Tag: Millennials

October 11, 2017


WSJ – Daily Shot: Spanish Empire at its Peak 10/10

  • “Since Monday was Columbus day, here is the size of the Spanish Empire at its peak (in 1790).”

WSJ – America’s Retailers Have a New Target Customer: The 26-Year-Old Millennial – Ellen Byron 10/9

VC – How Americans Differ by Age – Jeff Desjardins 10/10

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – How To Make $5,300 In Commissions on a $43,000 Retirement Account – Anthony Isola 10/9

  • If you are a teacher or have family or friends that are teachers, you should read this. Make sure you’re or they’re not getting fleeced.

NYT – The N.F.L Draft: A Study in Cockeyed Overconfidence – David Leonhardt 4/25/05

  • A worthwhile look at the research that Richard Thaler and Cade Massey did regarding overconfidence.

The Irrelevant Investor – The Price of Progress – Michael Batnick 10/10

  • “The economic machine that we’ve built in the United States has done extraordinary things and I can’t wait to see what we come up with in the future. But what do we do when progress leaves so many behind?”

Markets / Economy

NYT – China Hastens the World Toward an Electric-Car Future – Keith Bradsher 10/9

Economist – American entrepreneurs have not lost their mojo 10/10

  • “Business formation is down, but fast-growing startups are in high gear.”


FT – Saudi Arabia curbs oil exports to combat glut – Anjli Raval 10/9

  • “Saudi Arabia is allocating fewer barrels of crude for export next month and at a level below current demand, emphasizing the effort by global producers to reduce surplus inventories.”
  • “In a rare statement, the Ministry of Energy on Monday said contracted demand for Saudi crude for November was 7.7m barrels a day, but the kingdom has assigned just 7.2m b/d for export.”
  • “The disclosure of Saudi Arabia’s monthly allocations emphasizes a new focus on foreign sales, alongside production, that Riyadh deems vital to the effort by global producers to reduce surplus inventories.”
  • “’It is very interesting they are now trying to communicate to the market about exports,’ said Olivier Jakob at consultancy Petromatrix. ‘They have gone the extra step of putting out numbers on this, which is the first I’ve ever seen.’”


WSJ – Daily Shot: Hedge Fund Research – Hedge Fund Fees 10/10

WSJ – Daily Shot: Bitcoin 10/9

  • Bitcoin is rallying again.

WSJ – Daily Shot: Investing.com – Bitcoin Cash 10/10

  • “On the other hand, Bitcoin’s less fortunate twin called Bitcoin Cash has collapsed.”


FT – Modi’s pursuit of black money proves drag on India’s economy – Amy Kazmin 10/9

  • “For many Indians the powerful appeal of Narendra Modi, the prime minister, stemmed from his vows to tackle two issues of fierce public concern: the sluggish economy and entrenched corruption.”
  • “But India’s economy has faltered, with growth falling steadily since early 2016 to a three-year low of 5.7% in the second quarter of this year.”
  • “Now, some economists are suggesting Mr Modi’s two big goals are at odds, and that New Delhi’s zealous anti-corruption drive — which reached its apogee with a draconian cash ban — is sapping India’s economic momentum.”
  • “Though disruptive, demonetization failed to purge black money from the economy, because nearly 99 per cent of the cancelled bank notes were deposited or exchanged, rather than being furtively destroyed as forecast.”
  • “Now New Delhi is toughening its stance, with tax officials probing 1.8m individuals or businesses whose cash deposits after demonetization were out of sync with their past tax returns.”
  • “While the quest to unearth Indians’ illicit wealth remains politically popular, economists say it has come at a cost, souring business and consumer sentiment. It is considered one reason why private investment — which has driven past Indian booms — remains stubbornly flat.” 
  • “‘If you’ve got income tax authorities charged up and told to after black money, who is going to invest in a big way?’ said one economist who asked not to be identified given the issue’s sensitivity.”
  • “’The Chinese call this ‘the original sin’ problem,’ he added. ‘Every company has something buried in the past — a sin it has committed. If the government really wants to go after people, it can always find something.’”
  • “Demonetization severely disrupted the property market, previously a favorite parking place for black money and a big growth engine. Real estate prices and sales plunged and, though sales are picking up, there is a huge overhang of unsold inventory.”


NYT – Kobe Steel’s Falsified Data Is Another Blow to Japan’s Reputation – Jonathan Soble 10/10

  • “For decades, Japanese manufacturers of cars, aircraft and bullet trains have relied on Kobe Steel to provide raw materials for their products, making the steel maker a crucial, if largely invisible, pillar of the economy.”
  • “Now, Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through Japan and beyond, and casting a new shadow over the country’s reputation for precision manufacturing, a mainstay of its economy.”
  • “Companies ranging from the automakers Toyota Motor and Honda Motor to aircraft companies like Boeing and Mitsubishi Heavy Industry said they were investigating the use of rolled aluminum and other materials from Kobe in their products. They also said they were trying to determine if substandard materials had been used in their products and, if so, whether they presented safety hazards.”
  • “Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers — including for vital qualities like tensile strength — when they did not.”
  • “Kobe Steel added that it was examining other possible episodes of data falsification going back 10 years. It did not provide details about the size of the discrepancies it had discovered, making it difficult to immediately determine if they posed a safety threat.”
  • “Kobe Steel’s problem points to ‘a common organization issue,’ said Shin Ushijima, a lawyer who serves as president of the Japan Corporate Governance Network. He drew parallels between Kobe Steel and Takata and Mitsubishi, as well as with financial-reporting improprieties at Toshiba, which admitted to overstating profit in 2015.”
  • “’Boards aren’t doing their jobs,’ he said. ‘This isn’t an issue that can be solved by the president resigning. There needs to be wholesale change.’”
  • “He continued, ‘The Kobe Steel case is a test of whether we’ve learned anything from Toshiba and these other issues.’”


