Tag: P2P Lenders

July 19, 2018

If you were only to read one thing…

Bloomberg – Panic Roils China’s Peer-to-Peer Lenders – Jun Luo, Alfred Liu, and Crystal Tse 7/16

  • “China’s savers are rushing to pull money from peer-to-peer lending platforms, accelerating a contraction of the $195 billion industry and testing the government’s ability to maintain calm as it cracks down on risky shadow-banking activities.”
  • “In some cases, savers are turning up at the offices of P2P operators to demand repayment, spooked by reports of defaults, sudden closures and frozen funds. At least 57 platforms have failed in the past two weeks, adding to 80 cases in June, the biggest monthly tally in two years, according to Shanghai-based Yingcan Group. The researcher defines failed platforms as those that have halted operations, come under police investigation, missed investor payments, moved into other businesses, or had operators flee with client money.”
  • “’Investors have lost confidence in the smaller platforms, because they have no idea if those companies will survive,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Capital. Only a handful of the 2,000 or so remaining firms are likely to endure, he said.”
  • “China’s P2P industry, the world’s largest, is one of the riskiest and least-regulated slices of the nation’s sprawling shadow-banking system. A government clampdown has weighed on P2P platforms for two years, but the pressure intensified in recent months after China’s credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products.
  • “The shakeout has cast doubt on the listing plans of several P2P lenders and underscores the delicate balancing act faced by China’s government as it tries to reduce moral hazard in the financial system without triggering a crisis. While there’s little sign that the P2P turmoil has spread to systemically important wealth-management products issued by banks, much of China’s $10 trillion shadow-lending system faces the same headwinds of rising defaults, slowing economic growth and official calls to end to implicit guarantees on risky investments.”
  • “China’s P2P platforms have about 50 million registered users and 1.3 trillion yuan ($195 billion) of outstanding loans, most of which have short maturities. Normally, savers have to wait for loans facilitated by the platforms to mature before getting their money back. But some are now trying to exit early by selling their rights to others at a discount, or by going to the platform’s offices to demand repayment.”
  • “The turmoil is also hurting companies and individuals who have relied on P2P platforms for financing. They include cash-strapped small businesses seeking working capital, individuals without a credit history, and, more recently, leveraged stock market investors and home buyers in need of down-payments.”
  • “Some P2P platforms were also raising funds illegally for their own use, while others were running Ponzi schemes that collapsed when the flow of new money halted, regulators have said. That helps explain why authorities have so far been steadfast in cracking down.”
  • “Last month, China Banking and Insurance Regulatory Commission Chairman Guo Shuqing warned that any savings or investment product with promised returns of more than 8% is likely to be ‘very dangerous’ and that investors should be prepared to lose all their money if advertised returns exceed 10%. The average yield on P2P loans was 10.2% in the first half, official figures show. Reported default rates vary from zero on the best platforms to 35% on the worst, according to National Internet Finance Association of China.”

Markets / Economy

WSJ – Daily Shot: Gold 7/17

 

WSJ – Daily Shot: Silver 7/17

WSJ – Daily Shot: NASDAQ Composite Index 7/17

 

Real Estate

Bloomberg Businessweek – Britain’s Online Shopping Boom Is a Bust for the High Street – Sam Chambers 7/10

  • “Online retailers typically benefit from lower overhead than their store-based counterparts, but in the U.K. that advantage is bigger than just about anywhere. The country has the developed world’s highest commercial property taxes, and in many areas those levies have jumped even as store sales decline, because land values have risen since the financial crisis. Last year, Tesco paid £700 million in property taxes, and J Sainsbury Plc, the No. 2 chain, paid £550 million. Amazon’s bill: £14 million.”

Economist – Big corporates’ quest to be hip is helping WeWork 7/12

  • “Research suggests that employees are happier in co-working environments like those run by WeWork. But the firm’s real genius is that it is also far cheaper for their employers. Property experts estimate that firms typically spend anywhere between $16,000 and $25,000 per employee on rent, security, technology and related office expenses. Mr Neumann insists they can get all of that from WeWork starting at $8,000 per worker. Efficient use of space is one reason. Ron Zappile of Colliers, a property-services firm, reckons that typical corporate offices use some 185 square feet (17 square meters) per employee. WeWork members get by on 50 square feet per head.”
  • “WeWork has more than 250,000 members from a range of industries (see chart) and expects to double revenues this year for the ninth straight year. Last year it made $886m in revenue, 93% of which came from memberships.”
  • But…”WeWork’s net losses also roughly doubled, however, from $430m in 2016 to $884m last year. As with many fast-moving startups, it explains its lack of profitability by pointing to big investments. It will open 15 new offices a month worldwide for the foreseeable future. Its bonds issued in April were rated as junk.”
  • “…the most important source of stability may well be a shift in its customers, from startups to big firms. A few years ago, WeWork’s business was comprised almost entirely of small fry. In the year to September the enterprise segment (firms with over 1,000 staff) grew by around 370%. As of June, big firms accounted for about a quarter of its membership and revenues. More than 1,000 companies now take anything from one to 12,000 desks. In June, Facebook asked WeWork for an entire building for several thousand workers.”
  • “The average enterprise lease is close to two years and many new ones are three to five years long. Whereas big firms, used to conventional office leases of 10-20 years, see WeWork’s contracts as flexible, the firm itself sees them as commitments that will help it weather a downturn.”

