Tag: Japan

Tax Burdens by State | Japan’s GDP | Knock-on Effects of Covid-19

Visual Capitalist – Visualizing Unequal State Tax Burdens Across America – Jenna Ross 1/23/20

Economist – Japan’s GDP shrinks dramatically after a tax rise and a typhoon  2/17/20

WSJ – Daily Shot: WIND & ANZ Research – China Public Transportation Daily Passenger Flows 02/17/20

WSJ – Daily Shot: Fitch – Thailand Tourist Arrivals 02/17/20

Lingering Price Stagnation

What the Fed Fears: People Who Can’t Remember Rising Prices – Megumi Fujikawa 1/13/20

Figuring out the public’s expectations of future inflation—and trying to influence them—is core to any central banker’s work. Yet Japan shows how hard that becomes when many people barely grasp the concept of steadily rising prices.

“Those who were born in the 1980s and 1990s almost have no experience of inflation. So even if they were told inflation was coming, they didn’t believe it,” said Tsutomu Watanabe, a Tokyo University professor and former central banker.

A 20-year-old in Japan today has experienced average inflation of 0.1% over his or her lifetime. No wonder Bank of Japan Gov. Haruhiko Kuroda’s repeated vows to reach 2% inflation haven’t worked out.

The Federal Reserve, like the Bank of Japan, seeks 2% inflation because it sees that level as consistent with a healthy economy. U.S. inflation has held close to but below the target for years, and Fed officials are reviewing their inflation targeting framework to avoid succumbing to the low-inflation trap that has bedeviled Japan. Among the options under consideration are approaches that would more explicitly allow or even encourage inflation above 2% in hopes of lifting inflation expectations.

The problem, central bankers believe, is that low-inflation expectations can be self-fulfilling if they cause consumers to balk at higher prices and businesses to refrain from raising prices and wages.

“Inflation that runs persistently below our objective can lead to an unhealthy dynamic in which longer-term inflation expectations drift down, pulling actual inflation even lower,” Fed Chairman Jerome Powell said at a Dec. 11 news conference.

In recent years, Mr. Kuroda has pointed to research suggesting inflation expectations are adaptive: People predict future prices based on what they have seen in recent years. In practice, that means Japanese consumers have accustomed themselves to seeing everyday goods at low prices and punish any retailer that tries to raise them.

Even consumers old enough to remember inflation might not share a central banker’s 21st century perspective on it. To Messrs. Powell and Kuroda, achieving modest, steady inflation of around 2% keeps a nation away from a negative spiral of falling prices, declining wages and weak demand. But to the average person, rising prices sound like a bad deal.

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

Knock-on Effects of Negative Interest Rates

This one is in its entirety.

Economist – How rock-bottom bond yields spread from Japan to the rest of the world – Buttonwood 9/14/19

It would be hard to think of a business that is on the face of it quite as dull as Norinchukin Bank. A co-operative, it was founded almost a century ago to take deposits from and lend to Japanese farmers. Yet Norinchukin came blinking into the spotlight earlier this year when it emerged that it had been a voracious buyer of collateralized loan obligations (CLOs)—pools of risky business loans used to finance buy-outs by private-equity firms. At the last count, in June, Norinchukin owned $75bn-worth.

The escapades of Norinchukin offer a parable. One part of its lesson is that when interest rates are stuck near zero for a long time, as they have been in Japan, banks’ normal source of profits comes under pressure. The other part is the lengths to which they must go to boost those profits, in this case by buying exotic foreign securities with attractive yields. Norinchukin is not alone. Japanese banks and insurance companies have been big buyers of the triple-A-rated tranches of CLOs, as well as other sorts of investment-grade corporate debt.

For this, blame negative bond yields. When the Bank of Japan’s board meets on September 19th, it is not expected to reduce its main interest rate, currently -0.1%. But any increase in interest rates seems a long way off. And as long as rates are at rock-bottom in Japan, it is hard for them to rise in other places. Bond-buying by desperate Japanese banks and insurance companies is a big part of what keeps a lid on yields elsewhere.

Japan’s sway on global asset markets has been felt ever since it liberalized its capital account in 1980. Later that decade Japanese investors snapped up trophy properties in America, such as the Rockefeller Centre in New York and Pebble Beach golf course in California. In the 1990s they piled into American tech firms. Both forays ended badly, but Japan’s stock of foreign securities has kept growing as its surplus savings have piled up.

Japan is already the world’s biggest creditor. Its net foreign assets—what its residents (government, householders and firms) own minus what they owe to foreigners—are worth around $3trn, or 60% of its annual GDP. And that understates Japan’s influence on global asset markets. Since 2012 both sides of its national balance-sheet have grown rapidly, as Japanese investors borrowed abroad to buy yet more assets.

Japan’s impact is felt most keenly in corporate-credit markets in America and Europe. Its pension and insurance firms, which need to make regular payments to retirees, are at least as hungry for bonds with a decent yield as are their peers elsewhere. But the grasping for yield is made all the more desperate by the struggles of Japan’s banks. It is hard to make money from lending to the government when bond yields are negative. In ageing, high-saving Japan, private-sector borrowers are scarce. So bank profits have suffered. A report last year by a financial regulator found that half of Japan’s regional banks lost money on their lending businesses.