FT – Mexicans hope earthquake will shake up corrupt system – Jude Webber 10/9

  • “There are disasters waiting to happen, says Eduardo Reinoso, a civil engineer who has studied compliance with building codes introduced after 1985. He blames not only corruption and incompetence but also a culture of impunity that has encouraged people to build or modify their homes without planning permission because of a belief they can get away with it.”
  • “As Gabriel Guerra, a former diplomat and government official, put it: ‘Our collective negligence and corruption is coming back to bite us where it hurts.’”

August 31, 2017


WP – A close-up view of the flooding in Houston – Denise Lu, Aaron Williams, Dan Keating, Jack Gillum and Laris Karklis 8/29

WSJ – Harvey’s Test: Businesses Struggle With Flawed Insurance as Floods Multiply 8/29

WSJ – Harvey Makes Landfall in Louisiana as Waters Keep Rising in Texas – Russell Gold, Dan Frosch, Ben Kesling, and Christopher Matthews 8/30

Worthy Insights / Opinion Pieces / Advice

FT – Five charts show why millennials are worse off than their parents – Lauren Leatherby 8/29

Markets / Economy

WSJ – Daily Shot: Tracy Alloway – Major Bubbles Since 1990 vs Bitcoin 8/30

Real Estate

Freddie Mac: What is Causing the Lean Inventory of Houses? – July 2017

  • “The price of land (acquisition and preparation for construction) has risen more rapidly than the price of the structures built on the land. This trend has driven up the share of land cost as a proportion of house price. Since the cost of land is largely a fixed cost in a building project, the increase in the cost of land tends to make entry-level housing less profitable and thus tilts development toward higher-end housing.”
  • “Over the last three decades, land-use regulations have become more burdensome in the U.S., making developable land costlier. As an example, in areas with strict land-use regulation, builders face long delays in obtaining permit approvals. In New Orleans, where regulation is relatively lenient, permit approval is received in 3.5 months on average. In Honolulu, where regulations are particularly strict, permit approval takes around 17 months on average. The 2016 White House Report on land use regulation argues that lengthy approval processes have reduced the ability to respond to growing housing demand in many markets.”


FT – Credit default swaps are storing up trouble for China – Joe Zhang 8/29

  • “The China Financing Guarantee Association, a quasi-governmental body that regulates the guarantee companies (in other words, the issuers of the swaps), says it has 194 member institutions, though their ranks have thinned in recent years. Many guarantee companies have simply not bothered to become members of this club.”
  • “In a parallel with the American obsession with home ownership that led to the formation of Fannie Mae and Freddie Mac, the federal housing finance agencies, the Chinese government has in the past few decades done its best to promote small and medium-sized enterprises by providing them with credit guarantees. Tens of thousands of state-owned, private and hybrid guarantee companies have come into being.”
  • “And just like Fannie Mae and Freddie Mac, China’s guarantee companies are all thinly capitalized. This is due partly to the misconception that a third-party guarantee is sufficient for SMEs to tap commercial credit.”
  • “Mispricing in China’s CDS market is severe and chronic. The guarantee companies typically charge only 2-3% to the borrowers, but assume the full risk of their loan delinquency. When the economy was growing fast, from the 1980s through to the early 2010s, these guarantee fees seemed like manna from heaven — so much free money. But when the economy began to slow from 2012 onwards, default rates rose, and many guarantee companies disappeared.”
  • “Unlike CDS in the US, credit guarantees in China have the following deficiency: usually, they cannot be traded. Some observers argue this is probably an advantage for the industry because it forces deal originators to ‘eat what they cook’, minimizing irresponsibility and recklessness in their origination process.”
  • “It is estimated that the total size of China’s market for such instruments is more than $500bn, excluding the credit enhancement these guarantee companies provide to SMEs’ bond sales and asset-backed securities. But no one knows the size of the market for sure.”
  • “Why should this story be of interest to the Chinese public and, indeed, to outside observers? Because it is key to understanding the strange longevity of China’s credit bubble.”
  • “It is true that the country’s credit market is far too big, but against the doomsday scenarios some analysts have painted, it has refused to burst because of the many non-bank financial institutions that have served as plumbers for the banks.”
  • “China’s economic slowdown in the past five years has decimated its microcredit sector and, to a lesser extent, the trust companies. Their destruction has also helped shield the commercial banks.”


Bloomberg Quint – RBI Annual Report: 99% of Demonetized Currency Returned – Ira Dugal 8/30

  • “Indian citizens deposited almost all the currency that was scrapped during demonetization, shows data released by the Reserve Bank of India (RBI) as part of its annual report. The government’s abrupt decision to withdraw legal tender status for Rs 500 and Rs 1000 notes, announced on November 8, 2016, was intended to extinguish so-called black money from the economy and curtail the problem of counterfeit notes. The fact that almost all the scrapped currency has been returned puts paid to both those arguments.”
  • “According to the report, specified bank notes (SBNs), or notes that were demonetized, worth Rs 15.28 lakh crore had been received as of June 30, 2017. When demonetization was announced, the currency in circulation stood at Rs 17.97 lakh crore. 86% of this, or Rs 15.45 lakh crore, was rendered invalid by demonetization.”

May 9, 2017

Worthy Insights / Opinion Pieces / Advice

Mauldin Economics – Angst in America, Part 7: The Angst of the Millennial Generation – John Mauldin 5/7

  • Are High Home Prices Turning American Millennials Into the New Serfs? – Marc Faber
    • “Like medieval serfs in pre-industrial Europe, America’s new generation, particularly in its alpha cities, seems increasingly destined to spend their lives paying off their overlords, and having little to show for it. No wonder that rather than strike out on their own, many millennials are simply failing to launch, with record numbers hunkering down in their parents’ homes. Since 2000, the numbers of people aged 18 to 34 living at home has shot up by over 5 million.”

