Tag: Investing

WSJ – Daily Shot: BlackRock – US Corporate Profits over the Business Cycle 1965-2019 12/12/19

December 12, 2019December 11, 2019

Generational Investment Preferences | Rising Japanese Government Bond Yields |Cannabis Stock Performance

To each their own.

WSJ – Daily Shot: Charles Schwab – Top Ten Investments as Percentage of Assets by Generation 12/10/19

While you weren’t looking…

WSJ – Daily Shot: Japan Government Bond Yields 12/10/19

And some context of the wild ride that has been cannabis stocks.

Visual Capitalist – The Dramatic Rise and Fall of Cannabis Company Stocks – Iman Ghosh 12/10/19

June 20, 2017June 19, 2017

June 20, 2017

Worthy Insights / Opinion Pieces / Advice

FT – How I learnt to stop worrying and love Big Tech – Miles Johnson 6/18

“The only thing a good investor should care about is the price they can purchase these companies for compared with their own reasonable estimate of fair worth. Yes, mindless momentum chasers may panic and sell, but any long-term investor worth their salt would take this as an opportunity to buy should they believe they are getting a bargain. Active fund managers actually dumped Apple shares en masse before their recent surge.”

China

WSJ – China’s Ghost Cities Keep Up Property-Market Spirits – Nathaniel Taplin 6/19

“In Beijing and Shanghai, housing speculators are gasping for air as tighter credit bites. But in the inland cities that drive the bulk of China’s steel and copper demand, property owners are smiling: Data released Monday showed prices rose 7% on year in May, the fastest pace since early 2014.”
Essentially the credit hose has been redirected to the third tier cities. However, one has to wonder, does that mean that there was a bench of buyers waiting to move into these ghost cities that just needed the credit to do so? Or is this a function of investors now picking up vacant units (reducing unsold inventory) now that they can comfortably speculate on appreciation? Basically, is there true demand for these units all of a sudden?

South America

FT – Argentina launches century bond – Dan McCrum 6/19

“Argentina has launched a landmark sale of US dollar-denominated bonds maturing in 100 years, a dramatic market rehabilitation for a nation that spent more than a decade fighting investors over the fallout from its 2001 default on $100bn of debt.”
“Joining only a handful of sovereign borrowers to sell century bonds, Monday’s debt sale also highlights a broader enthusiasm for emerging market securities. Over the past 12 months the JPMorgan index of such dollar-denominated securities has produced a 9% total return for investors.”
“Adam Bothamley, head of debt syndicate for HSBC, said the deal came after inquiries from investors suggested demand existed. ‘It’s less about it being a 100-year maturity bond, it’s a way to express the strongest view around the trajectory of the story for investors’, he said.”
“At lunchtime in New York, indications were that the bond would have an effective yield of 7.92%, sold at 90 cents on the dollar and an annual coupon of 7.125%.”
“Keep in mind, Argentina has defaulted on sovereign debt on eight occasions since independence in 1816, and its 2001 default was at the time the world’s largest.”
“In recent years Mexico has issued 100-year debt denominated in dollars, euros and sterling, and in 2015 the Brazilian oil company Petrobras sold $2.5bn of century bonds, which on Monday traded at a yield of 7.8%.”
“Argentina is rated single B by credit rating agencies. The lead bookrunners on the deal were Citi and HSBC, with Nomura and Santander acting as co-managers.”

June 7, 2017June 6, 2017

June 7, 2017

If you were to read only one thing…

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

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

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

Real Estate

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

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

Energy

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

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

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

Africa

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

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

Canada

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

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

China

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

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

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

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

India

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

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

South America

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

“The end of bogus accounting.”

September 30 – October 6, 2016

Xi Jinping, the master politician. In the US oil and gas industry it’s about time for some more culling of the herd. Uber providing transportation solutions for US municipalities.

Headlines

FT – China’s renminbi joins elite global reserve currency club 9/29. On October 1, the renminbi joined the IMF’s special drawing rights basket, previously only occupied by the dollar, euro, yen and pound.
NYT – Duterte, Citing Hitler, Says He Wants to Kill 3 Million Addicts in Philippines 9/30. Yeah, he actually said it…
FT – World debt hits $152tn record, says IMF 10/5. While not a harbinger of doom some countries ought to get their private debts under control.