Though yields in Europe are lower than in America, they are nevertheless attractive to Japanese buyers who hedge their currency risk. Most currency hedges are for less than a year and many are for three months. The cost of such hedges is linked to the cost of short-term borrowing in the foreign currency. A rising yield curve thus gives the best currency-hedged returns: the yield is high at the long end but short rates are low. For that reason, currency-hedged Japanese investors have preferred to buy corporate bonds or other credit securities in Europe rather than in America, where short-term interest rates are relatively high.

Locals lament that high-quality European and American corporate bonds are treated as safe assets, akin to sovereign bonds. Analysts’ efforts to work out which companies are more or less likely to default, and so which bonds are more or less valuable, seem almost quaint. “The Japan bid is not driven by credit risk,” complains one analyst. “It is all about headline yield.”

Some see Japan as a template: its path of ever-lower interest rates one that other rich, debt-ridden economies have been destined to follow and will now struggle to escape. But Japan’s troubles also have a direct influence on other countries. This makes itself felt through the country’s considerable sway over global capital markets. The outworkings are strange and unpredictable. Who would have thought that the rainy-day deposits of Japan’s farmers and fishermen would be used to fuel leveraged buy-outs in America and Europe?

US Credit Card Interest Rates, Sales Projections of Global Luxury Goods, and It’s Tough Being a Banker in Japan

FT – US credit card interest rates hit 25-year high – Robert Armstrong 8/6/19

Bloomberg – Barneys Shows It’s Getting Tougher to Sell a $4,820 Dress – Sarah Halzack 8/6/19

WSJ – Japanese Banks Are Circling the Drain – Mike Bird 8/6/19

After almost three decades of near-zero, zero, and now negative interest-rate policies, Tokyo has pushed its banking system to its limit.

The country’s smaller lenders in particular are facing an existential threat to their business models. Located in aging and shrinking prefectures, they lack the ability to increase fee-related incomes that major banks can raise.

Since March 2016, shortly after the country’s negative interest rate policy was introduced, net income at major banks has declined by a fifth. At regional banks, the decline has been steeper: Net income is a third below its level three years ago.

Practically all of Japan’s regional banks have seen their share prices fall in the past 12 months. More than half have had declines exceeding 30%. They have underperformed the broader Japanese market for decades.

At the beginning of 1995, just before the Bank of Japan cut its benchmark policy rate to 0.5%, loans by commercial banks with interest rates of below 1% were practically nonexistent. Over 90% of outstanding loans carried an interest rate of 3% or more. Today, 90% of Japanese loans carry an interest rate of less than 2%. The fastest-growing segment is the paltry 0.25% to 0.5% bracket, which has expanded by almost a 10th in the past year.

The interest offered to Japanese depositors, however, shifted much more quickly to very nearly zero. The upshot of this is that profitability held up for a while but now the 1.5 percentage point spread between interest rates on new loans and new time deposits that prevailed in the 1990s has declined to just 0.5 percentage point. Even with the country’s rock-bottom default rates, the resulting profits simply aren’t sufficient to run a bank.

Some of Japan’s major banks have found an apparent workaround, but one with its own serious risks. Those with the expertise and ability to do so have ventured overseas, acquiring assets and lending in currencies without such low interest rates.

The precarious position of Japanese banks isn’t an example of negative interest rates failing but of them working perfectly well. Central bankers often complain about problems with monetary transmission—often a byword for banks not passing on interest-rate cuts—but Japan’s have done so.

Critics of Japan’s monetary policy would be wrong to imagine that higher interest rates would help either. As with lower rates, the change would take years to filter through, during which time defaults would rise and economic growth would stall.

July 10, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Amazon as a Value Stock? Believe It – Matthew A. Winkler 7/9

FT – Japan is nervous about its energy security – Nick Butler 7/8

  • “The country’s new national plan puts nuclear power back in the picture.”

NYT – Inside China’s Dystopian Dreams: A.I., Shame and Lots of Cameras – Paul Mozur 7/8

  • Spooky. By the way, one of the data aggregator/policing systems is aptly named: Skynet.

WSJ – A Stock Market Crash With Chinese Characteristics – Nathaniel Taplin 7/9

Markets / Economy

FT – The retreat from easy money that markets cannot escape – Michael Mackenzie 7/4

Environment / Science

NYT – Record Heat in Southern California, and an Ominous Start to Wildfire Season – Tim Arango 7/7

  • “After a temperate early summer and a balmy Fourth of July, Southern California residents abruptly found themselves in a caldron of triple-digit temperatures and wildfires this weekend.”
  • “The temperature spike broke with historical weather patterns. While much of the Northern Hemisphere suffers through its hottest days in the summer months — June, July, August — Southern California’s hottest days are often in September or October.”
  • “Records were shattered in some places on Friday. The temperature at the University of California, Los Angeles, reached 111 on Friday, the hottest it has ever been there. Other record highs, according to the National Weather Service, were 114 at the Hollywood Burbank Airport, 117 at the Van Nuys Airport, 117 in Ramona and 114 in Santa Ana. In Riverside, a high temperature of 118 matched a record set in 1925.”