Real Estate

Forbes – Brookfield’s Bruce Flatt: Billionaire Toll Collector Of The 21st Century – Antoine Gara 5/2

WSJ – Auto Dealers Decide Cars Are Taking Up Too Much Prime Space – Adrienne Roberts 4/29

  • “Large chains opt to move merchandise to less-valuable real estate.”


FT – Macau proposes new ATM curbs to tackle Chinese capital flight – Ben Bland 5/8

  • “Macau is tightening restrictions on the use of ATM cards by mainland Chinese customers as the casino enclave confronts fears that it is being used as a hub for capital flight and money laundering.”
  • “The government said that in the future, mainland users of UnionPay, China’s sole clearing house for bank card transactions, would have to insert their identity cards into ATMs and have their identity verified by facial recognition software to withdraw cash.”
  • “The move appears designed to target gamblers and middleman who have been flouting withdrawal limits by using multiple ATM cards registered to different customers.”
  • “Withdrawals by mainlanders in Macau are limited to Rmb10,000 ($1,450) a day and Rmb100,000 per year.”
  • “Vitaly Umansky, a Hong Kong-based analyst at Bernstein, the research house, said the new ATM measures would add to the headwinds facing junkets and some ‘premium mass’ gamblers.”
  • “He said that, after the recent rebound in fortunes, the ATM crackdown would make ‘investors again realize that Macau risks are largely tied to policy and the power of the government to limit growth has not been diminished.'”

May 2, 2017


BuzzFeed – Young People Are Struggling, So Furniture Stores Target “The Bank Of Mom And Dad” – Matthew Zeitlin 4/30

  • “The financial crisis and weak economic recovery locked millions of young people out of the labor force, and for many who do have jobs, they’re not particularly well-paying ones. Those jobs leave people burdened by student loans and unable to build up the cash needed to get a place of their own.”
  • Rather than focusing on selling millennials, focus on their parents.

WSJ – Apple’s Cash Hoard Set to Top $250 Billion – Tripp Mickle 4/30

Markets / Economy

WSJ – From Diapers to Soda, Big Brands Feel Pinch as Consumers Pull Back – Sharon Terlep and Annie Gasparro 4/26

Real Estate

FT – Australia record home sale highlights bubble risks – Jamie Smyth 4/30


FT – US credit card stocks sink to fresh lows – Alistair Gray 4/30

  • “US credit card stocks have hit new lows for the year after figures in recent days from three of the biggest providers — Synchrony, Capital One and Discover — showed they set aside 36%, or $1bn, more for bad loans in the first quarter than a year ago.”
  • “Weaker than forecast financial results on Friday from Synchrony Financial, a $90bn-in-assets issuer that provides cards for retailers including Walmart and Amazon, pushed its shares down 16% and sent a chill through the wider sector.”
  • “Just three months after the company forecast that net charge-off — or writedown — rates would come in at no more than 5% this year, Synchrony said it now expected they would in fact be at least that high.”

FT – Interest-free credit cards a ‘ticking time bomb’, bankers fear – Emma Dunkley 4/30

Health / Medicine

FT – Cancer pill costs soar as drug companies retain pricing power – David Crow 4/30


FT – Ghana crackdown on illegal gold mining inflames tensions with Beijing – Maggie Fick 4/30

October 28 – November 3, 2016

Declining global trade. Chinese bank loan loss provisions. Pending auto loan crisis?


