Tag: Markets

August 1, 2017

Perspective

FT – Apple removes apps that bypass China’s censors – Hannah Kuchler and Max Seddon 7/30

  • “Apple has removed from its Chinese app store applications that enable users to bypass China’s ‘Great Firewall’, in a move that developers have condemned as ‘censorship’.”
  • “The Silicon Valley company has withdrawn virtual private network (VPN) apps from the store, as it pulls all software that do not comply with local law, even if the makers are based outside the country.”
  • “VPNs allow users to access content banned by Chinese censors to control access to information online. This has, in effect, created a ‘Chinese internet’, without many western social media or search engine sites.”

Project Syndicate – Venezuela’s Unprecedented Collapse – Ricardo Hausmann 7/31

  • “In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.”
  • “Venezuelans clearly want out – and it’s not hard to see why.”
  • “But is this just another bad run-of-the-mill recession or something more serious?”
  • “The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.”
  • “Put another way, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe, or the rest of Latin America. And yet these numbers grossly understate the magnitude of the collapse…”
  • “Inevitably, living standards have collapsed as well. The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017. Measured in dollars at the black-market exchange rate, it declined by 88%, from $295 per month to just $36.”
  • “Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Could Football Ever End? – Jason Gay 7/30

  • “A new concussion study provokes more existential worry in the NFL – and, reportedly, an early retirement.”

FT – With oil prices, half a step is not enough – Nick Butler 7/30

  • Saudi Arabia’s additional production curbs are a step in the right direction, but there are just too many other producers that they don’t control.

Markets / Economy

WSJ – Daily Shot: FRED – Velocity of M2 Money Stock 7/31

Real Estate

WSJ – Supermarkets Face a Growing Problem: Too Much Space – Heather Haddon and Julie Jargon 7/31

  • “A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.”
  • “Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group, a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.”
  • “To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.”
  • “But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.”
  • Additionally, this article doesn’t mention the increasing foot prints of these grocers. Many are resembling department stores, but with an emphasis on food.

Finance

WSJ – Private Equity Takes Fire  as Some Retailers Struggle – Lillian Rizzo 7/30

  • “A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.”
  • “Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”
  • “In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.”
  • “Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.”
  • “In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.”
  • “Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.”
  • “Bankruptcy cases are messy by nature, and creditors—typically facing losses—are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.”

China

Bloomberg – China Asks Waldorf Owners Anbang to Sell Assets Abroad, Sources Say 7/31

  • “Chinese authorities have asked Anbang Insurance Group Co., the insurer whose chairman was detained in June, to sell its overseas assets, according to people familiar with the matter.”
  • “The government has also asked Anbang to bring the proceeds back to China after disposing of holdings abroad, said the people, who asked not to be identified because details are private. It is not clear yet how Anbang will respond, the people said.”
  • “Anbang was among the most prominent of Chinese insurers that went on a buying binge across the globe, fueled by soaring sales of investment-type insurance policies, with its 2014 acquisition of New York’s Waldorf Astoria hotel catapulting it into the public eye. Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators.”
  • “Anbang’s rise in recent years was fueled by sales of lucrative investment products that offered among the highest yields compared with peers. China’s insurance regulator this year started clamping down on what it termed ‘improper innovation’ and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.”
  • “One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.”

FT – One of China’s biggest P2P lenders quits ahead of clampdown – Louise Lucas and Sherry Fei Ju 7/30

  • “China’s pending regulatory crackdown on the $120bn peer-to-peer lending industry has claimed its first scalp before it has even begun, with one of the biggest players saying it will wind up its business in an industry full of bad loans and no profits.”
  • “Beijing this month said it would delay regulations that will bar online lenders from guaranteeing principal or interest on loans they facilitate, cap the size of loans at Rmb1m for individuals and Rmb5m for companies, and force lenders to use custodian banks — a requirement only a fraction of the industry has met so far.”
  • “Imposition of the new rules has been delayed from next month until June next year to give companies more time to comply.”
  • “But Hongling Capital has already thrown in the towel, with founder and chairman Zhou Shiping last week admitting that ‘P2P lending is not what we are good at, neither is it something we see potential in. This [P2P lending] business of ours would always be cleared out eventually — it’s only a matter of time.'”
  • “Hongling, which has Rmb17.6bn ($2.6bn) in loans, plans to wind down its eight-year online lending business by the end of 2020.”
  • “According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015, while 3,795 platforms have collapsed since 2011.”
  • “Outstanding loans from China P2P lending platforms totaled Rmb816.2bn ($121bn) at the end of December, double the figure of a year earlier, according to P2P consultant WDZJ.com.”

WSJ – Chinese Banks’ Dash for Capital Gets Under Way – Anjani Trivedi 7/31

  • “Investors have long questioned when China’s banking system, with its heaps of bad loans and hidden leverage, would resort to raising much-needed equity. From the look of it, the weakest lenders are starting to do so.”
  • The method, convertibles. To start, “Ping An Bank, a midsize lender notorious both for selling piles of high-yielding investment products and for sitting on masses of overdue loans, said last week that it plans to issue 26 billion yuan ($3.9 billion) of convertible bonds—uncommon in China—that can be switched into its Shenzhen-listed shares. While convertibles don’t count as equity straight away, they could help improve Ping An’s equity levels when they are turned into stock.”
  • Debt is the green

South America

FT – Venezuelans snub Maduro vote on day marred by violence – Gideon Long 7/31

  • In a word, impunity…
  • “Venezuelans on Sunday largely snubbed Nicolás Maduro’s election for a new all-powerful political assembly, in a vote marred by violence that killed at least 10 people and left seven police officers injured by a bomb attack.”
  • “Opposition leaders rejected the electoral commission’s turnout figure of 8.1m — 41.5% of the electoral register — saying only about 2m had actually voted. Analysts estimated the turnout at 3m-4m.”
  • “The president’s critics say the new assembly, which will be convened within 72 hours, will snuff out the last vestiges of democracy in Venezuela after nearly two decades of populist leftwing rule, turning the country into a new Cuba. It will have the power to dissolve the democratically elected Congress, where the president’s opponents have a majority, rewrite the constitution, scrap future elections and draft new laws.”
  • “In the run-up to the vote, all reliable polls had suggested that between two-thirds and three-quarters of Venezuelans opposed Mr. Maduro’s assembly. One poll said only about 12% of the electorate would vote for it.”
  • The country’s decent continues.

WSJ – Daily Shot: Venezuela Money Supply YoY Change 7/21

  • “Venezuela’s money printing has accelerated. The broad money supply has risen 400% over the past year.”