China

FT – China scales back property subsidies, adding to growth concerns – Gabriel Wildau and Yizhen Jia 7/8

  • “China is retreating from a policy that has channeled about $1tn in subsidies to homebuyers since 2016, a reversal that has sent tremors through the country’s residential property market amid broader concerns about a housing bubble.”
  • “Property investment and home sales have remained strong in recent months despite a broader growth slowdown, but analysts say the withdrawal of subsidies will damp property demand, leading to reduced construction activity.” 
  • “Premier Li Keqiang pioneered the slum redevelopment policy as top party official in north-east China’s Liaoning province in 2005. The policy, which was later rolled out nationwide, financed demolition and reconstruction of dilapidated residential neighborhoods.” 
  • “The program received a boost in 2014, when the People’s Bank of China created a new monetary policy instrument known as Pledged Supplementary Lending, which consisted of loans directly from the central bank to CDB earmarked for slum redevelopment.” 
  • “The turning point came in 2015. Amid a sharp downturn in the housing market that led to a glut of unsold housing, China’s cabinet allowed local governments to provide cash subsidies to residents of slum districts, rather than physical resettlement in newly built flats in the former slum.” 
  • “’Physical resettlement didn’t affect the supply-demand balance. It was self-regulating,’ said Zhao Quanhou, director of the financial research center at the Chinese Academy of Fiscal Sciences, a think-tank under China’s finance ministry.”
  • “’But monetary resettlement meant you were demolishing old buildings and not replacing them, so there was a net demand increase, and the market impact was large,’ he said.”
  • “’The policy was basically giving money directly from the central bank to CDB. It spurred a lot of real estate demand, and it also expanded the base money supply,’ said Xu Gao, chief economist at Everbright Securities. ‘Going forward it needs to be adjusted.’”

Turkey

FT – Erdogan fires thousands more state employees in Turkey – Ayla Jean Yackley 7/8

  • “Thousands of Turkish teachers, police officers and members of the armed forces have been fired one day before President Recep Tayyip Erdogan is due to be sworn in for a second term after being re-elected with vastly enhanced powers last month.”
  • “Mr. Erdogan issued a decree dismissing the employees on Sunday. During his election campaign he promised to end a state of emergency imposed in the wake of an abortive military coup two years ago, under which 160,000 public servants have been dismissed and more than 50,000 people have been jailed.”
  • “The order, published in the Official Gazette on Sunday, fired 18,632 people — nearly half of them from the police force — for allegedly threatening national security. More than 6,000 military personnel and about 200 teachers were also named. Their passports have all been cancelled, the announcement said.”
  • “The decree also banned 12 civil-society groups, three newspapers and a television broadcaster.”

 

July 2, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Forget Banks and Worry About High Stock Prices – Nir Kaissar 6/29

  • “It’s time for investors to stop fighting the last war. The next downturn most likely won’t be triggered by another meltdown of the financial system.”
  • “Investors didn’t need the Fed to tell them that banks are in better shape than they were a decade ago. The signs are everywhere. Profits have fallen across the industry since the financial crisis, an  indication that banks are taking on less risk. Profit margins for the S&P 500 Financials Index averaged 9.3% from 2008 to 2017, down from an average of 13.8% from 2003 to 2007, the years leading up to the crisis. Return on equity is down to an average of 5.2% from 14.5% over the same periods.”
  • “The biggest of those risks is leverage — or piling on debt to boost profits — and banks have a lot less of it than they used to. The debt-to-equity ratio of the financials index has dropped to 159% as of the first quarter from 563% at the end of 2007. The debt-to-assets ratio has fallen to 19% from 43% over the same period.”
  • “But if the numbers don’t persuade investors that the next crisis won’t look like the last one, then maybe a look at previous bear markets would. In reverse chronological order: The bursting of the dot-com bubble was behind the downturn from 2000 to 2002. A mass panic or newly introduced computerized trading, depending on whom you ask, set off the 1987 crash. Stagflation brought down the market from 1980 to 1982. A global oil embargo hit stocks from 1973 to 1974. I could keep going, but you get the idea.”
  • “There is a common thread running through the scariest episodes: high stock prices. The average cyclically adjusted price-to-earnings, or CAPE, ratio for the S&P 500 has been 18 since 1928, according to numbers compiled by Yale professor Robert Shiller. The five worst bear markets during those nine decades, as measured by peak to trough declines, commenced in 1929, 1937, 1973, 2000 and 2007. The average CAPE ratio on the eve of those downturns was 29 and the median was 27.”
  • “The current CAPE ratio: 32. And it’s never just stocks. Other assets in the U.S. look frothy, too, such as private equity and real estate.”