Special Reports / Opinion Pieces


    • “Earlier this year, One Kings Lane, the online home goods retailer once worth almost $1 billion, sold itself to Bed Bath & Beyond, one of the companies it was supposed to displace, for just $12 million. Jawbone, the maker of sleek wearable fitness hardware once seen as a threat to Apple’s, has seen its value fall 50%. Since 2015, researcher CB Insights has counted 80 ‘down rounds,’ instances of a startup accepting a reduced valuation to raise more venture funding. ‘There was this fog hanging over Silicon Valley in 2001,’ says Botha (Roelof Botha, partner at VC firm Sequoia Capital) referring to the last big tech bust. ‘And there’s a fog hanging over it now. There’s no underlying wave of growth.'”
    • Yet at the same time VC funds are flush. “A few years ago, a big VC fund might have had about $500 million to play with. Today, ‘big’ means well over $1 billion. VCs raised $12 billion in the first quarter of 2016, which the industry’s trade group says marked a 10-year high. ‘The world has never seen an investment climate like this one,’ says Bill Gurley, a partner with Benchmark who led the firm’s investment in Uber. ‘It’s hard to express how much money is out there.'”
    • As Benchmark’s Gurley puts it “we’re in a slow correction. You might see a unicorn go down once a quarter.”
    • “Grocers are struggling to lure e-commerce-loving millennials into their aisles amid what experts say is a permanent shift in shopping patterns among consumers.”
    • “I don’t think we’ve seen shopping change so dramatically ever. Those things in the past that have been real drivers for grocery in terms of freshness and quality aren’t the key drivers for millennials.” – Marty Siewart, senior VP for consumer and shopper analytics at Nielsen
    • “Consumers between 25 and 34 years of age last year spent an average of $3,539 on groceries, about $1,000 less in inflation-adjusted dollars than people that age spent in 1990, federal data shows.”
    • Of course it doesn’t help that “the more than 75 million Americans born in the 1980s and 1990s are also delaying marriage and childbearing, milestones that traditionally lead people to start making big trips to the grocery store.”
    • wsj_grocery-slump_10-27-16
    • Austria just sold 70-year bonds at a yield of 1.5%. On the same day the country also sold 7-year bonds at a sub-zero yield.
    • ft_annual-sales-of-long-dated-debt_10-27-16
  • Peter Wells of the Financial Times pointed to the ‘real’ reason why AIA has a fall in insurance policies underwritten.
    • “UnionPay customers from the mainland (China) will only be allowed to use their credit and debit cards to buy accident, illness and tourism-related insurance policies in Hong Kong, the state-backed bank card provider said on Saturday through one of its subsidiaries.”
    • Why the sudden change…
    • “UnionPay said it ‘has observed a significant increase in overseas insurance transactions by cards issued from mainland China’ and is now preventing its mainland customers from buying insurance products that include ‘investment-related contents.'”
    • “The purchase of insurance products overseas, particularly in Hong Kong, had become a popular way to move money offshore, particularly after the devaluation of the renminbi in August 2015.”
  • Danny Hakim of the New York Times covered the new findings about genetically modified crops and how the results haven’t quite lived up to the promises.
    • The skinny: “genetic modification in the United States and Canada has not accelerated increases in crop yields or led to an overall reduction in the use of chemical pesticides.”
    • “An analysis by The Times using United Nations data showed that the United States and Canada have gained no discernible advantage in yields – food per acre – when measured against Western Europe, a region with comparable modernized agricultural producers like France and Germany. Also, a recent National Academy of Sciences report found that ‘there was little evidence’ that the introduction of genetically modified crops in the United States had led to yield gains beyond those seen in conventional crops.”
    • “At the same time, herbicide use has increased in the United States, even as major crops like corn, soybeans and cotton have been converted to modified varieties. And the United States has fallen behind Europe’s biggest producer, France, in reducing the overall use of pesticides, which includes both herbicides and insecticides.”
  • Mary Childs of the Financial Times discussed some of the changes afoot in the private equity business.
    • A new trend is taking place in the private equity world, one that is promising to hold investor money for longer periods in return for less returns.
    • Granted, “private equity has become a victim of its past success: its strong performance relative to other asset classes looks increasingly difficult to replicate as high valuations and stiff competition among private equity groups make new deals more expensive.”
    • Thus new funds are “offering investors vehicles that will run for 14 years or more, rather than the traditional 10 years, and offer 15% returns or less, lower than the 20% in a typical fund.”
    • “Already the industry’s average returns are slipping below the 20% mark: for 2015, buyout funds generated an average internal rate of return of 17.1%, according to data from Preqin.”
    • “Fund managers are deploying less money, sitting on a record $839bn of so-called dry powder at the end of the third quarter, according to Preqin. Many buyout chiefs say they are modelling potential investments with the expectation that they will be selling into a lower stock market.”
    • Speaking to the timelines of these new funds, the intent is to match investment returns to investor’s long-term liabilities and to avoid forced sales due to too-short investment time horizons.
  • Michael Hiltzik of the Los Angeles Times posted about a recent agreement between Dalian Wanda Group and the City of Beverly Hills on a real estate development that sets quite a precedent – good or bad depending on which side you’re on.
    • The benefits of being a city where entitled land is scarce and money flows abundantly… or a further sign that this real estate development cycle has been going on too long such that municipalities can continue to up the ante.
    • The City of Beverly Hills and the Dalian Wanda Group (large Chinese developer) just inked perhaps the most advantageous deal to a municipality – ever.  Granted, Dalian Wanda wouldn’t have done the deal if it didn’t make sense to them – at least on paper.
    • “The terms are still subject to approval by the Beverly Hills City Council, which will launch a three-day round of hearings on the development Monday. The terms include a doubling of the upfront payment from Wanda to the City from $30 million to $60 million; a quadrupling of environmental mitigation and sustainability fees to 1.25% from 0.45% of the sale of any portion of the development, including the condos, and an additional 2% of any subsequent sale; and hotel occupancy surcharge of 5%, on top of the city’s statutory transient occupancy tax of 14%.”
    • “The city says it expects the terms to yield $820 million in revenue over 30 years, an increase of $560 million over the previous terms.”


FT – Spanish unemployment rate below 20% for first time in 6 years – Tobias Buck 10/26


Visual Capitalist – Prices Are Skyrocketing, But Only For Things You Actually Need – Jeff Desjardins 10/28


FT – Solar industry rollercoaster offers a bumpy ride – Ed Crooks 10/30


FT – US mobile advertising surges 89% – Anna Nicolaou 11/1


Daily Shot – Nigeria’s FX Reserves 11/1


Economist – Angling for the future of TV 10/29


Bloomberg – What Rising Bond Yields Are Trying to Tell Us – Mark Gilbert 11/3


FT – Millennials drive Chinese online consumer boom – James Kynge 11/2



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

A Little-Noticed Fact About Trade: It’s No Longer Rising. Binyamin Appelbaum. New York Times. 30 Oct. 2016.

“…Trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8% in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.”

“It is the first time since World War II that trade with other nations has declined during a period of economic growth.”

Further, “the United States is no exception to the broader trend. The total value of American imports and exports fell by more than $200 billion last year. Through the first nine months of 2016, trade fell by an additional $470 billion.”

“In better times, prosperity increased trade and trade increased prosperity. Now that wheel is turning in the opposite direction.”

Worse, “there are also signs that the slowdown is becoming structural. Developed nations appear to be backing away from globalization.”

“The World Trade Organization said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.”

“During the 1990s, global trade grew more than twice as fast as the global economy. Europe united. China became a factory town. Tariffs came down. Transportation costs plummeted.”