Cryptocurrency / ICOs

WSJ – Daily Shot: Barchart – Bitcoin 7/17

WSJ – Cryptocurrency Exchanges Are Getting Hacked Because It’s Easy – Steven Russolillo and Eun-Young Jeong 7/16

Tech

Bloomberg Businessweek – China’s Technology Sector Takes On Silicon Valley – Peter Elstrom, Yuan Gao, and Xiaoqing Pi 7/10

China

FT – China money market funds’ rush into bank credit worries investors – Don Weinland 7/16

  • “Investors have warned of growing systemic risks in China’s $1.09tn money market fund industry, as funds buy up bank credit despite a surge in bad debt this year.”
  • “Comparably high yields and low risk at Chinese money market funds in recent years have made the industry a favorite among retail investors in the country. Assets under management have grown from Rmb600bn at the end of 2012 to an estimated Rmb7.3tn ($1.09bn) in March, making it the second-largest market in the world after the US.”
  • “But in recent months China’s central bank has tightened monetary policy and access to credit, forcing down the funds’ once-attractive yields. At the biggest funds, average returns have dropped to an annualized to 3.7% from about 4.5% at the start of the year.”
  • “In response, funds have rushed into bank credit, such as negotiable certificates of deposit, as a means to boost returns and continue attracting retail investments.”
  • “Investors are now warning that the push into bank credit comes just as regulators are forcing banks to recognize vast amounts of bad debts that were once hidden off their balance sheets, leading to greatly increased risk for the investments. Falling credit ratings at banks could force money market funds to exit their investments, something that could lead to a shock through the massive fund industry.”
  • “Ant Financial’s Yu’e Bao, with about $200bn under management, is the world’s largest money market fund. Last month it reduced the amount of money investors could withdraw within one day to Rmb10,000 ($1,498) per investor from Rmb50,000. About Rmb200bn flowed out of the fund between April and June. The company declined to comment.”
  • “The risks at the funds are centered around their source of high-yielding investments: credit from hundreds of small banks with weakening balance sheets.”

FT – China closes a fifth of foreign university partnerships – Emily Feng 7/17

FT – Hong Kong tightens screws on pro-independence party – Ben Bland 7/17

  • “The Hong Kong government is considering banning a pro-independence political party on unprecedented ‘national security’ grounds, a move decried by activists as the latest violation of the city’s promised freedoms and rights.”

India

NYT – In India, Summer Heat May Soon Be Literally Unbearable – Somini Sengupta 7/17

Other Interesting Links

Maps on the Web: Reddit – White Americans by State 2017 7/4

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March 01, 2018

Perspective

NYT – By Day, a Sunny Smile for Disney Visitors. By Night, an Uneasy Sleep in a Car. – Jennifer Medina 2/27

Worthy Insights / Opinion Pieces / Advice

Economist – How Putin meddles in Western democracies – Leaders 2/22

FT – A world of debt mortgages our economic future – Derek Scissors 2/22

  • “Irresponsible borrowing by the US, China and India imperils global growth.”

WSJ – The Wayfair Riddle – Elizabeth Winkler 2/26

  • “The furniture retailer’s business has serious flaws, but the stock keeps soaring.”

Energy

FT – Rising interest rates punish US power sector – Ed Crooks 2/22

  • “US utilities, sustained for years in a warm bath of favorable financial conditions, are facing a cold shower.”
  • “An expected rise in interest rates and the shake-up of the tax system passed into law at the end of last year are threatening to squeeze utilities’ finances. Already, the S&P 500 utility sector index has dropped 13% from its peak in November.”

FT – Fundamentals do not matter to new breed of oil speculator – Gregory Meyer 2/27

Finance

FT – Rising tide of debt to hit rich countries’ budgets, warns OECD – Kate Allen and Chris Giles 2/22

  • “Developed nations face a rising tide of government debt that poses ‘a significant challenge’ to budgets as interest rates increase around the world, the OECD has warned.”
  • “Low interest rates have helped sustain high levels of government debt and persistent budget deficits since the financial crisis, according to the OECD, but the ‘relatively favorable’ sovereign funding environment ‘may not be a permanent feature of financial markets’.”
  • “The warning on the longer-term consequences of high public borrowing marks a shift in stance by the OECD, which as recently as November was praising countries for easing fiscal policy to help global growth.”
  • “In an Economic Outlook, published at that time, the Paris-based organization said that ‘even a lasting increase in 10-year government bond yields of 1 percentage point . . . might worsen budget balances on average by only between 0.1% and 0.3% of GDP annually in the following three years’.”
  • “The total stock of OECD countries’ sovereign debt has increased from $25tn in 2008 to more than $45tn this year. Debt to GDP ratios across the OECD averaged 73% last year, and its members are set to borrow £10.5tn from the markets this year.”
  • “Because much of the debt raised in the aftermath of the financial crisis is set to mature in the coming years, developed nations will have to refinance 40% of their total debt stock in the next three years, the OECD said.”