Bloomberg – How to Avoid Going Broke After Making $650 Million – Barry Ritholtz 6/29

Economist – How oil transformed the Gulf – Special report 6/21

Economist – Why Gulf countries are feuding with Qatar – Special report 6/21

Economist – Saudi Arabia turns against political Islam – Special report 6/23

Pragmatic Capitalism – Let’s Talk About that “Rapidly” Falling Deficit – Cullen Roche 6/29

  • “Don’t be scared Larry (Kudlow), just tell it like it is – you guys are boosting spending, boosting the deficit and the USA can afford it!”

Real Estate

WEF: statista – The world’s most expensive prime property – Adam Jezard 4/12

Cryptocurrency / ICOs

Bloomberg – Bitcoin Bloodbath Nears Dot-Com Levels as Many Tokens Go to Zero – Adam Haigh and Eric Lam 6/28

howmuch.net – The ICO Explosion in the Past 5 Years – Raul 6/27

Environment / Science

Bloomberg – The Recycling Game Is Rigged Against You – Faye Flam 6/27

  • “Americans were not set up for success in recycling plastics. Even before China stopped accepting plastic refuse from abroad, 9% of potentially recyclable plastic in the U.S. ended up in landfills – or worse, in the oceans. Europe does a little better, with only 70% getting tossed.”
  • “Why such terrible rates? Partly because some changes that were supposed to make recycling simpler ended up making it almost impossible.”
  • “University of Georgia engineering professor Jenna Jambeck said that indeed, part of the reason China is now refusing to process American and European plastic is that so many people tossed waste into the wrong bin, resulting in a contaminated mix difficult or impossible to recycle.”
  • “In a paper published last week in Science Advances, she and her colleagues calculated that between now and 2030, 111 million metric tons of potentially recyclable plastic will be diverted from Chinese plants into landfills.”
  • “Plastic matters because it takes centuries to degrade, and there’s a lot of it. Jambeck has estimated that the world has produced more than 8 billion metric tons since the 1950s. To help grasp this quantity, paleontologist Jan Zalasiewicz has estimated that this is enough to wrap our entire planet in cling wrap. Others have calculated that it would make four mountains the size of Everest.”
  • “Given what scientists already know how to do, the future could bring a greener, more fool-proof system. Right now, she said, she and other scientists are starting to develop ways to recycle mixtures of plastics – a tough job because many plastics repel one another like oil and water. One of the reasons China imported recycling was that it was possible there to hire cheap labor to sort the different plastic types by hand.” 
  • “Curing the plastic problem is a lot like fighting cancer. Even if everyone stopped smoking, there would still be cancer. And even if we all figure out whether our municipalities accept yogurt containers, plastic waste will still pollute the environment. Compliance won’t be a cure until innovations from the lab set us up for success.”

WIRED – Data Shows Rising Seas Threaten Over 300,000 Homes – Oliver Milman 6/19

  • “Sea level rise driven by climate change is set to pose an existential crisis to many US coastal communities, with new research finding that as many as 311,000 homes face being flooded every two weeks within the next 30 years.”
  • “The UCS used federal data from a high sea level rise scenario projected by the National Oceanic and Atmospheric Administration, and combined it with property data from the online real estate company Zillow to quantify the level of risk across the lower 48 states.”
  • “Under this scenario, where planet-warming emissions are barely constrained and the seas rise by about 6.5 feet globally by the end of the century, 311,000 homes along the US coastline would face flooding on average 26 times a year within the next 30 years—a typical lifespan for a new mortgage.”
  • “The losses would multiply by the end of the century, with the research warning that as many as 2.4 million homes, worth around a trillion dollars, could be put at risk. Low-lying states would be particularly prone, with a million homes in Florida, 250,000 homes in New Jersey and 143,000 homes in New York at risk of chronic flooding by 2100.”
  • “The oceans are rising by about 3 mm a year due to the thermal expansion of seawater that’s warming because of the burning of fossil fuels by humans. The melting of massive glaciers in Greenland and Antarctica is also pushing up the seas—NASA announced last week that the amount of ice lost annually from Antartica has tripled since 2012 to an enormous 241 billion tons a year.”
  • “This slowly unfolding scenario is set to pose wrenching choices for many in the US. Previous research has suggested that about 13 million Americans may have to move due to sea level rise by the end of the century, with landlocked states such as Arizona and Wyoming set for a population surge.”

Agriculture

FT – US farmers plant more soya than corn for first time since 1983 – Gregory Meyer 6/29

  • “Farmers planted 89.6m acres with soya beans this spring, the government reported Friday, surpassing the 89.1m acres planted with corn. The only other year soya topped corn was in 1983, because of a one-off quirk of agricultural policy.”

Britain

NYT – In Britain, Austerity Is Changing Everything – Peter S. Goodman 5/28

  • “After eight years of budget cutting, Britain is looking less like the rest of Europe and more like the United States, with a shrinking welfare state and spreading poverty.”