“But those changes have played out. Europe is fraying around the edges; low tariffs and transportation costs cannot get much lower. And China’s role in the global economy is changing. The country is making more of what it consumes, and consuming more of what it makes. In addition, China’s maturing industrial sector increasingly makes its own parts. The International Monetary Fund reported last year that the share of imported components in products “Made in China” has fallen to 35% from 60% in the 1990s.”

“The result: The I.M.F. study calculated that a 1% increase in global growth increased trade volumes by 2.5% in the 1990s, while in recent years, the same growth has increased trade by just 0.7%.”

Now, there is excess capacity in the world’s shipping lines. “In 2009, the world’s cargo lines had enough room to carry 12.1 million of the standardized shipping containers that have played a crucial, if quiet, role in the rise of global trade. By last year, they had room for 19.9 million – much of it unneeded.”

Further, automation is making it difficult, if not impossible, for developing nations to follow in China’s footsteps. “Dani Rodrik, a Harvard economist, calculates that manufacturing employment in India and other developing nations has already peaked, a phenomenon he calls premature deindustrialization.”

It doesn’t help that the benefits of globalization were oversold and that now nativists and protectionists are overstating the downsides.

China banks in stand-off with regulators on loan loss provisions. Yuan Yang. Financial Times. 30 Oct. 2016.

“China’s banks are in a deepening stand-off with regulators over the level of provisions they must make to protect against loan defaults as bad debts continue to climb.”

Current provisions call for a loan loss provision ratio target of 150%.  As it stands at least two of China’s largest four banks are below the coverage ratio. As of the third quarter Industrial and Commercial Bank of China has a coverage ratio of 136% (down from 143% in the second quarter). And that’s based on officially recognized non-performing loans.

“Officially, 1.8% of all Chinese loans are non-performing, although the credit rating agency Fitch puts the true figure at more than 15%. Following a huge credit boom, the outstanding amount of non-performing loans doubled in the two years before June 2016, reaching Rmb1.4tn.”

Hence, will the banks have to raise their loan loss reserves or will the regulators reduce the target ratio?

As Zhang Yingchao, a banking analyst at NSBO China – an investment bank, aptly puts it “setting standards is a tussle between the banks and the regulators. Who gets the upper hand depends on the state of the economy. If increasing the credit supply is necessary to meet the growth target of 6.5-7%, then the regulators will need to relax standards.”

Fears rise over auto loan crisis as repo men see sales’ dark side. Joe Rennison. Financial Times. 1 Nov. 2016.

“Repossessions in the US hit 1.6m in 2015, the third highest level on record for data going back 20 years, falling short of the 1.8m and 1.9m peaks seen in 2008 and 2009, respectively.”

“That number is predicted to rise to 1.7m this year, according to Tom Webb, chief economist at Cox’s Automotive.”

However, one of the key differences between this cycle and last is that whereas many of the repossessions in 2008 and 2009 were from fraudulent schemes “people renting cars under a fake name and not returning them, for example,” this time there has been a boom in subprime auto loans and people just not able to repay their loans.


The auto market is booming and correspondingly or really as a result of the growth in the auto loan market. “The auto loan market has grown from $750bn in 2011 to $1.1tn at the end of June, according to data from the US Federal Reserve.”

According to Peter McNally, a senior analyst at Moody’s – the rating agency, “while we have seen a gradual loosening in underwriting in recent years it has gotten to a point now where it is becoming unstable.”

“The subprime auto ABS market has grown to $38.1bn, down slightly from its second quarter high of $41.2bn, according to data from the Securities Industry and Financial Markets Association. Fitch Ratings defines subprime ABS as a deal with expected net losses above 7%. Net losses across subprime auto ABS hit 9.29% in September, according to Fitch – 23% higher than a year earlier.”


“The fear is that if losses continue to climb, investors will stop buying bonds issued by less diversified companies. If their access to funding stops, it could impair the credit quality of the issuer itself, throwing doubt over the quality of existing bonds and ricocheting through the market, raising borrowing costs for other issuers as well.”


Other Interesting Articles

Bloomberg Businessweek

The Economist

FT – Apple’s profits in China down by almost a fifth 10/26

FT – China pension reform to send flood of cash into domestic equities 10/26

FT – China property developers feel chill as cooling measures bite 10/27

FT – Credit Suisse plans cost-sharing project with another bank 10/29

FT – Russia prepares for deep budget cuts that may even hit defense 10/30

FT – Japan insurers prepare for age of self-driving vehicles 10/30

FT – China’s strongman rule sets a test for the west 10/30

FT – Venezuela’s crisis comes to a head in the streets 10/30

FT – Shell and BP warn not to expect strong oil rebound in 2017 10/31

FT – Forget the IMF: global chemicals are your guide to future performance 11/1

FT – China’s corporate governance standards fall 11/2

FT – Egypt devalues currency and begins free float to secure IMF funds 11/3

NYT – China’s Communist Party Declares Xi Jinping ‘Core’ Leader 10/27

WSJ – The Worrying Weak Point for Super-Strong Bonds 10/28

WSJ – Why Everything Isn’t All Right With China’s Economy 11/1

WSJ – More Americans Leave Expensive Metro Areas for Affordable Ones 11/1


May 6 – May 12, 2016

China’s coming debt bust.

It’s a short one this week – traveling with the family.  Enjoy!



