Tag: LeEco

July 26, 2017

If you were to read only one thing…

NYT – 110 N.F.L Brains 7/25

  • “Dr. Ann McKee, a neuropathologist, has examined the brains of 202 deceased football players. A broad survey of her findings was published on Tuesday in The Journal of the American Medical Association.”
  • “Of the 202 players, 111 of them played in the N.F.L. – and 110 of those were found to have chronic traumatic encephalopathy, or C.T.E., the degenerative disease believed to be caused by repeated blows to the head.”
  • “The brains here are from players who died as young as 23 and as old as 89. And they are from every position on the field – quarterbacks, running backs and linebackers, and even a place-kicker and a punter.”

Perspective

WSJ – Daily Shot: Forbes – Large Tech Firm Lobby Budgets 7/25

WSJ – U.S. Military’s Space in Trump Tower Costs $130,000 a month – Paul Sonne 7/19

  • It’s a 3,475 sq. ft. space, so $37.41 per sq. ft. per month. Mind you, “the most expensive Trump Tower listing recently was a 3,725 sq. ft., three-bedroom apartment on the 62nd floor. It was listed in the spring of 2016 for $50,000 a month unfurnished and $60,000 a month furnished, according to Streeteasy.com.”
  • Basically, Trump’s neighbor recognizes they have a captive audience.

FT – Google and Facebook lay foundations for modern-day company towns – George Hammond 7/19

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Fund Managers and Strategists Think the Bull Market Is Ending Next Year – Adam Haigh, Natasha Doff, Dani Burger and Julie Verhage 7/25

  • “We have had a liquidity-fueled bull market. If that is taken away, there is a pressure point.” – Remi Olu-Pitan, Schroder Investment Management Ltd.

WP – Disabled and disdained – Terrence McCoy 7/21

  • “In rural America, some towns are divided between those who work and those who don’t.”

FP – The argument to be a buyer of the Saudi Aramco IPO – John Dizard 7/21

  • “As one international oil analyst says, though: ‘The Permian is preventing high prices today, but ensuring high oil prices tomorrow. The low prices are holding back investment in most of the world, and that is storing up a significant problem in meeting demand in the future.'”
  • “That is the argument to be a buyer of the Saudi Aramco IPO.”
  • “There are two bets involved in the listing. Can Saudi Arabia contain the social and strategic pressures caused by cheap oil? And will the capital markets eventually stop subsidizing shale producers?”

WSJ – Investors, Stop Worrying About Why ‘Nobody’ Is Worrying – Jason Zweig 7/21

Markets / Economy

WSJ – In Reversal, Colleges Rein In Tuition – Josh Mitchell 7/23

  • “U.S. college tuition is growing at the slowest pace in decades, following a nearly 400% rise over the past three decades that fueled middle class anxieties and a surge in student debt.”
  • “Abundant supply is running up against demand constraints. The number of two-year and four-year colleges increased 33% between 1990 and 2012 to 4,726, Education Department data show. But college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills.”
  • “Longer-running economic and demographic shifts also are at play. Lower birthrates and the aging of baby boomer children have reduced the pool of traditional college-age Americans. The number of new high-school graduates grew 18% between 2000 and 2010 but only 2% in the first seven years of this decade, Education Department data show.”
  • “Another factor: Congress last increased the maximum amount undergraduates could borrow from the government in 2008. Some economists have concluded schools raise prices along with increases in federal financial aid. A clampdown on aid, in turn, could limit the ability of schools to charge more.”
  • “But other factors could keep cost pressures rising. George Pernsteiner, head of State Higher Education Executive Officers, a trade group that tracks state funding for schools, notes that many states are on track to experience budget crunches as the population ages and health-care and public pension costs rise. That could squeeze public support for schools.”

Real Estate

WSJ – Americans Pour Record Sums Into Home Improvements – Laura Kusisto and Sarah Chaney 7/25

  • “A shortage of new single-family homes across the U.S. is pushing up prices and locking many buyers out of the market. The silver lining: a boom in renovations of existing homes.”
  • “Americans are expected to pour a record $316 billion into home remodeling this year, up from $296 billion a year earlier, according to Harvard University’s Joint Center for Housing Studies.”