July 5, 2017

Perspective

WSJ – Daily Shot: Credit Suisse – USA Aggregate Net cash and Debt % of Sales 7/3

WSJ – Daily Shot: WEF – World’s most crowded cities 7/3

FT – SF Express uses first China drone license to deliver the goods – Yuan Yang 6/30

  • “SF Express has completed commercial drone deliveries after receiving China’s first drone airspace license, state media reported on Friday.”
  • “China’s logistics and technology companies have announced such delivery services before but little commercial use has followed. However, there are some signs that the SF Express launch was different.”
  • “The granting of the license indicates that national regulators are now more willing to open airspace to drone delivery companies, say analysts.”
  • “SF Express, one of China’s biggest logistics services, flew a fleet of drone models, some of which can carry up to 25kg and have a range of up to 100km, in the southern area of Ganzhou in Jiangxi province.”

Worthy Insights / Opinion Pieces / Advice

INET – Jim Chanos: U.S. Economy is Worse Than You Think – Lynn Parramore 6/30

  • “Since the election of Donald Trump, the stock market has soared and many pundits have noted positive economic trends in the US. Jim Chanos of Kynikos Associates, known for his financial prescience, is less sanguine.”

NYT – After Killing Currency, Modi Takes a Leap With India’s Biggest-Ever Tax Overhaul – Geeta Anand 6/30

Economist – How fracking leads to babies 7/2

  • “The typical family in America is changing. Couples are increasingly reluctant to seal their relationships with the stamp of marriage, or to tie the knot before having children. In 1960 fewer than a tenth of births were to unmarried women, whereas these days around two fifths of children are born out of wedlock. Economists wonder whether the changing economic fortunes of men might be driving these decisions, but struggle to disentangle the different factors at work. Recently, though, new evidence has emerged on the topic. Did, for example, the fracking boom affect family formation?”
  • “A new study by Melissa Kearney and Riley Wilson, two economists at the University of Maryland, looks at the impact of the recent fracking boom in America, which boosted job opportunities for less-educated men. The economists wanted to see how this affected birth rates, both in and outside of marriage. They compared marriage and birth rates in areas where fracking had boosted the local economy with those where it had not had any effect. The researchers found no effect on marriage rates, though fertility rates did rise. On average, they find that $1,000 of extra fracking production per person was associated with an extra six births per 1,000 women.” 
  • “The result confirms the hypothesis that better economic prospects lead to higher fertility. But it also sheds light on changing social mores in America: good times used to mean more wedding bells and babies, whereas now they just mean the latter. The policy prescriptions are not obvious. Whether or not people get married is their own business. But the finding does offer some comfort to those who worry that declining marriage rates are purely the product of worsening economic prospects for men. Clearly, some other factor is at play.”

NYT – Confidence Boomed After the Election. The Economy Hasn’t. – Neil Irwin 7/4

FT – China was the real victor of Asia’s financial crisis – James Kynge 7/2

Energy

WSJ – Behind Oil’s Ups and Downs, Little Has Changed – Nathaniel Taplin 7/4

  • “If oil heads higher, it will elicit a quick supply response – same on the downside. Nothing in the past six weeks has done much to change that equation.”

Finance

FT – SEC accuses British executive of bitcoin fraud – David Lynch 6/30

  • The fraudster: Renwick Haddow
  • The companies: Bitcoin Store and InCrowd Equity Inc.
  • Caveat emptor

Tech

WSJ – Daily Shot: Credit Suisse – Data Storage Costs 7/3

Health / Medicine

FT – Our digital addiction is making us miserable – Izabella Kaminska 7/4

Religion

NYT – Israel Faces Uproar Abroad as Netanyahu Yields to Ultra-Orthodox Jews – Isabel Kershner 7/3

  • “Jews around the world have been in an uproar in the week since Mr. Netanyahu yielded to pressure from his ultra-Orthodox coalition partners and suspended a plan to provide a better space for non-Orthodox men and women to worship together at the Western Wall in Jerusalem.”
  • “That new prayer space had long been a goal of the Reform and Conservative movements, popular in the West. And in another blow to those more liberal wings of Judaism, the government also approved a contentious bill enshrining the strictly Orthodox Chief Rabbinate’s monopoly over conversions to Judaism in Israel.”
  • “Together, those moves have reawakened a decades-old dispute over who is a Jew. And they have prompted an emotional debate over the nature of the relationship between the world’s Jews and the Jewish homeland — at a time when a right-wing Israeli government, under increased international criticism, has relied on support among the generally more liberal Jewish diaspora in the West.”
  • “The furor over the Western Wall agreement boils down to a refusal by Israel’s Orthodox religious authorities to grant any recognition to Reform and Conservative Judaism. The main prayer space at the Western Wall, known in Hebrew as the Kotel, has separate men’s and women’s sections, in the Orthodox tradition, and is run like an Orthodox synagogue.”

China

FT – China bans homosexuality, luxurious lifestyles from online videos – Yuan Yang 7/1

  • “Sexual freedom, luxurious lifestyles and portrayals of Chinese imperialism are the latest targets of China’s crackdown on internet video content.”
  • “’Abnormal sexual lifestyles’, including homosexuality, are included among the 84 categories of topics that were banned from online video programs by Chinese censors last week. ‘Unhealthy’ views of the family, relationships, and money are also banned.”
  • “The detailed list is the first issued by government censors to cover the rapidly growing field of internet video, and comes after dozens of the country’s most popular entertainment channels were shut down in an online crackdown that started three weeks ago.”
  • “Beijing has heightened its scrutiny of online content in the run-up to the politically sensitive national congress of the Communist party later this year, analysts say.”
  • “Under the new guidelines, mocking revolutionary heroes is forbidden, as well as portraying ethnic discord or lack of national unity.” 
  • “In particular, programs should not portray ‘the use of military force to conquer others during China’s historic feudal period’.” 
  • “The clause is a veiled reference to Tibet and Xinjiang — two large border regions of China where separatist movements have emerged in opposition to the government’s policies against Buddhist and Muslim citizens.” 

WP – China vows to step up air and sea patrols after U.S. warship sails near disputed island – Simon Denyer and Thomas Gibbons-Neff 7/3

  • “China’s military vowed Monday to step up air and sea patrols after an American warship sailed near a disputed island in the South China Sea in what Beijing called a ‘serious political and military provocation.’”
  • “The past few days have seen a dramatic downturn in relations between the two sides, after the United States announced its intention to sell arms to Taiwan and sanction a Chinese bank doing business with North Korea.” 
  • “Then, on Sunday, the USS Stethem, an American guided-missile destroyer, sailed within 12 nautical miles of Triton Island, a small isle in the Paracel Islands chain claimed and controlled by China, a U.S. defense official said.”
  • “The Stethem’s patrol marked the second such operation near Chinese-controlled islands in six weeks, after a few months’ hiatus in the wake of Trump’s inauguration.”
  • “China’s Defense Ministry said its armed forces had dispatched two frigates, a minesweeper and two fighter jets to warn the Stethem away.”
  • “The Paracels are among a group of islands and atolls in the South China Sea at the heart of ongoing tensions in Southeast Asia. China claims full sovereignty over the sea and has built fully functional military facilities complete with airfields and antiaircraft defenses on some islands.”
  • Expect the movie WarGames to start trending.