  • Adding to this week’s feature is Ben Bennett’s piece in the Financial Times basically saying that by pushing out the problem (China’s growing debt imbalance), it will only make the remedy worse.
    • “Estimating the amount of debt that needs to be written off by China is not an exact science. It boils down to how much excess capacity has been built with little chance of making an economic return. Julien Garran at MacroStrategy estimates there has been around $8tn of excess fixed capital formation in China since 2008, which, assuming that 60% turn into non-performing loans and a 40% recovery rate, suggests losses of $3tn. This is about 30% of Chinese GDP. Autonomous Research gets to a similarly large number by looking at losses realized by other countries following their own credit bubbles. This far outstrips the loss-absorbing capacity of the financial system, and would therefore require significant state support to resolve.”
  • Shifting our attention further West (if the reference point is China), Anna Andrianova and Andrey Biryukov of Bloomberg highlight that Russia is grappling with deflation as its economic sickness gets worse.
    • “Russia’s longest recession in two decades has obliterated consumer demand. Price growth has slowed for a seventh month. Goldman Sachs predicts Russia’s annual inflation, now 7.3%, will slip below 6% in the third quarter and finish the year at 4.5%. In March of last year inflation was 16.9%. It’s enough for Bank of America to warn that the country faces a ‘sharply rising’ risk of deflation.” 
    • “After President Vladimir Putin came to power in 2000, the poverty level fell until 2014, when oil prices collapsed. Now millions are sinking into poverty and wages are rising minimally.” 
    • “Savings rose to 14.1% of disposable income last year, up from 5.4% in 2008, according to the Federal State Statistics Service.” 
    • “Poor demographics add another wrinkle. The working-age population has shrunk by 5 million since its peak in 2006 and will continue to contract, cutting Russia’s potential economic growth to near zero in 2016-2017, according to BofA economists.” 
  • Back to the U.S., Sam Fleming and Shawn Donnan point out in the Financial Times that the middle class in most US cities have taken a financial hit so far this century.
    • “The research on urban centers that are home to three-quarters of the US population shows that median household incomes, adjusted for the cost of living in the area, grew in just 39 out of 229 metro areas between 1999 and 2014.”


FT – The biggest problem with China’s latest credit boom, charted 5/4

FT_China Bank Credit and M2 growth_5-4-16

FT_China credit charts_5-4-16

FT – China companies borrow to repay debts in latest credit binge – James Kynge 5/9

FT_Inefficient Chinese investments_5-9-16

FT_China debt repayment_5-9-16

FT_China bonds for construction_5-9-16

FT_China uses of muni bond funds_5-9-16

Economist – Shadow banks: Dark and stormy

Economist_Chinese shadow banking system_5-7-16

FT – EM millennials out-earn their elders 5/11

FT_EM millennials in the money_5-11-16

FT – Air pollution hits ‘catastrophic’ levels 5/11

FT_PM10 air pollution levels_5-11-16


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

The coming debt bust: It is a question of when, not if, real trouble will hit in China. Economist. 7 May 2016.

“The country’s debt has increased just as quickly over the past two years as in the two years after the 2008 crunch. It’s debt-to-GDP ratio has soared from 150% to nearly 260% over a decade, the kind of surge that is usually followed by a financial bust or an abrupt slowdown.” 

“China will not be an exception to that rule. Problem loans have doubled in two years and, officially, are already 5.5% of banks’ total lending. The reality is grimmer. Roughly two-fifths of new debt is swallowed by interest on existing loans; in 2014, 16% of the 1,000 biggest Chinese firms owed more in interest than they earned before tax. China requires more and more credit to generate less and less growth: it now takes nearly four yuan of new borrowing to generate one yuan of additional GDP, up from just over one yuan of credit before the financial crisis.” 

“It is true that China has been fastidious in capping its external liabilities (it is a net creditor)… But the damage from a big Chinese credit blow-up would still be immense. China is the world’s second-biggest economy; its banking sector is the biggest, with assets equivalent to 40% of global GDP. 

“Optimists have drawn comfort from two ideas. First, over three-plus decades of reform, China’s officials have consistently shown that once they have identified problems, they had the will and skill to fix them. Second, control of the financial system – the state owns the major banks and most of the biggest debtors – gave them time to clean things up.” 

“Both these sources of comfort are fading away. This is a government not so much guiding events as struggling to keep up with them. In the past year alone, China has spent nearly $200 billion to prop up the stock market; $65 billion of bank loans have gone bad; financial frauds have cost investors at least $20 billion; and $600 billion of capital has left the country. To help pump up growth, officials have inflated a property bubble. Debt is still expanding twice as fast as the economy.” 

Further, “despite repeated efforts to restrain them, loosely regulated forms of lending are growing quickly: such “shadow assets” have increased by more than 30% annually over the past three years.”

The risks are first “higher-than-expected losses for the banks. Hungry for profits in a slowing economy, plenty of Chinese banks have mis-categorized risky loans as investments to dodge scrutiny and lessen capital requirements. These shadow loans were worth roughly 16% of standard loans in mid-2015, up from just 4% in 2012. The second risk is liquidity. The banks have become ever more reliant on ‘wealth management products,’ whereby they pay higher rates for what are, in effect, short-term deposits and put them into longer-term assets. For years China restricted bank loans to less than 75% of their deposit base, ensuring that they had plenty of cash in reserve. Now the real level is nearing 100%, a threshold where a sudden shortage in funding – the classic precursor to a banking crises – is well within the realm of possibility. Midsized banks have been the most active in expanding; they are the place to look for sudden trouble.” 