Japan

FT – Japan’s elderly care bill soaks up worker pay rises – Robin Harding 5/27

  • “Monthly premiums for care insurance have doubled from ¥3,000 to almost ¥6,000 ($55) since the system began in 2000. Meanwhile, the average annual cost of employer-based health insurance is up from ¥386,038 in 2008 to ¥486,042 this year, equivalent to a two percentage point rise in income tax.”
  • “The rise in health and care costs helps to explain why moderate wage growth, after five years of economic stimulus under prime minister Shinzo Abe, is doing so little to boost consumption. It poses a conundrum for the Bank of Japan, which is relying on spending pressure to push inflation towards its 2% objective.”
  • “Japan’s future holds more of the same, especially after 2020, when the baby boom generation starts to reach the age of 75 and needs more care. Recent government figures suggest that by 2040 social insurance costs will rise another 2.5 percentage points to 24% of gross domestic product.”

South America

Axios – It’s nearly impossible to afford a cup of coffee in Venezuela – Stef W. Kight 6/28

  • “Less than two years ago, a cup of coffee cost 450 bolivars in Venezuela. Today, as the nation’s hyperinflation continues to skyrocket, a cafe con leche costs 1 million bolivars — or a mere 29 U.S. cents, according to Bloomberg.”

May 29, 2018

If you were only to read one thing…

WSJ – The Tragedy of Venezuela – Anatoly Kurmanaev 5/24

  • “Last weekend, Venezuela’s President Nicolás Maduro dragged his Socialist government into a third decade in power by winning elections that were boycotted by the opposition, ignored by most of his countrymen and rejected by the international community. As sluggish voting drew to a close, a smiling and confident Mr. Maduro posted a video of himself waving not to throngs of adoring supporters but to a largely empty public square.”
  • “By the end of 2018, it will have shrunk by an estimated 35% since 2013, the steepest contraction in the country’s 200-year history and the deepest recession anywhere in the world in decades. From 2014 to 2017, the poverty rate rose from 48% to 87%, according to a survey by the country’s top universities. Some nine out of 10 Venezuelans don’t earn enough to meet basic needs. Children die from malnutrition and medicine shortages. An estimated three million Venezuelans, 10% of the population, have left the country in the two decades of Socialist rule, almost half of them in the past two years, according to Tomás Páez, a researcher at the Central University of Venezuela.”
  • “If Mr. Maduro didn’t know when to stop the music, the idea for the endless party came from his predecessor, Hugo Chávez, who died just a month before I arrived in 2013. The strongman charmed his countrymen with a silver tongue, his love of dancing and singing and his disdain for the hated austerity packages imposed by previous Venezuelan presidents. As oil prices shot up in his last decade, Mr. Chavez not only failed to save any of the windfall but buried the country in debt.”
  • “Along the way, he imposed capital controls to try to stop money from fleeing the country. The arbitrary exchange rate system suffocated private enterprise and investment, but the poor got subsidized food and free housing. The middle class got up to $8,000 of almost-free credit card allowances a year for travel and shopping. And the rich and politically connected siphoned off up to $30 billion a year of heavily subsidized dollars through shell companies, according to the planning minister at the time.”
  • “The currency and price controls implemented by Mr. Chávez broke the basic link between supply and demand, creating surreal economic distortions. A business-class Air France return ticket from Caracas to my hometown in Siberia would cost me $400, yet a 15-year-old Suzuki jalopy with no air conditioning and 150,000 miles set me back $4,600.”
  • “Caracas in 2013 reminded me of a tropical version of the Soviet periphery. Basic goods like flour and aspirin had fixed prices and were so cheap that companies had no incentive to make them. When you did find them, it made sense to grab as much as you could carry. Who knew when you would find them again? Like Russia in the 1980s, people dealt with shortages by resorting to the black market, hoarding goods and trading perks of their jobs, like bureaucratic stamps of approval or access to car batteries, for other favors or products.”
  • “But Venezuela’s collapse has been far worse than the chaos that I experienced in the post-Soviet meltdown. As a young person, I was still able to get a good education in a public school with subsidized meals and decent free hospital treatment. By contrast, as the recession took hold in Venezuela, the so-called Socialist government made no attempt to shield health care and education, the two supposed pillars of its program. This wasn’t Socialism. It was kleptocracy—the rule of thieves.”
  • “In Venezuela, I saw children abandon schools that had stopped serving meals and teachers trade their lesson books for pickaxes to work in dangerous mines. I saw pictures of horse carcasses on the grounds of the top university’s veterinary school—killed and eaten because of the lack of food.”
  • “Hyperinflation, set to reach 14,000% this year, has transformed the most basic transactions into Kafkaesque trials. Cash is extremely scarce, card payment networks are overloaded, cell phone coverage is worse than in Syria, and online banking systems constantly crash because of underinvestment. Paying for a cup of coffee can take an hour.”
  • “The crisis has even made it harder for the ruling elite to enjoy its privileged status. Despite access to official dollars and the protection of security details, top apparatchiks now avoid the best restaurants, the plushest resorts and business-class lounges, where they fear encountering the hatred of their compatriots. Sanctions and fears of corruption probes have barred many of them from trips to the U.S. and much of Europe.”
  • “After 2016, I no longer had to travel to report on the toll of the economic crisis. It was visible all around me: in the sagging skin of neighbors, the dimming eyes of janitors and security guards, the children’s scuffles for mangos from a nearby tree. It is profoundly depressing to watch people you know grow thinner and more dejected day by day, year after year. When I look back at my five years in Venezuela, it’s not the time I spent covering riots, violent street protests or armed gangs that stirs the most feeling. It’s the slow decay of the people I encountered every day.”
  • “For most ordinary Venezuelans I know, Mr. Maduro’s foreordained victory last weekend snuffed out the last glimmer of hope that their lives can improve through democratic and peaceful means. What’s left is exile or further misery.”