FT – Funds hunt for cracks in most-prized US shopping malls – Miles Johnson 7/21

  • “A defining feature of the financial crisis was a group of hedge funds making vast sums by wagering against supposedly AAA-rated mortgage debt well before markets imploded in 2008.”
  • “Now some believe a similar story will play out for US shopping malls — that the most risky investments will end up being those that investors now believe to be the safest. Central to their premise is the idea that too much faith may be being placed in a classification system used for shopping malls that is little known outside of the real estate sector.”
  • “Malls are given ratings by a small group of property consultants generally ranging from A++ to C based on factors that include their sales per square foot and location. While there is no universally accepted system for ranking the malls, with each consultant having slightly different methodologies, banks and investors tend to rely on these ratings to make decisions over how secure each mall is as a creditor or investment.”
  • “The stock market has until recently appeared to believe that prime ‘A’ malls are largely insulated from the pain being felt across a US retail sector being shaken by e-commerce.”
  • “Yet there is growing evidence to suggest that these prime malls, which have been treated by investors and lenders alike as rock solid bets in the face of the internet headwinds, are not as protected as once thought.”
  • “The hedge funds wagering against the highest quality malls believe that the wider market will come to believe these A-quality malls are far more similar to lesser ranked ones. ‘This idea that there are these magic malls in America that are immune to secular change is a myth,’ the US-based hedge fund manager says.”
  • “Some argue that the market underappreciates that A class mall operators and B and C class mall operators all have very similar tenant bases, in spite of being in different locations.”

Energy

BloombergGadlfy – Venezuela’s Perfect Storm for Oil May Be About to Break – Liam Denning 7/21

  • “We may be about to see the first sovereign producer to unequivocally fail.”
  • “The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA.”
  • “But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”
  • “Venezuelan bonds, which haven’t looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country’s constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.”
  • “Venezuela’s economy is in free-fall: By the end of this year, it will have shrunk by 32% compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt — including bonds owed by the state-owned oil champion, Petróleos de Venezuela, S.A., or PdVSA — plus billions more in interest. As of this week, Venezuela’s international reserves stood at less than $10 billion.”
  • “Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies’ interests have caused Venezuela’s oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela’s surplus of oil available for earning export dollars has shrunk considerably.”
  • “Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University’s Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.”
  • “For three years, oil watchers have been waiting for a chaotic wave of bankruptcies in places like Texas and North Dakota to jolt the market. They’ve been looking in the wrong place.”

FT – Coal has no future, says US railroad boss – Gregory Meyer 7/19

  • “One of the largest haulers of US coal says fossil fuels have no future, despite pledges to the contrary from President Donald Trump.”
  • “CSX, a freight railroad company with origins in the bituminous coal seams of Appalachia, will not buy a single new locomotive to pull coal trains, chief executive Hunter Harrison told analysts on Wednesday.”
  • “’Fossil fuels are dead,’ Mr Harrison said. ‘That’s a long-term view. It’s not going to happen overnight. It’s not going to be in two or three years. But it’s going away, in my view.’” 
  • “North American railroads have reshaped their asset holdings in acknowledgment that coal’s apex has passed.”
  • “Lance Fritz, chief executive of the Union Pacific railroad, said in a recent interview that Mr Trump’s move to scrap Clean Power Plan regulations was unlikely to grow its coal business. ‘It takes away a headwind,’ he said.”