NYT – China’s Vision for a Straddling Bus Dissolves in Scandal and Arrests – Austin Ramzy and Carolyn Zhang 7/4

June 21, 2017

If you were to read only one thing…

FT – China gains entry to MSCI’s $1.6tn emerging markets benchmark – Jennifer Hughes and Nicole Bullock 6/20

  • “Chinese stocks have gained direct entry to MSCI’s global benchmark equity index for the first time, marking a milestone in Beijing’s efforts to draw international funds into the world’s second-largest market.”
  • “The move means mainland stocks, known as A-shares, will next year be included in MSCI’s flagship emerging markets index, obliging the estimated $1.6tn of investment funds that track the index to buy mainland equities.”
  • “China’s domestic equity and bond markets are the second- and third-largest in the world, respectively, yet foreigners hold just roughly 2% of each. Three previous proposals by MSCI to include mainland stocks were rebuffed by the index provider’s stakeholders — mostly large asset managers.”

Perspective

WSJ – Daily Shot: Tax Foundation – Massachusetts’s Proposed Soda Tax 6/20

Economist – Finland tests an unconditional basic income 6/20

Worthy Insights / Opinion Pieces / Advice

Economist – Electoral victory will make France’s president a potent force 6/17

  • “But he will still have to face down a challenge from the street.”

Medium – One does not simply become successful – Timi Lliev 6/4

  • Good post with links to some useful tools (mind mapping and vision boards)

WSJ – The Fed’s Poor Record on Soft Landings – Justin Lahart 6/19

  • “The only time the Fed really succeeded in executing a soft landing, according to most economists, was when it raised rates through 1994. In the mid-1960s and mid-1980s it had a couple of qualified successes. Its other tightening cycles over the past 60 years were followed by recessions, though in some cases a recession was necessary to wipe out inflation.”

Economist – The rebellion of Venezuela’s top prosecutor 6/20

  • “Ms. Ortega’s rebellion and Mr. Ramirez’s resignation are a sure sign that the regime has lost moral authority even among some of its most fervent supporters. As misery and anger grow, disenchantment within the regime will spread. Its power to coerce may then begin to weaken.”

Markets / Economy

WSJ – Daily Shot: BMO – Bloomberg Economic Surprise Index 6/20

WSJ – Daily Shot: BMO – S&P 500 Earnings & Dividend Growth v. Index Total Return 6/20

Energy

WSJ – Daily Shot: Bloomberg Intelligence – OPEC Nations Production Changes 6/20

Environment / Science

Honolulu Star-Advertiser – Astronomers find more Earth-like planets – Jim Borg 6/20

  • “At a news conference Monday at NASA’s Ames Research Center in Mountain View, Calif., the Kepler space telescope team released a catalog of 219 new planet candidates, including 10 that are near-Earth size and orbiting in their star’s “Goldilocks zone” – neither too hot nor too cold – where liquid water could exist.”

Canada

Economist – The lessons from Canada’s attempts to curb its house-price boom 6/17

  • “In its twice-yearly health-check on the financial system, published this month, the Bank of Canada concluded that ‘extrapolative expectations’ are a feature of the market. In other words, people are buying because they hope, or fear, that prices will keep rising.”
  • “Common to all these cities are buyers from emerging markets, notably China, who have helped to drive a wedge between the price of homes and the local fundamentals of incomes and rental payments. They are willing to pay above the odds to secure a safe place for their savings. Though fairly small in number, their presence is enough to inflate bubbles.”
  • “Canada’s housing market thus opens a window on a tragic flaw in the global economy. In only a few decades China has mastered the manufacture of high-quality goods. But it takes far longer to be able to manufacture safe stores of value. Instead, their affluent citizens seek out rich-country assets, including houses. This fundamental mismatch limits the ability of policymakers to stop bubbles from inflating.”
  • Thing is, “the demand from emerging markets for safe assets will not soon diminish. Recent history shows that big run-ups in property prices often reverse suddenly. Better to batten down the hatches now in case the weather turns bad.”

China

FT – China property tax languishes as vested interests block reform – Gabriel Wildau 6/19

  • “As Chinese authorities struggle to contain runaway home prices, a long-awaited plan for a property tax has stalled, the latest sign of entrenched interests impeding efforts to transform the country’s growth model.” 
  • “The average price of a Shenzhen home last year was 41 times the average income, against 29 in London, 23 in Tokyo and 15 in New York, according to Macquarie Securities. Since late last year, 45 Chinese cities have introduced purchase limits and other measures in an attempt to cool rising property prices.”
  • “For years, economists have advocated for China to move away from administrative tools like purchase bans in favor of a property tax. Top Communist party leaders committed to imposing a property tax in a landmark blueprint for economic reform approved in November 2013.” 
  • “By imposing an annual levy on home ownership, a property tax would reduce the appeal of housing as a speculative investment. While the merits of property taxes in general are a matter of debate among economists, few doubt that is sorely needed in China, where 50m homes lie empty, according to the China Household Finance Survey conducted by researchers from Southwestern University of Finance and Economics in Chengdu.”
  • “Yet market observers say there is little prospect of the government implementing a tax within the next few years — at the annual session of China’s rubber-stamp parliament in March it was announced that legislation for the levy was not on the agenda this year.” 
  • “’Among well-informed economists in the government, establishing a property tax has been consensus for a long, long time,’ says Gan Li, director of the CHFS and professor of economics at Texas A&M University. ‘The concern is politics. No one wants to be blamed for bursting the housing bubble.’” 
  • “China’s home ownership rate is 87%, according to the survey — creating a large and powerful constituency opposing a property tax. In the US, the rate is only 64%, according to census data.” 
  • “A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 28% of families in medium-sized and large cities own a home that is vacant. Chinese investors have long favored housing over the volatile stock market and low-yielding bond market, and capital controls limit households’ ability to buy foreign assets.”

Bloomberg – China’s Workers are Saying Goodbye to Double-Digit Pay Raises 6/19

Still good though…

South America

FT – OAS fails to pass resolution condemning Venezuela’s Maduro – Jude Webber 6/19

  • “Twenty countries of the Organization of American States backed a resolution condemning Mr Maduro’s unpopular plans to convene a constituent assembly to draw up a new constitution on July 30 – falling short of the two-thirds majority needed. A rival proposal, backed by Caribbean countries, also failed to pass after hours of talks and bickering over procedural matters at the body’s general assembly in the Caribbean resort of Cancún.”
  • “’The crisis is real,’ Honduras’ foreign minister María Dolores Agüero told the meeting. ‘It cannot be that under the doctrine of non-intervention the alternative is to do nothing.’”