Perspective

WSJ – Daily Shot: CNN – Global School Shootings Since 2009 5/25

Slate – Eighties Babies Are Officially the Brokest Generation, Federal Reserve Study Concludes – Jordan Weissmann 5/23

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – When Fees Go Up in Seconds, It’s Time to Go – Dina Isola 5/25

FT – New York property jitters herald declines elsewhere – Gillian Tett 5/24

  • “Clouds are hovering over New York’s housing market. A couple of years ago, property prices were spiraling ever higher — much like the new luxury skyscrapers now springing up in midtown Manhattan.”
  • “But estate agents say that sales volumes in the first quarter of 2018 were at their lowest level for six years. Meanwhile the median price per square foot was 18% lower than a year earlier, according to some reports.”
  • For those of you not living in Manhattan and that don’t own property there, you think, so what? The thing is … “last month the IMF published its first comprehensive analysis of global property and this suggests that real estate is becoming prone to synchronization too. Two decades ago, only 10% of property price movements could be blamed on global — not local — factors. Now it is 30%.”
  • “…What is striking is that this real estate synchronization is affecting urban centers in both emerging and advanced economies. Or as the report notes: ‘House prices in major cities outside the United States — Beijing, Dublin, Hong Kong SAR, London, Seoul, Shanghai, Singapore, Tokyo, Toronto and Vancouver — are positively associated with US house price dispersions’.”
  • “This might seem unsurprising. After all, the global elite hop across borders at dizzying speed. So does financial capital, and sentiment-shaping news. Meanwhile, the market capitalization of the real estate investment trust sector has tripled in the past 15 years, and large asset managers allocate on average of 11% of their portfolios to property.”
  • “This has made the housing market more ‘financialized’, since some investors are treating housing more like a tradeable asset, chasing yields around the world. No wonder that a decade of ultra-loose monetary policy in the west has lifted so many geographically dispersed real estate boats.”
  • “…the key point is this: if (or when) global financial conditions eventually become less benign, there will probably be downward movement in housing markets too, with some unexpected spillover effects.”
  • “Indeed, the most intriguing point in the IMF report is that ‘heightened synchronicity of house prices can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment’.”
  • “In plain English, this means that a correlated boom in global real estate markets can signal trouble ahead. We should keep a close eye on those estate agents’ reports in New York — as well as London or Hong Kong. The Big Apple’s jitters might yet be a canary in the coal-mine.”

FT View – A wise autocrat knows what he does not control 5/23

  • “Turkey’s president risks losing his fight with the financial markets.”

The Irrelevant Investor – Never Begin With the End in Mind – Michael Batnick 5/25

NYT – Elon Musk, the Donald of Silicon Valley – Bret Stephens 5/25

WSJ – Banks Won Big in Washington. What It Means for Investors – Jason Zweig 5/25

Real Estate

WSJ – Daily Shot: US Existing Homes Sales 5/24

WSJ – Daily Shot: NAR US Existing Homes Months Supply 5/25

WSJ – Daily Shot: Change in US Single-Family Homes Sales 5/25

WSJ – Daily Shot: Bloomberg – Zillow – Rise in Home Sales – Select markets 5/25

Energy

WSJ – Daily Shot: eia – US Average regular gasoline price 5/25

Shipping

FT – Maersk raises shipping rates as oil price spike bites – Joe Leahy and Richard Milne 5/24

  • “The world’s biggest container shipping group Maersk Line told customers it is raising prices in response to increased marine fuel costs, showing how the surge in oil prices to their highest levels in four years is rippling through the global supply chain.” 
  • “Bunker prices, as marine fuel is known, have risen more than 20% since the start of the year, and in Europe have hit $440 per metric ton, the highest since 2014. That has forced Maersk to introduce an ’emergency bunker surcharge’, the company told customers in a note.” 

Education

WSJ – Mike Meru Has $1 Million in Student Loans. How Did That Happen? – Josh Mitchell 5/25

  • “Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”
  • “More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.”
  • “For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.”
  • “More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.”
  • “Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included.”
  • “Mr. Meru’s financial records—provided to The Wall Street Journal—show he borrowed $601,506 to attend USC—a debt swelled to more than $1 million by fees and interest.”

Asia – excluding China and Japan

FT – Malaysia police seized $28.6m cash in 1MDB probe raid – Ben Bland 5/25

  • “The cash confiscated last week from a luxury Kuala Lumpur apartment linked to the 1Malaysia Development Berhad investigation was worth RM114m ($28.6m), Malaysian police said on Friday.”
  • “The hoard, composed of Malaysian ringgit, US dollars and 24 other currencies, was seized alongside 284 luxury handbags and 37 other bags full of jewelry and watches from an empty apartment at the Pavilion Residences condominiums.”
  • We’re talking liquid-hard currency…
  • “Amar Singh, the head of the commercial crime unit, said it took police and 21 officers from Malaysia’s central bank three days to count the stash, which is now being held in the bank’s vaults.”