Health / Medicine

Economist – How to stop lead poisoning – Leaders 2/22

Agriculture

WSJ – Daily Shot: To Stay on the Land, American Farmers Add Extra Jobs – Jacob Bunge and Jesse Newman 2/25

Sovereign Wealth Funds

FT – Norway oil fund posts $131bn return for 2017 – Richard Milne 2/27

  • “Norway’s $1.1tn oil fund returned 13.7% — or NKr1tn ($131bn) — beaten only by 2009 and 2013 in percentage terms.”
  • “Strong stock markets contributed to a 19.4% return for equities while property returned 7.5% and bonds 3.3%.”

China

Nikkei Asian Review – The hidden risks of China’s war on debt – Yusho Cho 2/28

India

FT – Huge fraud at Indian bank spurs privatization calls – Amy Kazmin 2/27

  • “In 1969, India’s then prime minister, Indira Gandhi, transformed the country’s banking landscape when she nationalized its 14 biggest commercial lenders, which together accounted for around 70% of the system’s deposits.”
  • “Nationalization was touted as way to protect depositors and force banks — which mainly catered to big industrial houses — to lend to a broader swath of the population, including farmers, traders and small businesses.” 
  • “State dominance over the banking system has not worked out so well for India. Politically driven lending decisions, difficulties agreeing realistic debt workouts when loans sour, as well as uninspired, even fearful bureaucratic management and outdated IT systems have left state lenders with a far higher bad debt burden than their private rivals, hindering India’s economic prospects.” 
  • “Now, the discovery of an alleged $1.8bn fraud at India’s second-largest state lender, Punjab National Bank, is prompting vigorous and concerted calls for New Delhi to admit the failure of Mrs. Gandhi’s bank nationalization — and reverse it.” 
  • “According to PNB, staff at one of its Mumbai branches issued fraudulent bank guarantees for luxury jeweler Nirav Modi, and his diamond-trader uncle Mehul Choksi, to take cash advances from the overseas branches of other Indian banks — all ostensibly guaranteed by PNB.”
  • “Antiquated software systems — guarantees were issued without requisite documents or collateral — meant PNB’s management had no idea of the obligations mounting in its name. Nor did the banks that received the guarantees, mostly other state lenders, suspect any impropriety.” 
  • “Analysts say the scam, which PNB says went on for several years without detection, highlights the rot in state banks and the need for radical change.” 
  • “At the heart of India’s banking crisis, however, is New Delhi’s political control over what should be run as commercial entities and the inherent conflict of interest in the state’s multiple roles as economic policymaker, the largest bank owner and the industry regulator.” 
  • “While New Delhi is now in the middle of a $32bn recapitalization scheme to shore up bank balance sheets after the last wave of bad debts, the PNB fraud has raised fears the government is simply throwing good money after bad.” 
  • “Privatization of some, or even most, of India’s state banks is not a simple or quick solution to the sector’s problems. Analysts say the legacy of five decades of state ownership — and its impact on personnel, incentives and decision-making — will take years to undo. But the PNB fraud has persuaded many Indians it is time to start.”

Japan

WSJ – Daily Shot: TD Securities – Japanese Investors Looking For Returns Abroad 2/27

Puerto Rico

WSJ – Daily Shot: CNN – ‘Exodus’ from Puerto Rico: A visual guide – John D. Sutter and Sergio Hernandez 2/21

South America

Bloomberg – Hungry Venezuelan Workers Are Collapsing. So Is the Oil Industry – Fabiola Zerpa 2/22

  • “Starving employees are growing too weak for heavy labor, hobbling the refineries that keep the economy running.”

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.”

August 19 – August 25, 2016

It’s getting hot out there. When picking your emerging market investments, be mindful of its exposure.

