Tag: Markets

Real Estate Relative to Other Assets | Sand Mining

Economist – The great global housing folly – Daily Charts 1/17/20

Economist – Asia’s hunger for sand is harmful to farming and the environment 1/16/20

There has probably never been a better time to be in the sand business. The world uses nearly 50bn tons of sand and gravel a year—almost twice as much as a decade ago. No other natural resource is extracted and traded on such an epic scale, bar water.

Demand is greatest in Asia, where cities are growing fast (sand is the biggest ingredient in cement, asphalt and glass). China got through more cement between 2011 and 2013 than America did in the entire 20th century. Since the 1960s Singapore—the world’s largest importer of sand—has expanded its territory by almost a quarter, mainly by dumping it into the sea. The OECD thinks the construction industry’s demand for sand and gravel will double over the next 40 years. Little wonder then that the price of sand is rocketing. In Vietnam in 2017 it quadrupled in just one year.

In the popular imagination, sand is synonymous with limitlessness. In reality it is a scarce commodity, for which builders are now scrabbling. Not just any old grains will do. The United Arab Emirates is carpeted in dunes, but imports sand nonetheless because the kind buffeted by desert winds is too fine to be made into cement. Sand shaped by water is coarser and so binds better. Extraction from coastlines and rivers is therefore surging. But according to the United Nations Environment Program (UNEP), Asians are scooping up sand faster than it can naturally replenish itself. In Indonesia some two dozen small islands have vanished since 2005. Vietnam expects to run out of sand this year.

All this has an environmental cost. Removing sand from riverbeds deprives fish of places to live, feed and spawn. It is thought to have contributed to the extinction of the Yangzi river dolphin. Moreover, according to WWF, a conservation group, as much as 90% of the sediment that once flowed through the Mekong, Yangzi and Ganges rivers is trapped behind dams or purloined by miners, thereby robbing their deltas both of the nutrients that make them fecund and of the replenishment that counters coastal erosion. As sea levels rise with climate change, saltwater is surging up rivers in Australia, Cambodia, Sri Lanka and Vietnam, among other places, and crop yields are falling in the areas affected. Vietnam’s agriculture ministry has warned that seawater may travel as far as 110km up the Mekong this winter. The last time that happened, in 2016, 1,600 square kilometers of land were ruined, resulting in losses of $237m. Locals have already reported seeing dead fish floating on the water.

Curbing sand-mining is difficult because so much of it is unregulated. Only about two-fifths of the sand extracted worldwide every year is thought to be traded legally, according to the Global Initiative Against Transnational Organized Crime. In Shanghai miners on the Yangzi evade the authorities by hacking transponders, which broadcast the positions of ships, and cloning their co-ordinates. It is preferable, of course, to co-opt officials. Ministers in several state governments in India have been accused of abetting or protecting illegal sand-mining.

Scientists are experimenting with alternatives to concrete and cement. Architects are trying to find ways to use such materials more sparingly. Even the odd government is taking action. In 2018, Maharashtra passed regulations requiring contractors to use plastic waste as filler when building or repairing roads. Singapore is creating a new patch of land by draining it of water rather than piling it with sand. Kiran Pereira of SandStories.org, which promotes awareness of the issue, says “there are plenty of solutions” if only governments would find the will to implement them. Time to pull heads from the sand.

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Tobacco Users on the Decline | 2020 US Federal & State Min. Wage Rates | Most Common Job Types by County | 2019 Market Returns by Asset Class

Bloomberg: WHO – Number of Male & Female Tobacco Users 12/18/19

WSJ – Daily Shot: the Balance – 2020 Minimum Wage by US State 1/1/20

WSJ – Daily Shot: Tableau – Most Common Job Types by American County 1/2/20

WSJ – Daily Shot: Charles Schwab – 2019 Stock Relative Stock Returns 1/2/20

Some US Stock Market Perspective

Bloomberg – Don’t Expect the Roaring ’10s for Stocks to Repeat in the ’20s – Nir Kaissar 12/12/19

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

Headwinds to Rising Interest Rates

FT – Why the global shortage of safe assets is getting worse – Tommy Stubbington 11/18/19

Government bonds issued by big developed economies have surged in price this year — pushing yields to record lows. A key reason is that these “safe assets” are in short supply.

A wide variety of investors and corporations prize the highest-quality government bonds for their cash-like qualities — and the near certainty of getting their money back.

According to research by Oxford Economics, the resultant global shortage of these safe assets is going to get worse. The consultancy calculates that the supply of these assets will grow by $1.7tn annually over the coming five years — with a $1.2tn issuance of bonds to fund the US budget deficit the largest driver. But demand for these assets is estimated to grow more rapidly, creating a $400bn annual shortfall and indicating that government bond yields are set to remain low.