Japan

WSJ – In Booming Japan, the Phillips Curve Is Dead – Greg Ip 5/23

May 17, 2018

Worthy Insights / Opinion Pieces / Advice

FT – How the west should judge a rising China – Martin Wolf 5/15

  • “Advanced countries are hobbled by their inability to manage their own affairs.”

Japan

FT – How Japan’s ageing population is shrinking GDP – Valentina Romei 5/16

  • “With a rapidly ageing population and a shrinking workforce, Japan is one of the world’s oldest societies. Now analysts fear that these demographics are hampering economic growth.” 
  • “Japan’s economy contracted by 0.2% in the first three months of this year over the previous quarter, ending eight consecutive quarters of growth, Japan’s longest period of uninterrupted growth since 1989. It is now the only major economy to start 2018 with a shrinking economy.” 
  • “With the second-weakest performance of major economies last year — Italy had the poorest — Japan is now set to be the slowest growing of the G7 economies this year.”
  • “Japan cannot keep up with the growth rates seen in other advanced economies because ‘Japan’s demographics weaken its GDP growth,’ said Rob Carnell, head of research and chief economist for Asia-Pacific at ING. ‘A rapidly ageing population and shrinking labor force are hampering growth,’ warned the IMF in its latest country’s report.” 
  • “In a separate document, the IMF calculated that ‘the impact of ageing could potentially drag down Japan’s average annual GDP growth by 1 percentage point over the next three decades’.”
  • “Since Japan’s population began its decline in 2010, the country’s population has shrunk by about 1.3m people.”
  • “By 2065, the UN expects Japan’s population to fall by an additional 28m people, corresponding to a 22% drop. Over the same period, the population in advanced economies is expected to rise by 3%.”
  • “Not only is Japan’s population shrinking, but it is also ageing rapidly.”
  • “A shrinking population means a smaller domestic market with fewer people buying goods and services.” 
  • “In 2016, there were about 2,300 fewer kindergartens than seven years earlier as the number of pupils dropped by 18%. Nearly 2,000 primary schools have been shut over the same period while the number of children of primary school age dropped by 8%.”
  • “Far fewer houses are being built as the population, and demand, falls.” 
  • “The shrinkage in Japan’s population means that even with flat productivity growth there would be ‘steady declines in GDP output from one year to another,’ said Mr Carnell. Assuming all other factors remained similar, an economy with an expanding population would see positive GDP growth. ‘A better way of looking at Japan would be as per capita GDP,’ added Mr Carnell.” 
  • “When looking at GDP growth rate per person of working age — which takes into account ageing trends as well as population shrinkage — Japan is in fact the second-best performing G7 country after Germany over the past 20 years.” 
  • “Unless demographic trends are corrected, this is unlikely to be the last time Japan will see negative GDP growth, analysts say. But, given its shrinking labor force, its economy is performing strongly, they add.”

South America

FT – Kellogg latest company to pull out of Venezuela – Gideon Long 5/15

April 5, 2018

Perspective

The Verge – South Korean millennials are reeling from the Bitcoin bust – Rachel Premack 4/3