Headlines

Briefs

    • The nontraded REIT industry is having a hard look at itself.  Inland is eliminating its transaction fees and new entrant to the sector – but definitely not to institutional real estate investment – Blackstone Group has not committed to a specific yield – the primary attribute for selling these investments.
    • The thing is “Cap rates, a key valuation measure for real estate, have decreased dramatically since the credit crisis, while valuations of quality properties have increased. That means commercial real estate is simply too pricey to generate the promised returns (generally 6-7%) brokers need to pitch nontraded REITs to clients.”
    • “The math of these programs is much more challenging today. Cap rates are lower and I think the dividend yields have to come down. The publicly traded REIT market is paying a 3.5% dividend yield, on average.” – Allan Swaringen, president and CEO of JLL Income Property Trust
    • And with a lower fee structure I might add…
    • One thing to be mindful of in investing in nontraded REITs are their dividend coverage ratios.  “That ratio, a REIT’s cash flow versus its dividend, or distribution, is one of the most important metrics for investing in nontraded REITs, which often resort to returning investor cash to pay for or cover the 6% or 7% dividend. Any return of investor money diminishes the REIT’s ability to perform in the long term.”
    • Bottom line, “nontraded REIT sponsors and advisers who sell them can say au revoir to the product’s most important marketing component: the promise of generating annual returns of 6% or 7% to yield-starved investors.”
    • “Trends that slammed profit in the first quarter – a stronger yen, negative interest rates and slumping China growth – haven’t reversed. At stake is a second straight year of earnings decline that could buy Prime Minister Shinzo Abe’s push for companies to boost capital spending and raise wages to spur economic growth.”
    • “With negative interest rates grinding away bank profits and a stronger yen bearing down on carmakers, aggregate operating income plummeted 17% in the June quarter, the biggest quarterly decline since 2011. That’s the year an earthquake in Fukushima and subsequent tsunami caused the yen to gain and stocks to drop.”
    • Bloomberg_Japan Inc profit slump_8-21-16
    • Airbnb has changed the short-term rental business in a big way. The company “now operates in 34,000 cities around the world and was recently valued by investors at $25.5 billion.”
    • On top of that, Airbnb has created an ecosystem of other companies that help landlords rent, maintain, and operate their units…
    • Well one of the recent companies created, Host Compliance, is the ‘tit for tat.’  Rather than assist people to attain the most out of their Airbnb listings, the company actually is set up to help cities and municipalities in the policing of their short-term rental regulations by sifting through the vast amount of listings data and providing reports on violations.
    • No surprise, most governments are overwhelmed and not truly set up to properly track abuses to their rules, hence they’re always playing catch up to tech innovators.  I suppose it won’t be long that other tech innovators will pop up to “check-in” on other tech disrupters…
  • Eliot Brown of the Wall Street Journal focused his spot light on the real estate market of San Francisco and the effects of the surging tech market.
    • As the tech industry continues to boom, its companies continue to crowd out other businesses from San Francisco’s office market, ultimately reducing the city’s “economic diversity, giving it an enormous concentration in an industry that is particularly prone to economic swings.”
    • “Tech companies now occupy more than 29% of the city’s occupied office space, according to real-estate-services firm CBRE Group Inc. That is roughly double what the industry occupied in 2010 as well as the height of the dot-com bubble in 2001, CBRE said.”
    • “What’s more, the bulk of those occupying that office space are startups or those that recently went public, typically unprofitable companies that are considered some of the most volatile.”
    • “Looming in the minds of many in San Francisco is the city’s experience after the dot-com bust of 2001. Even though the tech sector was centered more in Silicon Valley to the south, the local economy was pummeled. Office vacancies soared above 20% from less than 4%, according to Cushman & Wakefield.”
  • Gabriel Wildau of the Financial Times reports that it was only a matter of time that Chinese regulators would tighten the noose on the P2P market.
    • China has just formalized new regulations for the Peer-to-Peer (P2P) market in the country. “Regulators and courts have previously issued many of the prohibitions contained in the latest rules in different forms, but the latest regulations mark the first comprehensive framework for regulating P2P lenders in China.”
    • “The rules, issued on Wednesday, forbid online lenders from accepting deposits or guaranteeing principal or interest on loans they facilitate. They ban P2P platforms from securitizing assets or offering debt transfer mechanisms that mimic securitization. Companies are prohibited from using P2P platforms to finance their own projects.”
    • “Their fundamental nature is information intermediation, not credit intermediation.” – banking regulator
    • “Outstanding loans from 2,349 P2P platforms totaled Rmb621bn by the end of June, the banking regulator said in a statement on Wednesday. But an additional 1,778 ‘problem platforms’ have also been established, equal to 43% of all platforms.”
    • “The latest rules also prohibit P2P groups from operating ‘fund pools’ in which investor funds are not matched with specific loan assets. The banking regulator noted that ‘Ponzi schemes’ – in which inflows from new investors are used to finance payouts on maturing obligations – have been a problem for the industry.”

Special Reports

Graphics

CBO – Trends in Family Wealth, 1989 to 2013 8/18

CBO_Trends in Family Wealth_8-18-16

FT – Pensions: Low yields, high stress – John Authers and Robin Wigglesworth 8/22

FT_Pension liabilities growing faster than assets_8-22-16

FT – US charitable foundations hit by plunging returns 8/23

FT_US charitable foundations investment returns struggle_8-23-16

Featured

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

Think It’s Hot Now? Just Wait. Heidi Cullen. New York Times. 20 Aug. 2016.