Briefs

Simeon Kerr of the Financial Times highlighted how Saudi Arabia has been cutting public sector bonuses in response to declining oil revenues.

“Saudi Arabia has cut public sector bonuses and benefits for the first time since the collapse in oil prices, in a move that underlines the depth of the fiscal crisis facing the kingdom.”
“The new rules, which come into force next month, apply to all public sector workers, both Saudis and expats, as well as the military (except soldiers serving in Yemen).”

Rick Newman of Yahoo Finance illustrated how Older white workers without a college degree have really gotten torched (economically speaking) over the last 40 years.

“If you were a white kid who went to work straight out of high school around 1975, you earned roughly $44,000 two decades later. BY 2014, on average, your pay had fallen to $32,000 a stunning 27% decline in real terms, after accounting for inflation.”
“College grads are doing okay. Across all age groups, income in this group rose from $77,209 in 1996 to $94,601 in 2014, a 22.5% increase. A college-educated worker who was 28 in 1996 and 46 in 2014 enjoyed a whopping 132.8% spike in pay. The only losers among college grads were those were those 57 or older in 2014. Their pay fell from somewhere between 13% and 28.5% between 1996 and 2014, but still leveled out at $83,000 or higher in 2014, well above the national average.”

In a Financial Times guest correspondence piece, Steven Major (head of fixed-income research at HSBC) discussed why there is no game-changer that will end the bond bull market.
- I’m going to keep this one real brief by just listing the major points.
- “Backdrop favors a low real natural rate of interest”
- “Deleveraging across public and private sectors has not started”
- “Central banks continue to amass huge balance sheets”
- “Connectivity between markets is increasing”
- “We realize that all this makes pretty grim reading for those hoping for an improvement in the growth outlook and a return to ‘normal,’ whatever that is. But this is part of the problem. There is no shortage of hope that something will turn up and there is excessive vested interest in the higher yield view. Too much money is chasing too little return.”

The Financial Times Confidential Research division produced a report on how underground loans in China are defeating attempts to cool the housing market.
- “Analysis by FT Confidential Research suggests that underground lenders have become an important source of funding for Chinese consumers struggling to make down payments on home purchases as real estate prices surge. Such lending may hamper attempts to cool down overheating top-tier housing markets.”
- “Despite concerns at the central level about housing bubbles, the property market’s rising tide is lifting other economic boats, FTCR data show. Our proprietary surveys found positive sentiment in the freight sector and construction labor market, the indices for both of which hit 2016 highs, while households have not been in such good cheer for nearly two years.”
- “Consumers appear to be responding to the wealth effect generated by rising house prices. Our monthly measure of consumer sentiment rose to its highest level since October 2014. Survey respondents reported strong improvements in their household financial situations, discretionary spending and views on the economy. Furthermore, the forward-looking components of our suite of monthly data suggest momentum is set to carry through to the end of 2016.”

Special Reports / Opinion Pieces

Graphics

FT – Global economic growth ‘sliding back into the morass’ – Chris Giles 10/2

WSJ – A New Worry for Banks and the Economy – Aaron Back 10/3

Visual Capitalist – Black Swans: 9 Recent Events That Changed Finance Forever – Jeff Desjardins 10/5

WSJ – Some Big U.S. Cities See Apartment Rents Fall for First Time in Years – Laura Kusisto 10/4

FT – Perth’s slide highlights Australia commodity bust – Jamie Smyth 10/4

FT – World debt hits $152tn record, says IMF – Claire Jones 10/5

Featured

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

Xi Jinping May Delay Picking China’s Next Leader, Stoking Speculation. Chris Buckley. New York Times. 4 Oct. 2016.

“The Chinese president, Xi Jinping, appears prepared to defy the Communist Party’s established script for transferring power and delay the designation of his successor until after a party congress next year, unsettling the party elite and stirring speculation that he wants to prolong his tenure.”

“The delay would buy Mr. Xi more time to promote and test favored candidates and prevent his influence from ebbing away to a leader-in-waiting, experts and political insiders said. But the price could be years of friction while a pack of aspiring cadres vie for the top job, as well as unnerving uncertainty over whether Mr. Xi wants to stay in power beyond the usual two terms as party leader.”