Tech

NYT – Silicon Valley Giants Confront New Walls in China – Paul Mozur and Carolyn Zhang 7/22

  • “It’s basically like someone who has been training for Olympic taekwondo going up against a street fighter. The Olympic fighter is waiting for the whistle, and the street fighter already has him on the ground hitting him with elbows. There’s no rules.” – Andy Tian, co-founder of Asia Innovations Group and former general manager of Zynga China

FT – Uber, Amazon and Microsoft braced for accounting shake-up – Leslie Hook and Richard Waters 7/19

  • “Uber’s reported revenues are being cut in half and sales at Amazon and Microsoft could be higher than previously stated — all thanks to a forthcoming change to accounting rules.”
  • “An update to generally accepted accounting principles (GAAP) for US companies is turning out to have particularly large consequences in parts of the tech industry, which is having to overhaul the way it reports revenues and costs.”
  • “One of the more dramatic impacts will affect car-booking services such as Uber, a private company whose GAAP revenue drops by more than half when it adopts the new standard, which it plans to do this year.”
  • “Uber’s first-quarter revenue this year was $3.4bn under old GAAP accounting, but it says that under the new rules its revenue would have been just $1.5bn for the same period. Uber has already started sharing the lower figure with investors.”
  • “Under the old standard, car-booking services such as Uber and Lyft counted their commissions from regular rides, plus the entire fare of carpool rides, as revenue. Under the new standard, only the commissions from both regular and carpool rides will count as revenue.”
  • “The shift is due to changes to the ‘principal versus agent’ rules that determine when a company is acting as a principal and when it is acting as an agent. The car-booking services were previously considered the ‘principal’ for carpooled rides. As private companies, they must adopt the new standard by the beginning of 2019, although Uber has moved to do so much earlier.”
  • “The new standard, known as Revenue from Contracts with Customers, is designed to narrow the distance between US GAAP rules and International Financial Reporting Standards (IFRS).”

Agriculture 

WSJ – Daily Shot: CBOT Soft Red Winter Wheat Futures 7/24

  • “The recent wheat rally has been almost entirely reversed.”

Asia – excluding China and Japan

FT – Jailed Duterte foe prepares for long haul – Michael Peel 7/20

  • “Philippine Senator Leila de Lima, 57, was arrested at her senate office in February on charges that she received payoffs from jailed drug lords. She has branded the allegations ‘simply surreal’ and said they were part of a ‘personal vendetta’ by a president who is ‘rather obsessed with me’.”
  • “Ms. de Lima has certainly earned implacable enmity from Mr. Duterte for her efforts to probe his bloody drugs wars first as a provincial mayor and now as president. She maintains her innocence but also accepts her stay in jail could be a long one. The same day she marks five months in detention next week, Mr. Duterte will give an annual state of the nation speech against a background of soaring approval ratings.”
  • “I think as long as Duterte is president (5 more years), I will be locked up in jail,” Ms. de Lima says. “I have no false hopes about achieving justice very soon.”

China

NYT – In China, Herd of ‘Gray Rhinos’ Threatens Economy – Keith Bradsher and Sui-Lee Wee 7/23

  • “Let the West worry about so-called black swans, rare and unexpected events that can upset financial markets. China is more concerned about ‘gray rhinos’ — large and visible problems in the economy that are ignored until they start moving fast.”
  • “The rhinos are a herd of Chinese tycoons who have used a combination of political connections and raw ambition to create sprawling global conglomerates. Companies like Anbang Insurance Group, Fosun International, HNA Group and Dalian Wanda Group have feasted on cheap debt provided by state banks, spending lavishly to build their empires.”
  • “Such players are now so big, so complex, so indebted and so enmeshed in the economy that the Chinese government is abruptly bringing them to heel. President Xi Jinping recently warned that financial stability is crucial to national security, while the official newspaper of the Communist Party pointed to the dangers of a ‘gray rhinoceros,’ without naming specific companies.”

FT – China’s LeEco appoints new chairman from Sunac – Emily Feng 7/21

  • Sunac continues to be busy. In addition to its property acquisitions from Dalian Wanda, Sunac’s chairman – Sun Hongbin, is adding a new chairmanship to his belt, that of the struggling Chinese tech company, LeEco.