June 6, 2017

Perspective

Economist – The super-rich are different: they pay less tax 6/1

Visual Capitalist – The Problem With Our Maps – Nick Routley 6/2

Worthy Insights / Opinion Pieces / Advice

FT – Grantham says higher valuations will persist – Robin Wigglesworth 6/1

  • “The US stock market has entered an era of higher valuations and probably has further room to rise, according to Jeremy Grantham, the founder of asset manager GMO and a known bearish spotter of financial bubbles.”
  • “Mr. Grantham, a notoriously bearish ‘value investor’ who correctly called and dodged the Japanese, dotcom and housing bubbles, sees little to worry him in the US market today. Expressing a preference for emerging market equities to US stocks, GMO’s founder points to seemingly durable pillars of healthy corporate profits, low interest rates and any lack of euphoria.”
  • “’I’ve dedicated my life to financial bubbles, and I don’t think it is a bubble,’ he told the Financial Times. ‘This is the broadest market of all time . . . That is not the nature of a bubble.’”
  • “Moreover, the normally bearish investor — who has built much of his career on the observation that market levels ultimately tend to revert to their long-term average — has even reluctantly conceded that US share prices may have shifted durably to a higher level since the late 1990s.”
  • “He laid out the case for why ‘this time seems very, very different’ in his quarterly letter to investors, pointing out that despite some wild swings in recent decades — caused by the dotcom bubble and subsequent crash, and then the global financial crisis — US price-to-earnings have averaged over 23 times since 1997, compared with nearly 14 times in the preceding decades, when he started his career.”
  • “The central reasons are globalization increasing the earning power of US multinationals, the growing political influence of American corporations and more onerous regulations stifling the growth of disruptive upstarts, in turn leading to increasingly monopolistic US companies, and above all a secular and durable decline in interest rates.”
  • “Mr. Grantham admits his new tone gets ‘groans from fellow value investors’ where it has ‘rattled a lot of cages’, but argued that previously dependable rules have to be re-examined and some even cast aside, given that the ‘world has changed’.”
  • “’You now have to treat previously cast-iron rules with suspicion. They’re more like aluminum rules now.’’’

Real Estate

WSJ – Daily Shot: John Burns Real Estate Consulting – US Investor Purchase Percentage 6/1

WSJ – Riksbank Chief Wants Swedish Government to Cool Red-Hot Property Market – Nina Adam 6/1

  • “Sweden’s central bank governor Stefan Ingves said a red-hot housing market and record-high level of household debt will put the Scandinavian country’s economy in peril unless the government cools the property sector down.”
  • “Swedish property prices have soared in recent years, fueled by low borrowing costs and strong economic growth. The Riksbank estimates that house prices have doubled and apartment prices have tripled over the past 10 years. At the same time, household debts have risen to 180% of disposable incomes, which is a record high.”
  • “Goldman Sachs earlier this month attached about a 35% chance to a housing bust in Sweden over the next five to eight quarters.”
  • “The Bank for International Settlements and others have warned that a long period of very low global interest rates could lead to a fresh cycle of boom and bust in housing markets. While that seems like a distant prospect in many parts of the world, Sweden may be an early test of how much has changed since the last financial crisis.”

Finance

NYT – In Texas, Some Rare Good News About Cities With Pension Woes – Mary Williams Walsh 6/1

  • “Detroit. Stockton. Puerto Rico. The list of places bankrupted by ballooning pension obligations and other debts is growing. But now comes some good news about two cities, Dallas and Houston, that have pulled back from the brink.”
  • “Just six months ago, the mayor of Dallas, Michael S. Rawlings, was warning that his city might need to declare bankruptcy after a panic led stampeding retirees to pull half a billion dollars out of its pension fund for police officers and firefighters.”
  • “But instead of going to bankruptcy court, Mr. Rawlings went to Austin, the state capital, to lobby for state pension laws that would stop the bleeding. So did the mayor of Houston, Sylvester Turner, who faced other pension problems and had persuaded the city’s labor groups to agree to concessions worth $1.3 billion over the next 30 years.”
  • “Each city had its own bill, because each had its own unique problems. But both bills involve measured reductions in pension accruals for workers and retirees — mainly in secondary benefit categories like inflation adjustments and lump-sum payouts. In exchange, the pension funds will receive more money from the cities to protect the core benefits.”
  • “As happy as the resolution may seem, the steps that Texas took are illegal in other places where public pensions are imperiling the finances of cities and states. Illinois, California, Oregon, Pennsylvania and Kansas are among the states where, by law, public pensions cannot be reduced — not even the pensions that current workers hope to earn in the future.”
  • “That doctrine, known as the California Rule, explains why California cities like Vallejo and Stockton reduced their payments to other creditors when they went into bankruptcy but did not touch their workers’ costly pension plans.”
  • “Both cities were spurred to act by the risk of credit downgrades and by a recent accounting change that calls for cities to calculate the number of years before their pension funds will run out of money — a once-unthinkable catastrophe that has come to pass in Prichard, Ala.; Central Falls, R.I.; and now Puerto Rico.”
  • “Those developments — and Detroit’s bankruptcy — have shown that Washington will not bail out government pension funds that go bust; officials had to patch together money from other sources, and even then, the retirees of Prichard, Central Falls and Detroit had their benefits cut. Cuts are expected soon in Puerto Rico, too.”

China

WSJ – Baidu’s Turn as a Bank Is Unwelcome – Jacky Wong 6/1

  • “Everything is a bank in China these days it seems—even its biggest internet search engine.”
  • “Eager to get a bigger slice of the pie, Baidu has been aggressively selling its own wealth management products. Assets in its financial services business had more than doubled to $3.7 billion by the end of March from three months previously, according to Fitch. It has also been offering microloans, many of them unsecured, to consumers who may be unable to borrow from banks.”
  • “Fitch, rightly, is worried that Baidu is running the same risk as China’s banks: its aggressive selling of investment products and microloans could come back to bite the company if there is a wave of defaults. Baidu has around $5 billion of net cash to cover any losses. But with its core search business stagnant, investors shouldn’t welcome Baidu taking on such new risks.”

FT – Billionaire Anbang boss Wu Xiaohui barred from leaving China – Henny Sender and Lucy Hornby 6/2

Puerto Rico

Bloomberg – Puerto Rico’s Exodus Is Speeding the Island’s Economic Collapse – Jonathan Levin and Rebecca Spalding 6/2