“The drama will probably begin in earnest this month, when the Central Committee, about 200 senior officials who sign off on major decisions, meets in Beijing. That meeting is likely to set in motion plans for the congress, which will meet in late 2017 to endorse a new top lineup.”

“While it is a given that the congress will back Mr. Xi for another five-year term as party leader, nearly everything else is up for grabs, giving Mr. Xi great sway to shape the new leadership.”

“Five of the seven members of the powerful Politburo Standing Committee must step down because of age, assuming the informal retirement age of 68 holds. That leaves only Mr. Xi, 63, and Mr. Li, 61, to return.”

US oil and gas pipeline industry ripe for consolidation. Ed Crooks. Financial Times. 4 Oct. 2016.

“Tim Schneider, analyst at Evercore ISI, argues that the North American pipeline industry is on the verge of a wave of consolidation like the one that swept through the large integrated oil companies in the late 1990s and early 2000s.”

“The US has about 140 Master Limited Partnerships: a tax-advantaged structure available to energy infrastructure businesses that is typically used by midstream operators. Mr. Schneider argues that only about half of those have a ‘right’ to exists. Many will have to sell themselves, dispose of assets to stay alive, or ‘simply disappear’, he says.”

“In 2014, there were 9,679 miles of crude oil pipeline completed in the US, according to IHS Markit, the research group. In 2017, it expects 4,175 miles of large projects to be completed, assuming Dakota Access (the contested 1,172 mile pipeline from the shale oilfields of North Dakota to Patoka, Illinois) goes ahead.”

“Many MLPs, and some of the pipeline companies that are structured as regular corporations, have business models that depend on perpetual growth justifying continuing cash inflows.”

“Energy Transfer Partners, for example, in the first half of this year distributed $1.8bn to investors and spent $3.5bn on capital investment, but generated cash from operations of just $1.4bn. The numbers were made to add up by selling the Sunoco retail business to its affiliate Sunoco LP for $2.2bn, and by issuing units worth $1.1bn.”

In regard to the MLP industry, Tim Schneider put it this way “they are like cattle feeding at a trough. The weaker ones are going to get shoved aside.”

Uber offers subsidized rides in drive to solve US parking crisis. Leslie Hook. Financial Times. 5 Oct. 2016.

“In a first-of-its-kind of deal for Uber, Summit (New Jersey) has hired the company to provide free rides for commuters to and from its train station, starting this week. For the local authority, the six-month pilot helps solve its downtown parking crisis; for Uber, the deal is one it hopes to replicate across the country.”

“These transit deals could potentially give Uber access to a new revenue source, from transportation authorities, and access to new passengers. Just as importantly, Uber sees them as a means towards its ultimate goal: a world where shared autonomous cars are a primary mode of transportation and private vehicle ownership is no longer necessary.”

“The Summit deal focuses on what is known as the ‘last mile’ problem of getting commuters to and from rail stations, which researchers consider to be an ideal use case for ride-sharing.”

“Facing budget pressures, US cities are increasingly experimenting to see whether hiring Uber, or its smaller rival Lyft, can be a cheaper alternative to building parking garages or adding bus routes.”

“Last month, Boston announced a test program that subsidizes Uber and Lyft rides for disabled passengers, a faster option compared with the city’s door-to-door van service. Earlier this year, a county in Florida started providing free Uber rides at night for low-income passengers – a cheaper alternative to a night bus. Another city in Florida pays for all its residents to have discounted Uber rides, and Washington DC is even considering using Uber to help respond to non-emergency 911 calls.”

“In Summitt, Mayor Nora Radest said the city contacted Uber a year ago to talk about a deal because it was looking for an economical way to address its downtown parking shortage. Hiring Ubers for its commuters will cost about $167,000 a year, the city estimates, while building a parking garage would have cost more than $15m.”

“We are looking at this not as a transportation solution but as a parking solution. The goal is to get those 100 cars that sit in the commuter station all day, and get them out of there.” – Mayor Radest

Other Interesting Articles

Bloomberg Businessweek

Hugo Chavez’s Dream Is Dead but His Fanatics Refuse to Fade Away
House-Flippers Turn to the Crowd for Quick Cash. What Could Go Wrong?
- “Whenever you see a big difference between the terms on which you can raise money in one market vs. another market, something is wrong in at least one of those markets. It usually is the market with the least experienced players, and they usually end up wishing they hadn’t played.”

The Economist