WSJ – The Saga Isn’t Over for Dalian Wanda – Jacky Wong 7/20

NYT – At the Finish, Dalian Wanda of China Rewrites a Blockbuster Sale – Sui-Lee Wee and Zhang Tiantian 7/19

  • “Dalian Wanda Group, the Chinese conglomerate, tore up a $9.3 billion agreement to sell a portfolio of hotels and theme parks, unexpectedly reaching new deals on the properties that highlighted uncertainty over the financial health of the country’s biggest companies.”
  • “Wanda had reached an overall agreement with the property firm Sunac China Holdings last week, but Wanda announced at a signing ceremony on Wednesday that it was backtracking and would instead sell just the theme parks to Sunac. The hotels will instead be sold to R&F Properties, based in the southern Chinese city of Guangzhou.”
  • “The hasty reorganization of the deals has raised concern about the due diligence conducted by many of China’s first-generation dealmakers as they seek to become bigger players domestically and around the world.”
  • “The signing was dominated by the announcement that Sunac would pay $6.5 billion for a 91% stake in Wanda’s 13 theme parks across China, while R&F Properties would buy 77 hotels from Wanda for $3 billion. In a sign of the wildly fluctuating valuations of assets, however, Wanda had said last week that it was selling Sunac only 76 hotels, but that they were worth $5 billion.”

South America

WSJ – Daily Shot: Venezuelaecon.com – Venezuelan Bolivar Black Market Exchange Rate 7/25

Turkey

NYT – Turkey Sees Foes at Work in Gold Mines, Cafes and ‘Smurf Village’ – David Segal 7/22

  • “Since then (after the failed attempt to overthrow the government of President Recep Tayyip Erdogan on July 15, 2016), more than 950 companies have been expropriated, all of them purportedly linked to Fethullah Gulen, the Muslim cleric who Turkish leaders say masterminded the putsch.”
  • “About $11 billion worth of corporate assets — from small baklava chains to large publicly traded conglomerates — have been grabbed by the government, a systematic taking with few precedents in modern economic history. Several thousand dispossessed executives have fled overseas to cities as far-flung as Nashville and Helsinki. The less fortunate were imprisoned, part of a mass incarceration campaign that has included purged members of the military, judiciary, police and news media, adding 50,000 new inmates to the prisons.”

July 7, 2017

If you were to read only one thing…

FT – Japan suffers record decline in population – Robin Harding 7/5

  • “Japan’s native population fell by a record amount in 2016, but a jump in the number of foreign residents limited the overall annual decline.”
  • “According to the Internal Affairs Ministry, the number of Japanese fell 308,084 to 125.6m, reflecting decades of low birth rates and population ageing.”
  • “That was offset by a 7% increase in the foreign resident population to 2.3m — a rise of 148,959 people — as increasing labor shortages led to inflows of students and guest workers.”
  • “The figures reflect a fundamental question for Japan in the years ahead: whether it will allow immigration to sustain its overall population or accept a decline to preserve ethnic homogeneity.”
  • “For the first time since the survey began in 1979, the number of annual births fell below 1m, with 981,202 babies born in 2016. Deaths reached a high of 1.3m.”
  • “According to projections from the National Institute of Population and Social Security Research, the pace of decline will rise every year until 2045, by which time Japan will be losing about 900,000 residents a year — equivalent to a city the size of Austin, Texas.”
  • “Given many years of low birth rates, there is no quick way to reverse that decline, so the only alternative is immigration.”
  • “Japan’s population continued to shift towards big cities and Tokyo in particular. The population of the capital rose by 115,000 to 13.5m, an increase of 0.9%, while the surrounding prefectures of Saitama, Chiba and Kanagawa also gained residents.”
  • “But population decline accelerated in isolated rural areas, with Aomori, Akita and Kochi prefectures all losing more than 1% of their residents.”

Perspective

WSJ – Daily Shot: BAML – S&P 500 Market Ownership – Vanguard 7/6

FT – US raises spectre of military action to deal with North Korea – Bryan Harris, Demetri Sevastopulo, and Katrina Manson 7/5

  • “Self-restraint, which is a choice, is all that separates armistice and war. As this alliance missile live-fire shows, we are able to change our choice when so ordered by our alliance national leaders.”

