we considered making college free, as Bernie Sanders suggested. Even Mr. Dudley called this ‘a reasonable conversation.’ That way we could socialize the benefits of education too.”

More perspective: NYT – Loans ‘Designed to Fail’: States Say Navient Preyed on Students – Stacy Cowley and Jessica Silver-Greenberg 4/9

Worthy Insights / Opinion Pieces / Advice

NYT – The Gig Economy’s False Promise – The Editorial Board 4/10

  • “In reality, there is no utopia at companies like Uber, Lyft, Instacart and Handy, whose workers are often manipulated into working long hours for low wages while continually chasing the next ride or task. These companies have discovered they can harness advances in software and behavioral sciences to old-fashioned worker exploitation, according to a growing body of evidence, because employees lack the basic protections of American Law.”

WSJ – Should the Social Security Trust Fund Be Allowed to Invest in Stocks? – Alicia Munnell (Boston College) and Michael Tanner (Cato Institute) 4/9

  • In the argument for and against, “what the two sides generally do agree on is that the Social Security trust fund needs shoring up: According to a trustees’ report from last year, the fund is on track to run dry around the mid-2030s, at which point the program would be able to pay out only about 75% of promised benefits.”

Atlantic – What in the World Is Causing the Retail Meltdown of 2017? – Derek Thompson 4/10

  • “Finally, a brief prediction. One of the mistakes people make when thinking about the future is to think that they are watching the final act of the play. Mobile shopping might be the most transformative force in retail—today. But self-driving cars could change retail as much as smartphones.”
  • “Once autonomous vehicles are cheap, safe, and plentiful, retail and logistics companies could buy up millions, seeing that cars can be stores and streets are the ultimate real estate. In fact, self-driving cars could make shopping space nearly obsolete in some areas. CVS could have hundreds of self-driving minivans stocked with merchandise roving the suburbs all day and night, ready to be summoned to somebody’s home by smartphone. A new luxury-watch brand in 2025 might not spring for an Upper East Side storefront, but maybe its autonomous showroom vehicle could circle the neighborhood, waiting to be summoned to the doorstep of a tony apartment building. Autonomous retail will create new conveniences and traffic headaches, require new regulations, and inspire new business strategies that could take even more businesses out of commercial real estate. The future of retail could be even weirder yet.”

Markets / Economy

FT – Gundlach: appetite for reflation trade will wane further – Eric Platt 4/10

  • “Jeff Gundlach (chief executive of DoubleLine Capital – which manages $105bn on behalf of its clients), the influential bond investor, has warned that appetite for the so-called relation trade will evaporate further in coming months as expectations for an acceleration in US economic growth and inflation are tempered.”
  • Not all that surprising really, and if you’re in the market for a mortgage there should be some relief in pricing (there already has been so far this year).  Then the article goes on to say: “the yield on the 10-year Treasury bond will not be back up to 3% this year, a level he had previously said would spell the end of the bull market. DoubleLine’s founder told investors he believed it would head higher over a longer period and could reach 6% in four or five years.”
  • Come again… please elaborate. No really, the article doesn’t elaborate or link to any reports by Gundlach. Talk about burying the lead.
  • Consider the implications on home pricing if 10-year rates are at 6%. They’re currently at around 4.10% on a 30-year fixed, so about 260bp (basis points) or 2.6% points higher than 10-year rates which are around 2.4%. To translate, if you have a $400,000 mortgage (arbitrary number) you’d be looking at a monthly payment of $1,932.79 at today’s rate.  That same mortgage amount if 30-year fixed rate mortgages hold a similar spread when the 10-year treasury is at 6% would be $3,104.05. A 60.60% increase in the monthly mortgage amount or $14,055.12 additional after tax dollars each year. Or if you could only afford the $1,932.79 monthly payment, then you would only be able to take on a $249,067 mortgage. Presumably that would hurt your purchasing power.
  • Alternatively, consider commercial real estate. If the 10-year moved to 6% in four or five years, what should you be putting in your models for an exit cap rate? Currently the commercial property loans average about 150bp over the 10-year for the primary categories-office, retail, multifamily, and industrial-according to interest rate surveys from Trepp.  Hence, you can buy a going-in cap rate of 5% and have a little spread of 1.10% (110bp) over the cost of your debt.  Fortunately for the last 30 or so years you could model a lower exit cap rate – really accounting for a large part of many investors returns.  Consider if you had to add 350bp to your exit cap rate…
  • Again to translate. Today the idea of purchasing a property that generates $100,000 in triple net (NNN) income-net of all expenses, property taxes, etc.-at a 5% cap rate would imply that you’d be willing to pay $2,000,000 for the property. Okay. What happens if cap rates adjust to maintain a similar spread over the 10-year treasury if it moves to 6%?  Then for the same income you’d want a 8.6% cap or would be willing to pay $1,162,791.  A 41.86% drop in value.
  • Well, the counter argument would be that the economy would have to be cranking along pretty well for the 10-year Treasury rate to move to 6%.  Then some of the effects of the above would be neutralized by increasing incomes, increases in spending, and so on.  However, note that rent from tenants are contracted and increase in defined amounts – so in this case, they’d probably get the better of the landlords – unless there are generous percentage rent terms…
  • Don’t expect this to be a smooth transition, and real estate is not the only industry that relies on a lot of debt capital – think energy…



Bloomberg – There’s a Big Reason Volatility Might Be Coming Back – Alex Harris 4/8

WSJ – Nothing to Fear but the Lack of Fear in Markets – Steven Russolillo 4/9


FT – Energy shifts to a buyers’ market – Nick Butler 4/9

  • “Markets have a tendency to swing from side to side. There are times when suppliers can name their prices and times when the advantage is against them. We are the cusp of a major change after half a century of producer control. For the companies involved and their investors this is a hard moment. Some will see it as a cyclical move that will be reversed as demand increases. That is a very risky investment strategy. The better approach for both companies and investors is to assume that we are experiencing a structural shift and that to thrive those involved in the sector must adapt their business model and their investment strategy to a new reality.”


Rational Radical – Housing bubble is now official, commence arse-covering (panic)! – Matt Ellis 4/7


FT – China markets regulator: ‘iron cockerels’ to be dealt with harshly – Hudson Lockett and Jennifer Hughes 4/9


FT – HNA’s buying spree surpasses $40bn with CWT deal – Don Weinland, Arash Massoudi, and James Fontanella-Khan 4/9

  • “China’s HNA Group, the small domestic airline operator turned ultra-acquisitive conglomerate, has now struck more than $40bn of deals in little more than two years after announcing plans to buy Singapore logistics provider CWT.”
  • “However, the activity has confounded veteran bankers and China watchers alike, who have raised concerns over its rapid expansion and also questioned its sources of capital for the deals, many of which are done through affiliates. Moreover, the pace of HNA’s foreign dealmaking has quickened in spite of a Chinese clampdown on the flow of capital out of the country since November.”