  • “The choice is heartbreaking: stay to help other families, or leave to help your own.” 
  • “That’s the calculation thousands in Puerto Rico are making. The bankruptcy of the U.S. commonwealth, the culmination of years of decline, has accelerated an exodus that’s adding to the island’s economic misery.”
  • “The population drop is astonishing. The island has lost 2% of its people in each of the past three years. A comparable departure from the 50 states would mean 18 million people moving out since 2013. About 400,000 fewer Puerto Ricans live on an island of 3.4 million today compared with a decade ago, when its economy began contracting.” 
  • “The departures have trapped Puerto Rico in a downward spiral. A grinding recession, with joblessness at 11.5%, and $74 billion mountain of debt that pushed the island to insolvency has made collecting taxes key to an economic rebound. At the same time, more Puerto Ricans from all walks of life are moving away to better their lives, meaning government revenue is dwindling.”
  • “Puerto Rico’s bond debt has grown 87% since 2006. A simple way for individual islanders to avoid having to pay it is to move to the mainland.”
  • “The government doesn’t seem to have come to grips with the outflow. Puerto Rico’s turnaround plan — a path to sustainability approved by a U.S. oversight board — assumes the population will shrink just 0.2% each year for the next decade. It uses that number as the basis for its projections of tax receipts and economic growth.”
  • Further, “the exodus isn’t confined to professionals. Among the throngs leaving are construction workers and taxi drivers. Research by the Federal Reserve Bank of New York found that college graduates make up roughly the same proportion of emigres as they do in the island’s general population, suggesting that the departures have touched every corner of the commonwealth.”
  • “While migration is the main driver in population fluctuation, a declining fertility rate isn’t helping either. The natural population increase — excess births over deaths — fell to 3,000 last year from 20,000 a decade ago, as families facing poorer economic prospects and the threat of the Zika virus put off having kids. At the same time, younger generations of child-bearing age are more likely to take off for the mainland.”
  • Seems like the only way to stop this trend is to make Puerto Rico a full-fledged state. Question is whether or not all the vested parties are willing to go along with it.

South America

WSJ – Daily Shot: Brazil GDP 6/1

June 1, 2017

If you were to read only one thing…

Business Insider – A likely shift in the mortgage market is creating ‘prisoners’ in housing – Akin Oyedele 5/29

  • “The housing market’s comeback after the financial crisis has turned out to be a mixed bag.”
  • “Prices have recovered to pre-housing-crisis levels. But with slow wage growth, that means there are fewer affordable houses available to buyers, especially in bigger cities.” 
  • “On the surface, the price trend ought to be good news for existing homeowners looking to sell. However, the likely rise in mortgage rates from historic lows means that there will be less incentive to move, according to Mark Fleming, the chief economist at First American.”
  • “‘You do become a prisoner in your home because of rates,’ he told Business Insider.” 
  • “‘There’s going to be a growing challenge of an increasing financial penalty caused by the rate lock-in effect over time.'”
  • “Since the 1980s, the long-term drop in interest rates created a built-in incentive to move, Fleming said. Even if a seller’s income was unchanged, it was possible to effectively move into a lower mortgage rate, and so be able to even afford a slightly bigger home.” 
  • “Now, the likelihood that rates will rise from historic lows has spurred the so-called rate lock-in effect: homeowners don’t sell because of the perceived or actual difference in their monthly mortgage payments if they swap their old rate for a new, higher one, Fleming said.”
  • “In a market with tight inventory, the decision to sell depends on whether homeowners want to risk selling and then not being able to find a new home.”
  • “‘The existing homeowner is trapped in this prisoner’s dilemma of the cooperative outcome,’ Fleming said. ‘If we all acted simultaneously, it would solve the problem. But we can’t take the risk of being the one that acts when everyone else doesn’t.'” 

Perspective

FT – Central banks risk messy ‘market melt-up’ – Michael Mackenzie 5/26

Worthy Insights / Opinion Pieces / Advice

FT – The hidden dangers of passive investing – Renaud de Planta – 5/29

  • “At first glance, it’s a persuasive argument. Poorly performing and expensive active managers have lingered in the system for too long, eroding returns for investors.”
  • “Yet on deeper reflection, index-tracking products are no miracle remedy. They’re more like antibiotics: valuable when deployed in moderation, but likely to do more harm than good should their use become widespread.”
  • “Indeed, if passive equity funds were to continue their present growth trajectory, they would own all listed stocks by 2030. That could threaten the free-market economy.”
  • “Essentially, the industry is an oligopoly, dominated by just three giants of asset management, who between them control almost three quarters of all passively-managed investment in stocks.”
  • “As demand for index products grows, a greater proportion of the world’s listed companies will fall under the control of the three largest investment management groups. Already, these firms collectively own close to 20% of US large-cap companies.”
  • “Passive dominance won’t happen overnight. Yet, left unchecked, the growth of index-trackers has the potential to erode the market-based economy, one industry at a time.”
  • “There is also a geopolitical dimension. If the passive giants end up owning large swaths of the capital market, they will also have a big say on the composition of stock and bond indices. Effectively able to decide which country or company should be included or excluded from those benchmarks, they would wield enormous influence over international capital flows. Note BlackRock’s recent call for China to be included in MSCI’s global equity indices.”
  • “Some might see that as an excessive concentration of power.”
  • “None of this relieves the pressure on active managers to perform and offer better value to their clients. Nor does it deny the utility of passive investment. Index products offer benefits to investors. The problem is that if the majority of us embrace them, index-trackers threaten to sabotage the entire economic system. Much like antibiotics, if passive funds are overused, they will create more problems than they solve.”

WSJ – Going Out for Lunch Is a Dying Tradition – Julie Jargon 5/30

Markets / Economy

FT – Debt pile-up in US car market sparks subprime fear – Ben McLannahan 5/29

WSJ – Smoky Diesel Cloud Hangs Over Auto Industry Profits – Stephen Wilmot 5/30

  • The knock-on effect: diesel engine cars now have a bad taint to them making inventories of auto manufacturers with large diesel production less valuable and hurting the resale value of existing diesel vehicles.

Real Estate

WSJ – Why Banks Haven’t Been Burned by Retail’s Meltdown – Lillian Rizzo and Rachel Louise Ensign 5/28

WSJ – Dead Mall Space Could Spur Warehouse, E-Commerce Deals – Esther Fung 5/30

  • “Excess parking facilities and underused retail space could be redeveloped into small-scale last-mile delivery or pickup facilities, according to Fitch Ratings.”

Energy

WSJ – OPEC Oil Deal Sinks Tanker Industry – Spencer Jakab 5/30

FT – Oil prices slip further as traders seek bigger production cuts – Anjli Raval and Neil Hume 5/30

  • “Oil prices took a further hit on Tuesday, reflecting disappointment among traders that Opec and its allies agreed to only extend, but not deepen, production cuts to drain the market of excess inventories.”

Australia

Zero Hedge – “This Market Is Crazy”: Hedge Fund Returns Hundreds of Millions To Clients Citing Imminent “Calamity” – Tyler Durden

  • “…Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return ‘hundreds of millions’ of dollars to its clients according to the Sydney Morning Herald, citing an impending property market ‘calamity’ and the ‘overvalued and dangerous time in this cycle.'”

South America

FT – Venezuelan armed forces stay loyal to President Maduro – Gideon Long 5/29

  • Bottom line as Daniel Lansberg-Rodriguez, Latin American specialist at Northwestern University, puts it “[The government] has gone to great lengths to keep the military on its side through cash bonuses, wage hikes and the doling out of lucrative governorships and ministries,.”
  • “Having profited from ‘smuggling, arbitrage and narco-trafficking schemes,’ many within the military worry that if the president falls they will end up in court and then jail, he said.”