“July wasn’t just hot – it was the hottest month ever recorded, according to NASA. And this year is likely to be the hottest year on record.”

“Fourteen of the 15 hottest years have occurred since 2000…”

NYT_Heat Map of US - 1991-2010_8-20-16

NYT_Heat Map of US - 2060_8-20-16

NYT_Heat Map of US - 2100_8-20-16

NYT_Number of Days over 95 degrees_8-20-16

Silver lining…good for solar.

As China nears exhaustion investors must look elsewhere. James Kynge. Financial Times. 24 Aug. 2016.

As yield is vanishing from developed world economies – there is $13tn in negative-yielding debt outstanding at the moment – emerging market economies have seen a lot of interest of late… however, try to see it in context.

“The drive behind this intense demand for EM has nothing to do with EM. The one thing that emerging markets have that everyone wants right now is not raw materials or cheap labor, it’s yield. When you have negative interest rates in Europe and Japan, and zero rates everywhere else, the politics and economics of these countries becomes irrelevant.” – Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch

“Thus, emerging markets are flattered by a perception they are the least bad option for investors.”

However, investors need to be wary of the exposure that many EMs have to China.

China is having ever greater difficulty in producing economic growth – at least of the levels of the past few decades (which is to be expected).  “Before the global financial crisis in 2008, China needed just over one dollar of credit to deliver one dollar of gross domestic product growth, the ratio is now six to one, according to Morgan Stanley.”

“Although the economy is said to be growing at 6.7%, investment growth by private companies slowed to 2% in July, demonstrating that the most potent force in the Chinese economy sees scant hope of a return.”

“Scarcity of opportunity amid an abundance of growth defines China’s enervated state. So generous have banks, capital markets and shadow financial institutions been to virtually anyone who wishes to borrow that almost every industry is in a state of oversupply, slashing profits.”

“Standard & Poor’s, the credit rating agency, is the latest to raise the alarm. The anemic profits of Chinese companies is likely to intensify their need to borrow more merely to repay maturing debts, helping to drive global corporate debt levels to worrying levels by 2020.”

“Corporate debt is set to expand by half to $75tn over the next five years, according to S&P. China’s share of this debt is likely to rise to 43% in 2020 from 35% in 2015, the rating agency said, largely through companies borrowing to repay debts that are coming due.”

Bottom line, don’t throw out your fundamental analysis models just yet…

Other Interesting Articles

The Economist

Bloomberg – Why It’s So Hard to Build Affordable Housing: It’s Not Affordable 7/26

FT – We must protect shareholders from executive wrongdoing 8/18

FT – Retailers reveal why US earnings season was fundamentally weak 8/18

FT – Paul Singer says bond market is ‘broken’ 8/18

FT – Venezuela’s problems can no longer be ignored 8/18

FT – Is greed good? No, it’s seriously bad for your wealth 8/19

FT – Hackers expose holes in road for smarter cars 8/19

FT – Oil company dividends: flare-up ahead 8/21

FT – #fintech Sidelining the mobsters in China 8/22

FT – Forget Fed rate calls – be ready for the return of inflation 8/22

FT – China close to launching credit default swap market 8/22

FT – Mongolia tightens belt as debt payments loom 8/24

FT – The canary in the coal mine for China’s currency 8/24

IPE – Redemption requests begin to build among core US property funds 8/24

National Real Estate Investor – Drop in 10-year Treasury Gives Real Estate Pricing a Lift 8/24

NYT – Chilling Tale in Duterte’s Drug War: Father and Son Killed in Police Custody 8/19

NYT – More of Kremlin’s Opponents Are Ending Up Dead 8/20

NYT – The Housing Market Is Finally Starting to Look Healthy 8/23

WSJ – Chinese Bank Shows How To Move Risks Around 8/19

WSJ – One Policy to Rule Them All: Why Central Bank Divergence Is So Slow 8/22

WSJ – China’s Online Lenders Face Peer-to-Peer Pressure 8/25

WSJ – What to Learn From the ECB’s Great European Corporate Bond Squeeze 8/25

 

July 22 – July 28, 2016

How much spare crude oil is there – hard to tell.  Nontraded REIT sales struggling.  There are a lot of dangers lurking in the Chinese P2P market, but the yield is just SO GOOD…