  • “From the outside, the Korean economy appears to be flourishing: the country is home to major industry leaders such as Samsung, Hyundai, and Kia. It’s the 11th-largest economy in the world, with semiconductors, car LCDs, and other high-tech products dominating its exports. The overall unemployment rate is just 4.6%.”
  • “Still, young people can’t find jobs. Youth unemployment has hovered around 10% in Korea for the past five years. The underemployment rate — defined by those involuntarily working jobs they’re overqualified for or are part-time — is even higher as of this year: it hovered at 38% in 2016, according to Dongseo University professor Justin Fendos.”
  • “In this highly educated economy, it can be hard for young Koreans to distinguish themselves from their peers. Nearly 70% of all Koreans ages 25–34 have a post-secondary degree, the highest of all Organization for Economic Co-operation and Development (OECD) countries, and a high school degree is nearly universal. Entire neighborhoods in Seoul are full of college graduates studying to pass hiring exams in order to get in at Korea’s biggest companies or the enviable public sector.”
  • “’The design of Korean society is a big reason why the cryptocurrency became so popular,’ says Yohan Yun, a 25-year-old assistant reporter in Seoul who invested around $400 in Ethereum. ‘People here are generally unhappy with their current status in society.’”
  • “Even employed young people are pessimistic about their economic prospects: a survey conducted in 2015 showed that half of young Koreans don’t believe that they will do better than their parents’ generation, compared to 29% in 2006.”
  • “For young Koreans, cryptocurrency seems like a rare shot at prosperity. Months after last year’s bubble started to implode in February, the Korean won remains the third most traded currency for Bitcoin. The country of 52 million comprises 17% of all Ethereum trading, and it was the location of two-thirds of world’s biggest exchanges this winter, Korea Expose reported in February.”
  • “An estimated three in 10 salaried workers in Korea had invested in e-currencies by December 2017, according to a survey by Korean recruiting firm Saramin. Eighty percent of those people were in their 20s and 30s.”
  • “But now that the prices of cryptocurrency coins like Bitcoin, Ethereum, and Ripple have tanked, many Korean youths are dealing with the mental and financial aftermath of their losses. Korean psychologists have reported an uptick of patients from the so-called ‘Bitcoin blues,’ divorce counselors say marriages are splitting from failed investments, and even the country’s prime minister said that virtual currencies are on track to cause ‘serious distortion or pathological social phenomena’ among Korea’s young population.”
  • “Real estate used to be the traditional way to grow one’s fortune in Korea, but prices have become exceedingly expensive for even upper-middle-class people. And interest rates for savings accounts are rarely more than a few percentage points a year.” 
  • “Koreans’ hyperconnectivity helped spur Bitcoin’s popularity. Teens and young adults spend around four hours a day using mobile phones in Korea. Nearly every Korean home has internet access, and 88% have smartphones, the highest percentage globally. Such an abundance of connectivity allowed potential traders of all ages to learn about the craze and hear about the insane amounts of money one could make on trading. Cryptotrading clubs, where people can meet like-minded traders and share tips, popped up at many Korean universities.”
  • “Thanks in part to the frenzy, some coins cost up to 51% more in Korean markets than anywhere else. Bitcoin’s price was up nearly $8,000 in January, Bloomberg reported. The ‘kimchi premium’ drew foreign traders to buy their coins abroad and trade them in the Korean market.”
  • “But then came the crash. From January 6th to January 16th, 2018 the price of Bitcoin to Korean won tumbled from a high of a US-equivalent $25,065 to $13,503, according to Korbit. It continued to fall to $7,410 by February 5th, and as of April 2nd, the price of a bitcoin sits at $7,241.”
  • “In total, the Bitcoin crash wiped out $44 billion of value in January, or more than Ford’s entire market capitalization, according to Bloomberg. New regulations against cryptocurrency trading, particularly ones from a worried South Korean government, helped usher the fall.”

Worthy Insights / Opinion Pieces / Advice

Business Insider – People have stopped paying their mobile-home loans, and it’s a warning sign of the economy – Matt Turner 4/3

  • “The mobile-home market is showing signs of stress.”
  • “The delinquency rate on mobile-home loans has increased by 200 basis points, or 2 percentage points, over the past year, according to research cited by UBS. The 30-day-plus delinquency level is now about 5%, the highest level since 2005.”
  • “The increase in the number of struggling mobile-home borrowers suggests that a large chunk of these people haven’t benefitted from the economic growth of the past few years, despite the low unemployment level.”
  • “This data represents a piece of a jigsaw puzzle of the condition of consumer finances in the US. And the picture that’s emerging, according to UBS, is of a two-speed economy, with lower-income consumers and younger borrowers with substantial student debt moving at a slower pace than more affluent and established participants.”
  • “‘We believe weakness in these two groups (lower-income consumers and younger borrowers) will drive higher credit losses at some stage over the next few years — particularly in credit card, installment, and student loans — with macroeconomic inflection from job growth to job loss as a likely catalyst,’ UBS said.”

NYT – How Dr. King Lived Is Why He Died – Jesse Jackson 4/3

WSJ – Telsa’s Model 3 Is No Model T – Charley Grant 4/3

  • “First-quarter production is not as rosy as the electric-car maker believes.”

Markets / Economy

WSJ – Daily Shot: Deutsche Bank – US Actual vs Potential GDP 4/4

WSJ – Iowa’s Employment Problem: Too Many Jobs, Not Enough People – Shayndi Raice and Eric Morath 4/1

Real Estate

John Burns RE Consulting – California Has Density Solutions, but Not Enough New Housing – Pete Reeb 4/3

Finance

WSJ – Daily Shot: Deutsche Bank – European Bond Issuance v ECB Purchases 4/4

WSJ – Daily Shot: Deutsche Bank – Emerging Market USD & EUR Debt Issuance 4/4

China

WSJ – Daily Shot: Deutsche Bank – Credit Expansion in BRIC Countries 4/4

WSJ – Daily Shot: Hong Kong Retail Sales 4/4

  • “Hong Kong’s retail sales jumped by most in eight years as wealthy shoppers from the mainland return.”

Japan

WSJ – Daily Shot: Deutsche Bank – Declining Service Quality in Japan 4/4

  • “Instead of inflation, Japan’s extremely tight labor markets are translating into reduced-quality services for consumers. The US is starting to experience this trend as well.”

Puerto Rico

Bloomberg – Stunned Investors Reap 95% Gains on Defaulted Puerto Rico Bonds – Michelle Kaske 4/3

  • “Not only are Puerto Rico’s bonds the top performer in the $3.9 trillion municipal market, they’ve gained more than any other dollar-denominated debt in the world, according to data compiled by Bloomberg.”

WSJ – Daily Shot: Puerto Rico General Obligation Bonds 4/4