Other Links

WSJ – Daily Shot: FiveThirtyEight – Sleep Patterns by U.S. State 5/30

WSJ – Daily Shot: World Economic Forum – World’s Most Crowded Cities 5/30

May 29, 2017

Worthy Insights / Opinion Pieces / Advice

Value Walk – Paul Singer Warns Of A World At Risk – Mark Melin 5/27

  • “When the average investor looks at the world, all they see is a placid market where asset prices rise in value regardless of the harrowing market event. North Korea increasingly provokes its Asian neighbors and defies US President Donald Trump, the markets move higher. After moving higher on hopes of a Trump legislative agenda, when such hopes are dashed, stocks dash higher. When in Europe for G20 and G7 meetings, Trump hints he may not support Article 7 of the NATO Treaty that calls for defense of allied nations during attack, the market breaks into new highs. What’s next? The Iranians launching a nuclear attack on their neighbors lifting the S&P 500 past the 3000 level?”

FT – Is China’s economy turning Japanese? – Leo Lewis, Tom Mitchell and Yuan Yang 5/28

Markets / Economy

Business Insider – Iconic hedge fund manager Seth Klarman says investors are missing huge risks – Rachael Levy 5/26

  • “When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high. By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”

Energy 

FT – Saudi Arabia and Russia stuck in unlikely oil alliance – Anjli Raval and David Sheppard 5/26

  • “Saudi Arabia and Russia are essentially now co-pilots of this operation and they’ve made it clear there will be no going back to chasing market share.” – Helima Croft, RBC Capital Markets

Finance

Investment News – Report predicts $400 trillion retirement savings gap by 2050 – Bloomberg News 5/26

  • “Longer life spans and disappointing investment returns will help create a $400 trillion retirement-savings shortfall in about three decades, a figure more than five times the size of the global economy, according to a World Economic Forum report.”

Canada

WSJ – Canada’s Banks Can’t Dodge Housing Risks Forever – Aaron Back 5/25

China

FT – China arrests 44 over $140m online scam – Alice Woodhouse 5/26

  • “Chinese police said they have dismantled a nationwide scam that tricked 93,000 people into investing capital to unfreeze assets taken overseas by the Nationalist government in 1949.”

FT – Regulator urges China banks to save ailing companies – Gabriel Wildau 5/25

  • “The bank regulator in a rust-belt Chinese province has urged regional lenders to roll over maturing loans to struggling coal and steel companies, a policy that cuts against the Communist party’s pledge to shut down ‘zombie’ enterprises.”

May 15, 2017

If you were to read only one thing…

FT – Oil: the market finds that the Sheikh has no clothes – Nick Butler 5/7

  • The markets have “lost all confidence in the power of Saudi Arabia to set prices.”
  • Why?
  • “First, US production led by so called tight oil extracted from shale rocks has started to rise. Month by month, production increases and will continue to grow, not least from prolific and low-cost sources such as the Permian basin in Texas. Far from being closed down by the fall in prices over the last three years the US oil sector has demonstrated its resilience and its ability to cut costs.”
  • The majors have become more efficient as well.
  • “In contrast, the traditional oil producers have not been able to adjust. A study by the International Monetary Fund published a few weeks ago listed the oil price needed by a range of producers to balance their national budgets. Because of recent increases in production, Iran and Iraq have reduced their fiscal break-even point to just over $50 a barrel, but Libya requires a price of $71, and Saudi itself, despite record production, needs $83.”
  • Opec agreed to a cut in November and the group is meeting again this month to determine its next steps.
  • “But the prospect of a coordinated response has diminished as the weeks have passed. There is a big temptation for producers to cheat on any deal. Could the Saudis continue to fill the gap themselves by cutting more? In theory yes, but in practice the kingdom is also short of revenue and clearly unwilling to make the dramatic cut in output — by 1.5m barrels a day to 2m — that would really reset the market.”
  • “The realization that the market is beyond control in the accustomed way is now changing expectations across the industry. There is still more growth in supply than in demand. New projects are still coming onstream, and among the producers many — from Iran to Libya to Russia — have plans to raise production over the next two years.”
  • “The fact that the industry has learnt how to operate profitably at $50 suggests that the private sector will also continue to bring projects forward. Several of the major companies have announced planned increases in output in 2018 and 2019.”
  • “The private sector has passed through the pain barrier of adjustment. The oil-exporting countries have not. Matching lower revenues to the needs of growing populations who have become dependent on oil wealth will not be easy. It is hard to think of an oil-producing country that does not already have deep social and economic problems. Many are deeply in debt.”
  • “In Nigeria, Venezuela, Russia and even Saudi Arabia itself the latest fall, and the removal of the illusion that prices are about to rise again, could be dangerously disruptive. The effects will be felt well beyond the oil market.”

Worthy Insights / Opinion Pieces / Advice

LinkedIn – The Big Picture – Ray Dalio 5/12

  • “Big picture, the near term looks good and the longer term looks scary. That is because:”
    1. “The economy is now at or near its best, and we see no major economic risks on the horizon for the next year or two,”
    2. “There are significant long-term problems (e.g., high debt and non-debt obligations, limited abilities by central banks to stimulate, etc.) that are likely to create a squeeze,”
    3. “Social and political conflicts are near their worst for the last number of decades, and”
    4. “Conflicts get worse when economies worsen.”

Bloomberg Gadfly – OPEC’s Staring Down a Double-Barrel Cut – Julian Lee 5/14

  • “OPEC is going to have to do much more than simply extend its current production deal when it meets next week if it’s serious about addressing surplus inventory. In fact, its own figures show it needs to double the cut it made in January. That means finding another 1.2 million barrels a day to take out of production.”

Markets / Economy

FT – The silent sell-off in US Treasuries – Robin Wigglesworth 5/11

  • “From a five-month low of 2.17% in April, the 10-year yield has now jumped to 2.4%.”

Energy

WSJ – China Trade Plan Is Big Deal for Natural Gas – Nathaniel Taplin 5/12

  • “China has terrible air pollution, burns too much coal and pays too much for natural gas. The U.S. has too much gas, trouble financing expensive export terminals, and a huge trade deficit with China. The solution should be obvious.”
  • “It looks like policy makers in both countries may be thinking along similar lines, according to a preliminary 10-point bilateral trade plan released by the Trump administration Thursday.”
  • Good for the U.S. and China, bad for existing high cost suppliers to China such as Australia and Russia.

FT – The importance of the Iranian election – Nick Butler 5/13

  • “Anyone hoping that the cycle of oil prices will soon turn, and that the market will tighten over the next two years, should be watching the Iranian election results very carefully.”

Asia – excluding China and Japan

NYT – Singapore, a Rising Home for Quiet Money, Comes Under Pressure – Neil Gouch 5/12

  • “Tight bank secrecy laws have helped draw $1.1 trillion in foreign funds to the city, according to an estimate from Boston Consulting Group, a consulting firm. Singapore is now growing faster than Switzerland and is set to become the largest cross-border financial center in the world by 2028, the firm forecasts.”