Headlines

Briefs

    • Chinese wealth management products are looking a lot like the junk bonds used for corporate raiding in the late 1980s rather than the traditional insurance policies they are supposed to be.
    • “China’s insurance regulator has warned against insurers becoming ‘automatic teller machines’ for activist shareholders, in a veiled reference to the battle for control of China Vanke, China’s largest residential developer, by insurance conglomerate Baoneng Group.”
    • “We will let those that truly want to do insurance come and do insurance and absolutely not allow companies to become financing platforms and ‘ATMs’ for large shareholders.” – Xiang Junbo, chairman of the China Insurance Regulatory Commission
    • “There are major regulatory gaps that need to be addressed. These ‘universal’ products have absolutely nothing to do with insurance. Some of them are very risky, but commercial banks are distributing them, and people trust the banks.” – senior financial regulator
    • With Puerto Rico facing approximately a $2bn interest and principal payments due on its general obligation bonds on July 1 and not being able to make the payments, the U.S. Congress recently passed a law that was meant to give Puerto Rico a temporary reprieve from “legal sanctions by creditors so it could restructure its obligations in an orderly way, and to maintain essential services.”
    • Well, Puerto Rico took this reprieve to pay about half of the amounts due, only they chose to whom went the payments.  “Puerto Rico did not pay any interest or principal on the most senior, or general obligation bonds, but did make payments on more junior bonds. The government also paid its employees’ pension funds $170m more than what was required for this year, despite the pensions supposedly being legally subordinated to bondholders.”
    • The thing is that US Treasury officials advised on some of this reprioritization… you can see the dangerous precedence this sets for municipal bonds…
    • “The bonds on which interest payments were made on July 1, such as the Puerto Rico convention center district and the Puerto Rico Highways and Transportation Authority, are disproportionately owned by bondholders on the island. Supposedly more-sophisticated mainland US investors had avoided these lower ranked issues on the misinformed premise that financial and legal analysis should outweigh political calculation.”
  • The Buttonwood column of The Economist highlighted a rather large potential problem the world is facing: the vanishing of working age adults
    • “The world is about to experience something not seen since the Black Death in the 14th century-lots of countries with shrinking populations. Already, there are around 25 countries with falling headcounts; by the last quarter of this century, projections by the United Nations suggests there may be more than 100.”
    • “The big question is whether economic growth and rising debt levels go hand-in-hand, or whether the former can continue without the latter. If it can’t, the future can be very challenging indeed. To generate growth in our ageing world may require a big improvement in productivity, or a sharp jump in labor-force participation among older workers.”
  • Christian Shepherd of the Financial Times covered that China is now enforcing its ban on original news reporting.
    • “A spokesman for Beijing Cyber Administration confirmed that state press reports that said conducting original reporting was a gross violation of the regulations (rule in place since 2005) and brought about ‘extremely nasty effects.’ The reports also said that the companies had been given a fixed period to ‘rectify’ the offending sites.”
    • “The trigger for the shutdown, according to media analysts, was coverage of flooding in northern China which – according to the official count – has left 130 dead and racked up damages of more than Rmb16bn ($2.4bn) in Hebei province alone.”
    • “The government does not want these platforms to provide their own news. They are only allowed to forward reports by outlets like Xinhua and the People’s Daily.” – Qiao Mu, a journalism professor in Beijing.

Special Reports

Graphics

FT – Renminbi drops to sixth in international payment ranking 7/20

FT_Top currencies for global payments_7-20-16

FT – Tough outlook for Hong Kong property – 7/21

FT_Tough outlook for Hong Kong property_7-21-16

Visual Capitalist – The Illusion of Choice in Consumer Brands – 7/21

Visual Capitalist_The illusion of choice in consumer brands_7-21-16

Bloomberg – Relief for Renters Will Prolong Fed’s Wait to Hit Inflation Goal 7/24

Bloomberg_Rising MF Supply_7-24-16

The Daily Shot 7/25

Daily Shot_Norway's Oil fund flows_7-25-16

FT – Landscape shifts for pipeline operators – Ed Crooks 7/24

FT_US Pipeline companies flow of funds_7-24-16

Economist – Buttonwood – Vanishing workers: Can the debt-fueled model of growth cope with ageing population? 7/23

Economist_Buttonwood - who will fill the jobs_7-23-16

WSJ – Why Pensions’ Last Defense Is Eroding – Timothy W. Martin 7/25

WSJ_Waning gains in public pensions_7-25-16

Economist – The Big Mac index: Patty-purchasing parity 7/23

Economist_Big Mac Index_7-23-16

Featured

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

How Much Oil Is in Storage Globally? Take a Guess. Dan Strumpf and Nicole Friedman. Wall Street Journal. 24 Jul. 2016.

“The historic fall in oil prices has created a pileup of inventories, much of it stashed in tanks in the U.S. and other industrialized countries that are committed to disclosing the latest tally, but millions of barrels of oil are flowing to locations outside the scope of industry trackers.”

“At the beginning of July, 23 supertankers capable of holding 43 million barrels of oil were anchored for a month or more in the Singapore straits, according to Thomson Reuters’s vessel-tracking service, up from 15 ships at the start of the year. If they were full, it would be enough to meet the U.S.’s oil needs for more than two days.”