“…it is too late for China to avoid pain. The task now is to avert something far worse.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Manhattan’s Latest Tower Heats Up Hudson Yards Race for Tenants 5/9

FT – MetLife takes axe to hedge fund portfolio 5/5

FT – Alarm bells ring over negative interest rates 5/5

FT – Buffett and Bogle unite against hedge funds 5/7

FT – The real cost of big tech’s accounting games 5/8

FT – PwC to deploy drone army 5/8

FT – Alarm grows as investors get bulk of listed groups’ profits 5/9

FT – China capital outflows persist despite FX reserves rebound 5/9

FT – Rosneft head: Opec no longer united organization 5/10

FT – China insurance regulator sends inspectors to Anbang 5/11

FT – Linn Energy files for bankruptcy protection 5/11

FT – Macy’s joins American retail descent into the doldrums 5/11

FT – Grantham on the paradigm shift that never was 5/11

FT – Abu Dhabi raises stakes in 1MDB dispute with $1.2bn demand 5/11

WSJ – Stuck at Zero: The Long-Term Challenge for Investors 5/6

WSJ – Opportunity to Squeeze More From China’s Biggest Mall Developer 5/9

WSJ – What a China U-Turn Would Mean for Global Growth 5/10

WSJ – Luxury Condo Boom Is Ending in Manhattan 5/10

WSJ – Mall Landlords Go for Novelty in China 5/10

WSJ – Malaysian Leader Najib’s Stepson Allegedly Funded U.S. Property Deals With 1MDB Money 5/12


April 15 – April 21, 2016

The Wall Street Oil Crash in charts. Chinese $3tn bond market not looking so good.

This week is a very graphic heavy week, just happens that way sometimes.  Additionally, I want to call attention to a report that me and my business partner put out for our real estate development and management business (FP Honolulu Condominium Market Insights) in the Special Reports section.  While it is geared to those interested in the Honolulu Condo market, there is a good deal of text and charts that are pertinent to macro issues at large.  Enjoy.



    • “Driving all this activity: easy money. Real interest rates have fallen. And nominal GDP grew faster than real GDP for the first time in five quarters, which in theory makes servicing debt easier.”
    • “What should trouble investors is that while China’s economic activity is ticking up, debt is piling up faster. The stock of total financing in the economy, including bond issuance as part of a local government bailout program, rose 15.8% in March from a year ago, the fastest rate since mid-2014. With nominal GDP growing 7.2%, Beijing’s plans to deleverage the economy continue to be overwhelmed by the need to support growth.”
  • In the Wall Street Journal, Madeleine Nissen and Paul Davies point to how negative interest rates are taking their toll on German insurance companies.
    • “German regulators are so concerned about the impact of negative interest rates on the country’s life insurers that they have said they can only be sure the sector is safe through 2018.”
    • “Some insurers need to earn a continuing investment yield of more than 5% to meet guarantees to their policy holders, a report from Germany’s central bank found in 2014.”
    • “What is dangerous is that the return on many investments is no longer reflective of the underlying risk involved. Many investors feel forced into taking higher risks.” – Nikolaus von Bomhard, chief executive of Munich Re
  • If you think it’s been hotter than usual.  You’re right.  As Tom Randall of Bloomberg illustrates, the Earth’s Temperature Just Shattered The Thermometer.
    • “The Earth is warming so fast that it’s surprising even the climate scientist who predicted this was coming.”
    • “Last month was the hottest March in 137 years of record keeping, according to data released Tuesday by the National Oceanic and Atmospheric Administration. It’s the 1th consecutive month to set a new record, and it puts 2016 on course to set a third straight annual record.”
  • Turns out Millennials – like their predecessors before them – want to own their own home.  But, there is a ‘tiny’ problem for millennials living in the big cities.  The down payment.  As Catarina Saraiva of Bloomberg shows us, for many it will take years to save the down payment necessary to buy a home.
    • “Of the generation known for renting everything from designer handbags to desks in a shared office space, 79% say they want to purchase a home, according to a report published Wednesday by Apartment List, an online rental marketplace.”
    • In San Francisco, a 20% down payment on a median priced home equates to $142,800. “Surveyed millennials reported current savings at $14,469, monthly savings of $360 and help from outside sources of $8,264, on average. At that pace, it’ll take them nearly 28 years to save enough money for a down payment, even though 37% of millennials said they’re planning to buy between three and five years from now.”
  • It’s been tough to be a hedge fund lately.  Mary Childs and Lindsay Fortado of the Financial Times point out that $15bn has been pulled out from hedge funds by investors in the last quarter.
    • “Hedge funds have suffered their worst quarter in seven years after more than $15bn was pulled out by investors starting to fight back against the high fees being charged across the industry.”
    • “The total amount invested in hedge funds fell to $2.86tn in the first three months of the year, marking the first time since 2009 that the sector has faced two consecutive quarters of net outflows, according to data from Hedge Fund Research.”
    • But I wouldn’t go predicting the demise of hedge funds.  Ben Carlson of the blog A Wealth of Common Sense did a great job of explaining Why People Invest in Hedge Funds in October 2015.
  • Want to see what arbitrage looks like…Jacky Wong of the Wall Street Journal paints a picture with the reverse migration of many Chinese companies moving their public stock listings from Hong Kong to Mainland China.
    • “A reverse migration by Chinese companies from Hong Kong to mainland stock markets is under way. Juicy valuations are the main draw. But the winners are unlikely to be these companies’ current shareholders.”
    • “Dalian Wanda Commercial Properties, China’s largest shopping-mall owner, said last month its major shareholder is considering delisting the company from Hong Kong, less than two years after its initial public offering. The minimum takeout price is the same 48 Hong Kong dollars (US$6.19) a share that the company listed at in 2014. Meanwhile, a document sent to prospective investors on the mainland said Wanda expects its valuation to more than triple once it is relisted there.”