FT – Worst-hit oil exporters see recessions extend to fifth year – Steve Johnson 5/11

  • “Brunei and Equatorial Guinea have contracted every year since 2013.”

May 3, 2017

Markets / Economy

WSJ – China Looks to Export Auto Overcapacity on Slow-Growth World – Anjani Trivedi 5/1

  • But that’s what you do… it’s what the US and Japanese automakers have done before them.

Bloomberg – Paul Tudor Jones Says U.S. Stocks Should ‘Terrify’ Janet Yellen – Katherine Burton and Katia Porzecanski 4/21

  • “Managers expecting the worst each have a pet harbinger of doom. Seth Klarman, who runs the $30 billion Baupost Group, told investors in a letter last week that corporate insiders have been heavy sellers of their company shares. To him, that’s ‘a sign that those who know their companies the best believe valuations have become full or excessive.'”
  • “Share sales by insiders outstripped purchases by $38 billion in the first quarter, the most since 2013, according to The Washington Service, a provider of data and analysis on insider trading.”

Real Estate

NYT – Supreme Court Rules Miami Can Sue for Predatory Lending – Adam Liptak 5/1

  • “The Supreme Court ruled on Monday that Miami can sue two banks for predatory lending under the Fair Housing Act of 1968.”
  • “The case arose from the 2008 financial crisis. Miami sued Bank of America and Wells Fargo, saying that their discriminatory mortgage lending practices had led to a disproportionate number of defaults by minority home buyers and, in turn, to financial harm to the city.”
  • “Even as the majority of justices ruled that Miami was entitled to sue under the housing law, the court declined to decide whether the city had asserted a direct enough connection between the banks’ actions and the harm it claimed. The court sent the case back to the federal appeals court in Atlanta for further exploration of that question.”

Tech

Bloomberg – Inside China’s Plans for World Robot Domination – Dexter Roberts and Rachel Chang 4/24

Bloomberg – New iPhone Screen Puts Blue Spotlight on Japanese Supplier – Pavel Alpeyev and Takako Taniguchi 4/24

Environment / Science

Economist – The Arctic as it is known today is almost certainly gone 4/29

  • “In the past 30 years, the minimum coverage of summer ice has fallen by half; its volume has fallen by three-quarters. On current trends, the Arctic ocean will be largely ice-free in summer by 2040.”

Asia – excluding China and Japan

Economist – Cleaning Up: Malaysia and Abu Dhabi strike a deal over 1MDB – 4/27

Middle East

Economist – The smell of burnt rubber: Saudi Arabia’s young prince U-turns on reform 4/27

April 26, 2017

If you were to read only one thing…

WSJ – Another Bubble Bursts in Hong Kong – Jacky Wong 4/25

  • This one is the article in its entirety.
  • “Hong Kong’s stock market is becoming a byword for dangerous bubble-blowing.”
  • “The latest stock to burst is Fullshare Holdings, a Chinese property developer valued at around $7 billion. Its stock slumped 12% on Tuesday, before the company suspended trading in its shares. The plunge came after California-based short seller Glaucus Research, which has shorted Fullshare, published a report claiming the stock is ‘one of the largest stock manipulation schemes trading on any exchange anywhere in the world.’ Fullshare declined to comment, but said it would release a statement at a later point.”
  • “Glaucus’s claim, which is based on analysis of trading patterns and Chinese filings, may be hard to prove. But in truth, investors should have spotted problems at Fullshare a while back. The company, which was valued at an eye-watering ten times book value as recently as last autumn, has generated most of its profits recently from paper gains on its 8.2% stake in another developer Zall Group , whose share price tripled last year. The problem? Zall in turn earns most of its profit from a reciprocal 3.5% stake in Fullshare, whose shares doubled last year. The bubbles in both companies’ stocks have fed on each other, giving a false image of how their businesses are doing.”
  • “Zall declined to comment.”
  • “If that weren’t enough, trading in Fullshare has also shown some unusual patterns. Glaucus says the stock has shown abnormally high returns in the final hour of trading—a pattern that was seen in previous Hong Kong stock bubbles such as Hanergy and Tech Pro. A look at trading data from FactSet from January to April this year seems to confirm the thesis. An investor buying Fullshare’s stock one hour before the market close and selling it at close, would have made a 44% return over the period. A simple buy-and-hold strategy, however, would have lost the investor 14%.”
  • “More risky still is the way both Fullshare and Zall have loaded up on debt using their overpriced stocks. As of December, Zall had pledged all its Fullshare stocks in return for a loan. Fullshare had likewise pledged a large portion of its financial assets, which are mainly Zall shares. Zall’s chairman has also pledged 8% of the company’s shares to borrow money. If lenders to the companies are worried about the value of their collateral, they could dump the shares into the market, potentially leading to a stampede—similar to the recent fate of China Huishan Dairy, whose shares dropped 85% in an hour last month.”
  • “Who could suffer when the bubble finally pops? Passive funds that were forced to buy the company when MSCI added the stock to its indexes in November. Vanguard, for example, owns 1.4% while BlackRock has 0.9%, according to FactSet.“
  • “Fullshare’s stock price has never been sustainable given its high valuation and lack of a strong underlying business, but the latest report could be the final straw.”
  • Shenanigans…

Perspective

Economist – The tempest: Workers in southern Europe are stuck in lousy jobs 4/20

  • “Dead-end, fixed-term jobs have haunted southern Europe for decades. In 2015 over half of employed 15-to-29 years olds in Spain were on temporary contracts, compared to two-fifths in Italy and just under a quarter in Greece; the average across the European Union is 14%.”
  • Economist_European temporary employment_4-20-17
  • Economist_European changes in temporary employment_4-20-17

Worthy Insights / Opinion Pieces / Advice

The Reformed Broker – Contra Einhorn – Joshua Brown 4/25

  • “More importantly, when Einhorn asserts that ‘There was no catalyst that we know of that burst the dot-com bubble in March 2000,’ he’s not correct. There was one. It was a Barron’s article, published over the weekend leading into Monday, March 20th. That was the top for the Nasdaq Composite (the rest of the market – aka ‘Old Economy’ stocks had already begun selling off as no one wanted anything non-dot com).”
  • “The article was called ‘Burning Fast‘ by Jack Willoughby and it may have been the most important piece of investment journalism ever up until that time.”