WSJ_Counting Crude Oil_7-24-16

“‘OPEC has stopped being a swing supplier,” said Antoine Halff, director of the oil market program at Columbia University’s Center on Global Energy Policy. ‘Given the uncertainty about whether shale-oil production in the U.S. can take the role of swing supplier, it falls on stocks’ to replace lost barrels in the case of a supply disruption.”

“Uncertainty around storage was highlighted after attacks on Nigerian oil facilities in May and June. Following the assaults, some analysts forecast that Nigerian output would fall, which helped push oil prices above $50 a barrel. But shipping data showed Nigerian exports holding steady above 1.5 million barrels a day, according to data provider Windward.”

“Where did the exports come from?”

“In China, another storage mystery is unfolding. Government data show oil imports rising at a faster rate than refiners are processing it. The figures suggest the country has built a surplus 160 million barrels during the first half of the year, enough to meet its oil needs for about two weeks.”

“Analysts believe those barrels have gone to commercial tanks or to government-owned strategic reserves.”

“The distinction is critical. If most of the oil has gone to strategic reserves, demand could shrink once the tanks reach capacity, which some analysts say could happen this year.”

Nontraded REIT sales fall off a cliff as industry struggles to adapt. Bruce Kelly. InvestmentNews. 24 Jul. 2016.

“Over the first five months of the year, sales of full-commission REITs, which typically carry a 7% payout to the adviser and 3% commission to the broker-dealer the adviser works for, have dropped a staggering 70.5% when compared with the same period a year earlier, according to Robert A. Stanger & Co. Inc., an investment bank that focuses on nontraded REITs.”

“Their recent sharp drop in sales is part of a longer cycle. The amount of equity raised, or total sales of nontraded REITs, has been sinking by about $5 billion a year since 2013, when sales hit a high watermark of nearly $20 billion.”

As a result, independent broker-dealer company commissions are down in tandem.  “Industry bellwether LPL Financial said in its first-quarter earnings release that commission revenue from alternative investments, the lion’s share of which comes from nontraded REITs, was just $7.8 million, a staggering decline of 86.7% when compared with the first quarter of 2015.”

IN_Nontraded REIT sales fall off a cliff as industry struggles to adapt_7-24-16

Four key factors have hit the industry.  The blowup of Nicholas Schorsch’s REIT empire, recent FBI raids of United Development Funding (after hedge fund manager Kyle Bass called the company a Ponzi scheme), the Financial Industry Regulatory Authority Inc. rule 15-02, and the new DOL fiduciary rule.

  • The first two basically have brought the public and regulatory spot light to the industry and has shown the light on the less savory parts of the industry and its excessively high fees.
  • Finra rule 15-02 basically have caused an increase in transparency in the fees that the industry charges, now making them more accurately reflected on account statements.
  • And the DOL fiduciary rule “which will be phased in starting April, requires advisers to select investments for retirement accounts that are in the client’s best interest. Investments with high commission structures might not pass that test.” However, this rule also has a flip side, nontraded REITs may now be placed in retirement accounts (also as of April thanks to a Dept. of Labor ruling).

IN_Public Non-Listed REIT Fundraising since 2013_7-24-16

On the plus side, the industry is changing. New T shares are meant to reduce upfront commissions while spreading them over time (still high commissions) and larger financial institutions like Blackstone Group and Cantor Fitzgerald & Co. are looking at getting into the industry.  Hence references are made to the evolution of the mutual fund industry that also started out with high commission structures.

As Allan Swaringen, CEO of Jones Lang LaSalle Income Property Trust, put it “nontraded REITs have lived almost exclusively across independent broker-dealer channels. I don’t think that’s a model that will be successful going forward. It has to be sold by a variety of advisers.”

IN_2015 Top RE Sponsors_7-24-16

Chinese P2Ps plagued by flaky guarantees (fintech blog). Gabriel Wildau. Financial Times. 25 Jul. 2016.

“‘It’s just too easy to attract investment. That’s why it draws so many scammers,’ says Michael Zhang, chairman of Beijing-based Puhui Finance, a large P2P platform with a clean reputation.”

FT_Chines P2P plagued by flaky guarantees_7-25-16

“Beyond the problem of outright fraud is the thornier issue of raising risk awareness in a culture where debt investments are traditionally seen as carrying an implicit guarantee from issuers who are mainly state-owned institutions.”

FT_Chines P2P growth_7-25-16

“Dianrong.com, one of China’s largest P2P platforms, investment products carry a label that says ‘multiple guarantees.’ While the Chinese term used – baozhang – is distinct from the word for legally binding guarantees, it still translates as ‘guarantee’ or ‘safeguard.’ Many platforms now divert a portion of borrower interest payments into a ‘reserve fund’ used to protect investors from defaults, an arrangement that looks a lot like bank capital.”