Special Reports


WSJ – China’s Economy Faces Recovery Without Legs – Alex Frangos 4/15

WSJ_China Housing Starts_4-15-16

WSJ – Germany: Where Negative Rates Are Lethal – Madeleine Nissen and Paul J. Davies 4/14

WSJ_Negative yielding debt_4-14-16

WSJ – Why the Great Divide Is Growing Between Affordable and Expensive U.S. Cities – Laura Kusisto 4/18

WSJ_Home value divergence_4-18-16

ValueWalk – 98% of U.S. PE Funds Closed in 1Q Hit Or Exceeded Their Target 4/18

ValueWalk_98% of US PE Funds Hit Target_4-18-16

Bloomberg – It Could Take Years for Big-City Millennials to Save for a Down Payment – Catarina Saraiva 4/20

Bloomberg_Millennials saving for a home_4-20-16

WSJ – Upscale Shopping Centers Nudge Out Down-Market Malls – Suzanne Kapner 4/20

WSJ_Mall Valuations_4-20-16

FT – Beijing rent ranked world’s least affordable 4/20

FT_Beijing is least affordable city for rentals_4-20-16

WSJ – Chinese Reverse Migration Leaves Investors in the Cold – Jacky Wong 4/20

WSJ_Hong Kong v Mainland China listings_4-20-16


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

Wall Street’s Oil Crash, a Story Told in Charts. Asjylyn Loder. Bloomberg. 15 Apr. 2016.

“JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and Citigroup Inc., with a combined $190 billion in energy loan exposure, all announced this week that they’re setting aside more money to cover losses.”

Bloomberg_Bank Energy Exposure_4-15-16  

“Many independent drillers, the small producers that drove the shale boom, outspent cash flow even when oil was $100 a barrel, and made up the difference with bank-loans and high-yield bonds. Put simply: No banks, no boom.

Bloomberg_Shale Cash Shortage_4-15-16 

“Of the four big banks to report results this week, Wells Fargo has the biggest reported exposure to those sub-sectors, at about $14 billion, or 79% of their energy loans outstanding. The bank boosted loan-loss provisions for oil and gas to about $1.7 billion and reported net-charge offs of $204 million.”

Bloomberg_Shrinking credit lines_4-15-16

“Regulators and investors are pushing banks to limit their exposure to the industry. Since the start of the year, lenders have yanked $5.6 billion in credit from 36 oil and gas companies, according to data compiled by Bloomberg.”

It’s All Suddenly Going Wrong in China’s $3 Trillion Bond Market. Bloomberg News. Bloomberg. 18 Apr. 2016.

This is a good follow up to the FT article from last week.

“The unprecedented boom in China’s $3 trillion corporate bond market is starting to unravel.”

“Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 60.6 billion yuan ($9.4 billion) of bond sales in April alone, while Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003.”

“Listed firms’ ability to service their debt has dropped to the lowest since at least 1992.”

“The spreading of credit risks is only at its early stage in China. Many people have turned bearish.” – Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co.

“Economic figures for March reveal a growing dependence on debt. China’s aggregate financing – a broad measure of credit that includes corporate bonds – almost doubled from a year earlier to 2.34 trillion yuan, exceeding all 24 forecasts in a Bloomberg survey as policy makers turned on the taps to support economic growth.”

“The reaction has been swift in China’s 18.8 trillion yuan corporate bond market (a figure that excludes certificates of deposit). The extra yield investors demand to hold seven-year onshore corporate bonds with top ratings over similar-maturity government notes has jumped by 28 basis points from an almost nine-year low in January, to 91 basis points as of Monday.”

Still, very little yield premium compared to the spreads in developed markets.

“Analysts, meanwhile, are getting more downbeat. Twelve-month earnings forecasts for Shanghai Composite companies have dropped by 7.8% this year, the most since 2009, according to data compiled by Bloomberg. S&P has cut its credit ratings or reduced its outlook on 63 Chinese companies this year while upgrading just two, on course for the highest annual ratio of downgrades to upgrades in 13 years.”

“Rising defaults are actually healthy for China’s bond market, said Xia Le, the chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong.”

“It shows the government is taking away the implicit guarantee. Now risk awareness is rising, so we will see which issuers are swimming naked.” – Xia Le

Other Interesting Articles

The Economist

Bloomberg – America’s Wealth Effect From Rising Home Prices Has Been Cut in Half 4/21

CNBC – Miami real estate is melting down – Robert Frank 4/14

FT – US banks spell out toll of low oil prices 4/14

FT – Foreign governments up US Treasury holdings 4/15

FT – Defaults send chill through China’s bond market 4/15

FT – Will China transform the world’s energy market? 4/17

FT – China’s house prices surge as efforts to cool market fall flat 4/17

FT – Saudi warning on 9/11 law adds to US frictions 4/17

FT – Collapse of Doha talks highlight the rise of Mohammed bin Salman 4/18

FT – 1MDB dispute intensifies as Abu Dhabi ends relationship 4/18

FT – India knocks China from top of FDI league table 4/20

FT – China internet finance crackdown targets fly-by-night operators 4/20

National Real Estate Investor – Foreign Buyers of U.S. Real Estate: By the Numbers 4/14

NYT – Fight to Impeach Brazil’s Leader Tears at Fabric of Daily Life 4/15

NYT – As China’s Growth Slows, Banks Feel the Strain of Bad Debt 4/15

NYT – In Cramped and Costly Bay Area, Cries to Build, Baby, Build 4/16

NYT – Brazil’s Lower House of Congress Votes for Impeachment of Dilma Rousseff 4/17

Reuters – ‘Let them sell their summer homes’: NYC pension dumps hedge funds 4/14

ValueWalk – Is George Soros, 85, Looking For A Fight With China? 4/21

WSJ – How Housing Stacks Up on the Upper West Side 4/13

WSJ – Negative Rates Around the World: How One Danish Couple Gets Paid Interest on Their Mortgage 4/14

WSJ – Why the Great Divide Is Growing Between Affordable and Expensive U.S. Cities – Laura Kusisto 4/18

WSJ – Investors All Mixed Up About Chinese Property Bonds 4/19

WSJ – Negative Rates and Patches of Trouble for Japanese Insurers 4/21