Bloomberg – A Quarter of Euro Area’s Unemployed Resides in Spain – Jana Randow 7/4

Worthy Insights / Opinion Pieces / Advice

WSJ – CEO-Worker Pay Ratio Generates Outrage-And Some Insight – Stephen Wilmot 7/6

FT – Lex in-depth: Together in electric dreams – Tom Braithwaite 7/6

Markets / Economy

WSJ – Daily Shot: Haver Analytics & Renaissance Macro Research – American Auto Preference 7/6

Real Estate

WSJ – Daily Shot: Statistics Canada – Real Estate Transaction Costs as Percentage of GDP 7/6

WSJ – Condo Supply Swells in Manhattan – Josh Barbanel 7/6

China

WSJ – Reality Bytes: A Highflying Tech Entrepreneur Crashes Back to Earth – Li Yuan 7/6

  • “Rather than being a shining star of visionary entrepreneurship, LeEco is turning into a cautionary tale of the hype surrounding China tech. The lesson for investors: When it comes to Chinese tech companies, the rules of economics still apply.”

Europe

WSJ – Italy Formally Takes Control of Monte dei Paschi – Deborah Ball 7/5

  • “The Italian government took control of Banca Monte dei Paschi di Siena on Tuesday, injecting €5.4 billion ($6.1 billion) into the troubled lender as part of a broad plan to bring one of Europe’s weakest banks back to health.”
  • “The state recapitalization is the centerpiece of a deep overhaul of Monte dei Paschi, Italy’s fourth-largest lender, that will also include the transfer of the bank’s €28.6 billion in bad loans to a special vehicle, a cap on remuneration of its top executives and deep cuts in personnel.”
  • “The bank, which is the world’s oldest, gave details of its plan Wednesday in a presentation to analysts, which include the closure of 600 branches and 5,500 job cuts, bringing its total job count to about 20,000 by 2021.”
  • “Under pressure from the European Central Bank, which is pushing European banks to address the problem of bad loans, Italian banks have stepped up efforts to sell and liquidate sour debt, with tens of billions of such loans earmarked for disposal.”
  • “Nonetheless, the Italian banking system is among the weakest in Europe, with about €200 billion in bad loans. The banks have suffered from a combination of poor management, low interest rates, poor profitability and economic growth that has been the weakest in the region for years.”
  • “Italy’s banking woes remain a serious impediment to a stronger recovery in the country, which isn’t enjoying the rebound other European countries have seen. Italy’s economy is expected to grow about 1% this year, slightly more than half the rate for the eurozone as a whole.”

June 12, 2017

Worthy Insights / Opinion Pieces / Advice

WSJ – The Cushion That Saved Taxpayers From Banco Popular’s Failure – Paul Davies 6/7

  • “Regulators can make a determination that a bank is failing or likely to fail with information that investors don’t have. Regulators shouldn’t act too early, but it is right that they should act when waiting threatens the integrity of the financial system or a drawdown of public money. Any investor who doesn’t understand that should steer clear of bank equity and debt. Period.”

The Big Picture: Bloomberg – Jim Chanos on Tesla, China 6/7

  • Interview

Real Estate

WSJ – Daily Shot: Green Street Commercial Property Index 6/9

FT – Real estate: The global luxury condo glut – Anna Dedhar 6/8

  • Podcast

Energy

WSJ – Daily Shot: EIA – Total US Effective Rig Count 6/9

China

FT – LeEco’s listed arm cancels bond fundraising – Emily Feng 6/8

  • “A bond sale (meant to raise Rmb2bn – $300m) by the Shenzhen-listed arm of embattled company LeEco has been cancelled, after the group was asked to address regulators’ concerns about the health of its financials.”