“The largest buyers are relatively price-insensitive and will continue to accept low returns in exchange for safety,” said Michiel Tukker, global macro strategist at Oxford Economics.

Mr Tukker said the extra demand would come as the global economy grew more quickly than the supply of safe assets. Governments around the world could alleviate the shortage by issuing more debt, he said. Indeed, higher borrowing has recently moved towards the top of the political agenda in the UK, the US and even the eurozone.

However, a big shift towards looser fiscal policy around the world is unlikely, unless there is an economic downturn, Mr Tukker thinks. In that case, he said, central banks would be likely to respond by ramping up their own purchases of safe assets — adding to demand.

Number of Listed Companies (US & China)

FT – US has fewer listed public companies than China – Robin Wigglesworth 10/6/19

So that happened.

Has Non-GAAP Reporting Reached its Red Line?

WSJ – Minding the GAAP Matters to Investors – Lauren Silva Laughlin 10/7/19

The number of companies reporting non-GAAP numbers has proliferated. In 1996, only 59% of filers used non-GAAP figures according to firm Audit Analytics. By 2017, that had grown to 97%. A gander at the wide range of valuations that non-GAAP creativity implies shows just how dangerous creative accounting can be for investors, too. Zion Research Group recently calculated Ebitda figures four different, but often used, ways for companies in the S&P 500 by sector. The communications sector produced the widest range between the lowest and highest figures—a difference of $25 billion for the sector as a whole between the most and least flattering techniques.

The Bell Curve of Daily Stock Market Movements, E&P Multiples, and Large Pharmaceutical Charities

WSJ – Daily Shot: Chartr – US Stock Market Daily Movements (Last 10yrs) 8/13/19

Bloomberg – Energy’s Dumb Money May Be Wising Up – Liam Denning 8/13/19

Traditionally, these swung low when oil prices were very high, in anticipation of an inevitable cyclical downswing, and rose when prices fell, pricing in the next recovery. In this latest cycle, however, that relationship has changed. When oil prices fell sharply in 2015 and 2016, valuation multiples soared (and equity issuance spiked). But when oil dropped in late 2018 and this summer, multiples fell alongside it.

The higher risks around energy earnings and damaged trust means investors demand more to buy into them – meaning a higher cost of capital expressed in lower valuations.

Economist – Why America’s biggest charities are owned by pharmaceutical companies 8/13/19

When patients in need of medicines in America go to fill their prescription the price they have to pay can vary wildly. For generic off-patent drugs prices are usually low for the uninsured and free for those with insurance. But for newer patent-protected therapies prices can be as high as several thousand dollars per month. Those without insurance might end up facing these lofty list prices. Even those with coverage will often have to fork out some of the cost, called a co-payment, while their insurance covers the rest.

These co-payments, which for the most expensive drugs can themselves be prohibitively high, can act as a deterrent to filling a prescription. Into this gap a new type of charity has emerged: one that offers to pay co-payments for patients. There are two main types of such charities. There are independent ones, like the Bill and Melinda Gates foundation, America’s largest charity, which spent $3.4bn on co-payments in 2014.

There are also co-pay charities owned by drug makers themselves. According to public tax filings for 2016, the last year for which data are available, total spending across 13 of the largest pharmaceutical companies operating in America was $7.4bn. The co-pay charity run by AbbVie, a drug maker that manufactures humira, a widely taken immunosuppressant, is the third largest charity in America. Its competitors are not far behind. Bristol-Myers Squibb, which makes cancer drugs, runs the fourth largest. Johnson and Johnson, an American health conglomerate, runs the fifth largest. Half of America’s top 20 largest charities are co-pay charities owned by pharmaceutical companies.

The impact of these charities is large and growing. Most of them are less than 20 years old. In 2001 just five drug makers operated co-pay charities, spending a total of $370m. That had risen 20-fold to $7.4bn by 2016. According to Ronny Gal, an analyst at Bernstein, a research firm, the co-payment on the price of a drug is usually just 10% of the cost the pharmaceutical company ultimately charges to the insurance provider. This would mean that $7.4bn spent on copayments could earn drug makers $74bn in revenues, which would account for nearly a quarter of total drug spending in America. Add in spending by the Gates Foundation and this share rises to a third.

Pharmaceutical companies will often claim that helping patients with their co-payments is one way of making expensive drugs more accessible. But it has the fortunate consequence of making their customers price insensitive, because insurance companies will often use high co-payments to nudge their customers into opting for generics over costlier branded drugs: no co-pay, no incentive to save money.

Using co-pay charities to support high prices is good for business, but charitable contributions foster healthy profits in another way too: they are tax deductible. The corporate tax codes of most countries allow companies to deduct the cost of any charitable giving from pre-tax profits. But in America the system is more generous, says Jason Factor, a tax lawyer at Cleary Gottlieb Steen and Hamilton. Companies that give products for the benefit of the “needy or ill” can deduct up to twice the cost of gifted goods.