NYT – The Low-Inflation World May Be Sticking Around Longer Than Expected – Neil Irwin 4/26

Markets / Economy

FT – The five markets charts that matter for investors – FT Reporters 4/26

  • “The problem the US now faces is it has to normalize interest rates, but with the smallest 50% of companies already spending 30% of profits (and at peak EBIT) on interest rate costs, any move upwards is likely to push up interest cost to dangerous levels.” – Andrew Lapthorne, Societe Generale
  • FT_Interest rate costs as percentage of earnings for US non-financial cos_4-26-2017

Real Estate

WSJ – Concern Over Manhattan’s One Vanderbilt Project Grows – Peter Grant 4/25

WSJ – Rising Home Prices Raise Concerns of Overheating – Laura Kusisto 4/26

WSJ_Rising US Home prices_4-26-17

Tech

Economist – Cloning voices: Imitating people’s speech patterns precisely could bring trouble 4/20

Asia – excluding China and Japan

Economist – The rise of intolerance: Indonesia has been mercifully resistant to extremism-until now 4/20

  • “A local election shows how the unscrupulous can manipulate religion to win office.”

Britain

FT – UK public finance: councils build a credit bubble – John Plender 4/25

  • “UK local councils are engaging in what is known in the financial jargon familiar to hedge fund managers as a carry trade – a form of arbitrage whereby they borrow at rates much lower than private sector borrowers can obtain in order to invest in property that shows a much higher yield. Money borrowed at 2.5% or so is typically going into property yielding 6-8% or more.”

China

NYT – Debt Crisis Shakes Chinese Town, Pointing to Wider Problems – Keith Bradsher 4/25

  • “The problem: Local companies had agreed to guarantee hundreds of millions of dollars of one another’s loans. When some of those loans went bad, the impact rippled across the city.”
  • “Zouping’s plight offers a sobering example of the problems that could lurk within China’s vast and murky debt load. A nearly decade-long Chinese lending spree drove growth but burdened the economy with one of the world’s heaviest debt loads, equal to $21,600 worth of bank loans, bonds and other obligations for every man, woman and child in the country. Debt in China has expanded twice as fast as the overall economy since 2008.”
  • “China, the world’s second-largest economy after the United States, has considerable firepower to address any financial crisis. But many economists worry that hidden debt bombs could expose the breadth and severity of the problem.”
  • “The Chinese government has begun an urgent effort to discourage companies from guaranteeing one another’s bank debts, ordering local banking regulators across the country to file comprehensive reports by the end of the month on the problem. But sussing out the extent could be difficult.”

FT – China’s steel battles with west set to intensify – Lucy Hornby 4/25

  • “China’s steel battles in Europe and North America are likely to be only a prelude of bigger future fights as softening domestic demand unleashes a flood of output on to world markets. “
  • “China’s steel industry is the world’s largest, by far: at 808m tons last year it accounted for half of global production.”
  • FT_World steel production 2016_4-25-2017
  • “About 90% of Chinese mill output to date has been absorbed at home — but domestic consumption peaked in 2013. As China’s economic growth slows and infrastructure and property construction hits saturation point, more steel is poised to flow to global markets.”
  • “Last year China exported 109m tons, or 14% of its output — more than the total output of ArcelorMittal, the world’s largest steelmaker.”
  • FT_China steel consumption and exports_4-25-2017
  • “Because China’s steel industry is so big, every increase of 1% in exports is almost the equivalent of the entire export market for American steel mills.”
  • “But China is not a big source of American steel imports. ‘They are actually more worried about competition in third countries. It’s not so much about the Chinese presence in the US market,’ said Mei Xinyu, a strategist for the Chinese ministry of commerce.”
  • FT_Source of US steel imports_4-25-2017
  • FT_China steel export destinations_4-25-2017
  • “A pick-up in Chinese consumption this year could stave off the deluge for now. But unless there is a drastic cut in Chinese output, the prospect of a flood of Chinese steel on to global markets is not going away.”

Other Links

WSJ – Growing Homelessness Problems Spur Interest in Tiny Houses – Zusha Elinson 4/26

April 19, 2017

Worthy Insights / Opinion Pieces / Advice

Naked capitalism – It’s Time to Regulate the Gig Economy – Yves Smith 4/18

  • “Depicting work in the platform economy as a mere ‘sharing of favors’ conveys an image of the gig economy as a sort of parallel dimension, where chores are amateurishly carried out as a form of leisure, with no relation to ‘work’. The reality, however, is different. For most workers, platform-based work is an essential source of income. The ILO recently surveyed workers on two important micro-task platforms: Amazon Mechanical Turk and Crowdflower. Forty percent of respondents answered that crowdwork constituted their principle source of income. Workers averaged 30 hours a week on the platform.”

Markets / Economy

FT – IMF says debt binge leaves US corporate assets exposed – Shawn Donnan and Gemma Tetlow 4/19

  • “A debt binge has left a quarter of US corporate assets vulnerable to a sudden increase in interest rates with the ability of companies to cover interest payments at its weakest since the 2008 financial crisis by one measure, the International Monetary Fund has warned.”

Finance

FT – The fearless market ignores perils ahead – Robin Wigglesworth 4/18

  • “The big mystery of the year has been the disconnect between the chaos in Washington and the calmness in markets.” – Adam Sender, head of Sender Company and Partners, a hedge fund.
  • “In part, Vix (Chicago Board Options Exchange Volatility Index) has been becalmed because the US stock market has been remarkably placid. The S&P 500 recently enjoyed its longest run of avoiding big drops of more than 1% in over two decades. But the evaporation of volatility also reflects profound structural changes that have taken place since the financial crisis, such as the primacy of central banks and the big shift into exchange traded funds.”

China

FT – China’s capital controls dent inbound investment – Don Weinland 4/18

  • “China’s restraints on capital outflows have started to discourage inbound investment into the country, the opposite of the intended effect of the measures.”
  • “Last year, Beijing began cracking down on outbound investments and stopping companies from remitting capital offshore in an attempt to preserve its rapidly deteriorating foreign reserves, which dipped below $3tn in January for the first time in five years.”

FT – Wang Jianlin confirms China blocked Wanda’s US TV deal – Lionel Barber and Charles Clover 4/18

  • China’s richest person, Wang Jianlin, confirmed that new regulations scuttled his planned $1bn acquisition of Dick Clark Productions.

NYT – As Zeal for China Dims, Global Companies Complain More Boldly – Sui-Lee Wee 4/19

Other Links

FT – Fifa struggles to win backers for Russia World Cup – Murad Ahmed and Max Seddon 4/18

  • “World football’s governing body lost several major sponsor, including Sony and Emirates, when their deals ended at the end of the last tournament in 2014. For the 2018 tournament in Russia, Fifa has 10 companies signed up as sponsors, but before the last tournament in Brazil, the organization had 20 corporate partners on board.”

Reuters – U.S. soda sales drops for 12th straight year – Sruthi Ramakrishnan 4/19

  • “Sales of soda drinks decreased about 1.2% in the United States in 2016, falling for the 12th  year in a row, a report by trade publication Beverage Digest showed, as demand was hit by consumers choosing healthier options and a slew of sugar taxes aimed at stemming obesity and diabetes.”
  • “However, total sales dollars increased 2% to $80.6 billion as soft drinks makers aggressively pushed smaller packs at higher prices per ounce, while lowering emphasis on large discount packs, the Beverage Digest said.”