WSJ – Beijing Lands in Another Debt Mess – Anjani Trivedi 6/9

WSJ – Perpetual Doesn’t Mean Forever in China – Jacky Wong 6/8

  • “Chinese companies growing appetite tapping an unconventional source of financing might not be a source of eternal bliss.”
  • “Perpetual securities, bondlike instruments that pay interest but have no maturity dates, have become popular in China in recent years: Issuance jumped to $55 billion in 2016 from less than $1 billion in 2012, according to Dealogic. This year, Chinese companies have been keener to issue them in offshore markets, raising some $4.4 billion, more than their dollar-denominated issuance in all of 2016.”
  • “A big reason Chinese companies like perpetuals is that they are classified as equity on their balance sheets. The accounting logic is that perpetual issuers don’t ever have to repay the bond’s principal and can choose to defer annual coupon payments—making them similar to dividends.”
  • “Treating perpetuals as equity means companies can report lower gearing ratios, a measure investors commonly use to assess a company’s indebtedness. China Evergrande, the country’s biggest property developer by assets, had a net debt-to-equity ratio of 120% as of December. That ratio would have jumped to 432% if its perpetual bonds had been counted as debt. Investors are happy to play along as the perpetuals usually pay higher yields. Evergrande effectively paid an 11% coupon on its perpetuals last year.”
  • “But whatever the accounting rules say, perpetual securities still work much more like debt than equity in China. To start with, companies can defer coupon payments on perpetuals only if they aren’t paying dividends to their shareholders. Given that Chinese companies often have a majority shareholder, and therefore nearly always pay a dividend, that clause rarely applies.”
  • “Moreover, perpetuals in China often include a clause that automatically steps up the coupon rate, usually after three to five years. Since the step-up is usually quite steep, issuers have a strong incentive to redeem their perpetuals early—making them not so perpetual, after all. The coupon on a recent $500 million perpetual bond issue from state-owned Power Construction Corp. of China will jump by 5 percentage points, more than double its initial yield, after five years.”
  • “Investors hoping to live happily ever after with perpetuals ought to scrutinize why companies are issuing such disguised debt in the first place—and whether it is really in their interests.”

FT – Chinese regulators target staff shareholding plans – Gabriel Wildau and Nan Ma 6/9

  • “The Shenzhen Stock Exchange is querying listed companies about a series of unusual plans to sell shares to employees while insuring them against losses if stock prices fall.”
  • “At least 21 Shenzhen-listed companies announced employee shareholding plans in the first week of June that include guarantees by the chairman or senior executives to protect workers against downside risk, according to exchange filings compiled from Wind Information.” 
  • “While it is not yet clear whether such plans will enable large shareholders to sell directly to employees, market observers still view them as a response to the tighter rules. With stake sales more difficult to execute, large shareholders are looking for ways to boost their share prices, at least until they can find ways to offload their shares.”

NYT – China’s New Bridges: Rising High, but Buried in Debt – Chris Buckley 6/10

Middle East

FT – Crisis in the Gulf: Qatar faces a stress test – Simeon Kerr 6/9

South America

WSJ – Daily Shot: Caracas Stock Exchange 6/9

  • “Venezuela’s stock market has gone ‘vertical’ as it becomes the only legal ‘safe-haven’ to escape the currency collapse.”

FT – Venezuela woes on paying Russia debt raise prospect of default – Jonathan Wheatley and Robin Wigglesworth 6/9

  • “Reports of a failure to pay a debt to Russia and a requested ruling on whether such a failure constitutes a ‘credit event’ that could trigger insurance contracts on billions of dollars of international bonds have brought Venezuela closer than ever to the brink of financial collapse.”
  • “Matters may soon come to a head. On Wednesday, the International Swaps and Derivatives Association, an umbrella organization of the finance industry’s biggest banks and money managers, was asked by an anonymous member whether the reported default to Russia should be classified as a ‘credit event’ and trigger insurance-like contracts on Venezuela’s roughly $36bn in sovereign bonds.”
  • “The ISDA ruling may take some time. And even if it decides a credit event has occurred, there would be no automatic default on Venezuela’s sovereign bonds.”
  • “But it is clear from the terms of those bonds that should the government fail to meet any other debt obligations, bondholders can demand immediate payment.”
  • “Should the sovereign bonds then go into default, the roughly $35bn of outstanding PDVSA bonds would not be affected, and may even be left intact. The government in Caracas almost certainly would not.”