April 12, 2018

If you were only to read one thing…

Bloomberg Gadfly – Mark Zuckerberg Refuses to Admit How Facebook Works – Shira Ovide  4/12

  • “The most troubling takeaway from two days of congressional hearings on Facebook Inc. was this: Mark Zuckerberg didn’t want to explain how the social network operates.” 
  • “Zuckerberg found it hard to plainly acknowledge that Facebook tracks users from device to device, collects information on websites people visit and apps they use, gathers information on people’s physical locations, collects phone call logs from Android smartphones and pulls in some online activity from people who don’t even have Facebook accounts.”
  • “Zuckerberg declined to acknowledge that Facebook’s ad system and products are informed by all of this information gathering on and off the social network. If Facebook were a true bargain with users — they get a useful, free service in exchange for seeing advertising based on their interests and activity — then Zuckerberg should be comfortable explaining how it all works.”
  • “Instead, given the option to articulate Facebook’s relationship with users (and non-users), he dodged. A lot.”
  • “He said he couldn’t answer queries from Senator Roy Blunt, who asked on Tuesday whether Facebook tracks users across their computing devices or tracks offline activity. The answer to both is yes. During the House committee hearing on Wednesday, Zuckerberg claimed not to know what ‘shadow profiles’ are, even though this term has been used for years to describe Facebook’s collection of data about people who don’t use its services by harvesting the inboxes and smartphone contacts of active Facebook users. (Zuckerberg reluctantly acknowledged that Facebook gathers information on people who aren’t signed up for Facebook for what he said were ‘security purposes.’)”
  • “Most people do not understand the scope of Facebook’s data collection. Lawmakers tried more than once to get Zuckerberg to say this, but he never did. Here’s a piece of evidence lawmakers could have showed the CEO: In a survey conducted recently by Digital Content Next, a trade group of news organizations that is frequently critical of Facebook, a majority of respondents said they didn’t expect the social network to track use of non-Facebook apps to target ads, collect their physical location when they’re not using Facebook or harvest information from non-Facebook websites that people visit. Spoiler alert: Facebook does all of those things.”  
  • “It’s not people’s fault if they don’t know how Facebook works. If Zuckerberg and Facebook were comfortable with the data-based bedrock of their business, he should be able and willing to explain all the ways Facebook collects data on everyone and how it uses it.”
  • “It felt as though the company made a calculated decision to deflect rather than talk openly about the scope of Facebook data collection and its data-based ad system. And to me, that was a sign that Facebook is embarrassed about what it does for a living.”

Continue reading “April 12, 2018”

March 26, 2018

Markets / Economy

FT – IMF warns of mounting debt crisis risk in poor countries – Kate Allen 3/22

  • “The world’s poorest countries are increasing their borrowing at a worrying pace and face the mounting risk of debt crises, the IMF has warned.”
  • “Since 2013, the median ratio of public debt to gross domestic product in low-income countries has risen 13 percentage points to hit 47% in 2017, according to new research by the IMF.”
  • “The research found that 40% of low-income developing countries face ‘significant debt-related challenges’, up from 21% just five years ago.”
  • “Fiscal deficits rose between 2013 and 2017 in nearly three-quarters of the nations the IMF studied, and in nearly half of those cases the deficit increase came despite a decline in investment, an indication that the debt was not being put to productive use economically. “
  • “As a result it is becoming increasingly likely that more poor countries will face a debt crisis, the IMF staff paper said.” 

Real Estate

Bloomberg – The Manhattan Luxury-Home Market Is Screaming: I’m Overpriced! – Oshrat Carmiel 3/23

  • “Homes prices at $4 million or more that went into contract in the first 12 weeks of the year had their asking prices cut by an average of 10%, the most in data going back to 2012, according to Olshan Realty Inc.”

FT – China looks to Reits to ease housing woes – Gabriel Wildau and Yizhen Jia 3/22

  • “Xi’s drive to encourage building of residences for rent opens market worth a potential $2tn.”
  • “Since 2014, 30 quasi-REITs worth Rmb65bn have been issued on the Shanghai and Shenzhen stock exchanges and through private placements, according to the China REITs Alliance, an industry group.” 
  • “But these products trade over the counter, so liquidity is poor. Most are also not accessible to retail investors. Some also differ from true REITs because their yields derive partly from capital appreciation, not only rental income.”
  • “The value of Chinese REITs could reach Rmb4 to Rmb12tn if their share of gross domestic product or of total real estate assets were comparable to the same ratios in the US, according to estimates last year by researchers at Peking university’s Guanghua School of Management.”
  • “But experts say a more active REITs market in China requires action from the tax bureau. The boom in Chinese housing and land prices over the past decade means that absent new policy, older property sold off to a REIT would be subject to large capital gains taxes.”
  • High property prices also mean that rental yields are low — often less than 3% for commercial real estate and under 1% for residential. Without tax benefits, dividend yields on REITs would be too low to attract investor interest.” 

Environment / Science

BBC News – Plastic patch in Pacific Ocean growing rapidly, study shows – Helen Briggs 3/22

  • “A collection of plastic afloat in the Pacific Ocean is growing rapidly, according to a new scientific estimate.”
  • “Predictions suggest a build-up of about 80,000 tons of plastic in the ‘Great Pacific Garbage Patch’ between California and Hawaii.”
  • “This figure is up to sixteen times higher than previously reported, say international researchers.”
  • “One trawl in the center of the patch had the highest concentration of plastic ever recorded.”

 

January 10, 2018

Perspective

Howmuch.net – Credit Scores & Household Incomes in America – Raul 1/8

Pew – Most dads say they spend too little time with their children; about a quarter live apart from them – Gretchen Livingston 1/8

WSJ – Daily Shot: Deutsche Bank – Road Quality by US State 2016 1/9

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Will Wealth Inequality Slay the Bull Market? – Anthony Isola 1/8

  • “Revolution is the ultimate Black Swan.”
  • “Thirty percent of U.S. households have zero or negative non-home wealth. One thing is certain; this is not the location of the ‘cash on the sidelines’.” 
  • “Unfortunately, wealth inequality is a feature, not a bug, of democracy and capitalism.”
  • “’According to research from the New York University economist Edward Wolff, the top 10 percent of American households now own 84% of all stocks. That’s up from 77% ownership in 2001′.”
  • “90% of America barely participated in the massive bull market the last several years.”
  • “’The majority of middle-class wealth is tied to homes, as more than 60% of investible assets are in a primary residence. Stock ownership makes up less than 10% of total assets for the middle class’.” 
  • But do you have the fortitude to suffer the draw-downs…
  • “The men who can manage men manage the men who can manage only things, and the men who can manage money manage all.” – Will and Ariel Durant

Bloomberg View – Stock Investors Will Benefit Most From Corporate Tax Overhaul – Ben Carlson 1/5

NYT – Amway Made China a Billion-Dollar Market. Now It Faces a Crackdown. – Ryan McMorrow and Steven Lee Myers 1/8

WSJ – China’s Strategy to Psych Out the West Is Paying Off – Andrew Browne 1/9

  • “The China scholar Perry Link once called the party ‘the anaconda in the chandelier’.”
  • “Just by hovering, it induces self-censorship and subtle behavioral changes.”
  • “‘Normally the great snake doesn’t move. It doesn’t have to,’ Mr. Perry wrote in a 2002 essay in the New York Review of Books.”
  • “‘Its constant silent message is ‘You yourself decide.””

Markets / Economy

WSJ – The Price Gap That’s Squeezing the Auto Market – Stephen Wilmot 1/8

WSJ – Daily Shot: US Consumer Credit Net Change 1/8

  • “Consumer credit balances saw the greatest monthly increase in 16 years.”

WSJ – Daily Shot: FRED – Total US Consumer Credit Relative to Disposable Personal Income 1/8

WSJ – Daily Shot: Piper Jaffray – US Consumers living beyond their means 1/8

WSJ – Daily Shot: FRED – Total Consumer Loans by Credit Unions 1/8

WSJ – Daily Shot: FRED – Total US Student Loan Balance 1/8

WSJ – Daily Shot: US Financial Accounts Q3 2017 1/8

WSJ – Daily Shot: Piper Jaffray – Consumer Confidence & Savings Rate Gap 1/8

  • “There is a widening gap between consumer sentiment and the savings rate. In the past, this divergence was a precursor to the end of the economic cycle.”

WSJ – Daily Shot: Market Ethos – US Output Gap 1/8

  • “The disappearance of the output gap also indicates that we are in the late stage of the cycle.”

Economist – Daily Chart: The fastest-growing and shrinking economies in 2018 1/5

Finance

WSJ – Daily Shot: Bitcoin 1/8

  • “Bitcoin appears to be range-bound, unable to breach the $17k level again.”

WSJ – Daily Shot: Investing.com – Ripple 1/8

  • “Ripple took a massive hit on Monday before recovering partially.”

Environment / Science

NYT – These Billion-Dollar Natural Disasters Set a U.S. Record in 2017 – Kendra Pierre-Louis 1/8

South America

FT – Smuggled cattle and petrol join exodus from Venezuela – Gideon Long 1/8

  • “Criminal gangs seize opportunity posed by hyperinflation and a plunging bolivar.”

WSJ – Daily Shot: Bloomberg – Venezuela 10yr USD Bond Price 1/8