“Soul Htite, the co-founder of Dianrong.com who previously co-founded US-based Lending Club, says that in an investing culture where defaults are rare, Chinese investors tend to choose products purely based on yield.”

“In the US we have a very good history of investing and people understand risk. (But) one problem we had in the first couple of years with Chinese investors is, we noticed that when you listed all the loans – this one yields 8% and another one yields 14% – people put all their money on the 14%. And we explained, ‘It’s not guaranteed, it might default.’ Still they put their money there. So that’s when we started forcing diversification on them.” – Soul Htite

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Gasoline Prices Around the World: The Real Cost of Filling Up 7/18

Business Insider – Hong Kong is ‘stuck between a rock and a hard place’ 7/23

FT – Brazil sees strong demand for bonds as market rallies 7/22

FT – Moscow’s building boom belies recession 7/22

FT – Thermal coal bears gripped by Chinese capacity squeeze 7/24

FT – Balance of power tilts from fossil fuels to renewable energy 7/25

FT – Chinese default exposes creditor anger at political interference 7/26

FT – Fossil fuels have had an aeon’s head start 7/26

NYT – Justice Dept. Rejects Account of How Malaysia’s Leader Acquired Millions 7/22

NYT – Uncle Sam Wants You – Or at Least Your Genetic and Lifestyle Information 7/23

NYT – Delusions of Chaos (Paul Krugman) 7/25

June 10 – June 16, 2016

The shipping world is about to change with the opening of new Panama Canal locks. U.S. shale reserves: now you see me, now you don’t.

Headlines

Briefs

    • “About 40 trillion yen ($365 billion) in cash has piled up in homes across Japan, according to a Dai-ichi Life Research Institute estimate – equivalent to about 8% of GDP.”
    • “What it means for 40 trillion yen to be sleeping under mattresses is that the deflationary mindset is deeply rooted, and Japanese have become hypersensitive to risk.” – Hideo Kumano, chief economist at Dai-ichi Life
    • This of course has been a boon to safe manufacturers, with “sales of safes in March were up 86% from a year earlier, the highest level ever, according to government data.”
    • “The People’s Bank of China has spent about $473bn in foreign exchange reserves since it surprised global markets last August by changing the way it sets its daily guidance rate for the currency, according to Financial Times estimates based on official data.”
    • As a central bank official so aptly put it “the most important factor is confidence, both globally and within China. The cost of intervention in terms of reserves has been high but this policy can’t be evaluated just in terms of numbers. Once confidence is lost it can’t be easily restored. Then a lot of bad things can happen.”
  • Shawn Donnan and Tom Mitchell of the Financial Times highlighted how concern over China’s corporate debt balances is spreading, even to the likes of the IMF.
    • “China’s corporate debt risks sparking a bigger crisis if the authorities fail to tackle it, the International Monetary Fund has warned.”
    • “Mr. Lipton (David Lipton – the IMF’s number 2) highlighted the state-owned enterprises, which he said were responsible for 55% of the corporate debt pile despite representing 22% of economic output and which ‘are essentially on life support.'”
    • “While concluding the issue is ‘manageable’, he warned that a recent IMF estimate that put the potential losses for China’s banks from bad corporate loans at 7% of GDP was a conservative estimate that excluded exposures in the ‘shadow banking’ sector.”
  • With declining investment yields the world over and an abundance of negative government debt, Attracta Mooney of the Financial Times points to how sovereign wealth funds have been piling into real estate to boost returns.  As an aside, Yahoo Finance drew attention to a recent Urban Land Institute PricewaterhouseCoopers survey that indicated that many U.S. real estate pros are not as enthusiastic about U.S. property as their foreign counterparts.
    • “State-backed investment vehicles, which are used by countries either to save for a rainy day or to provide money for future generations, increased their allocations to property by 29% last year, according to research looking at 77 sovereign funds with $8tn in assets.”
    • “The push into property comes as interest rates have reached record lows, forcing investors into alternative asset classes in the search for better returns.”
    • “Sovereign wealth funds posted average returns of 4.1% last year, despite having a combined target of 5.9%, according to Invesco, the asset manager that carried out the research.”
    • “The study did not provide a breakdown of returns by asset class, but Norway’s fund said in March it had achieved 10% returns from its investments in property last year. Fixed income, in contrast, returned just 0.3%.”
    • On an allocation basis, there is plenty of room for increased real estate commitments “property still accounts for a tiny proportion of sovereign funds’ portfolios: 6.5% last year, up from 4.1% in 2014, according to Invesco.”
  • Data is data. Sometimes it’s good and other times not so much. Further, interpretation varies and can be misleading as the Economist points out in why the weak jobs report belies the resilience of the American economy.
    • Despite the weak jobs report, things aren’t that bad in America. “Personal consumption, adjusted for inflation, is up by 3% in the past year, having surged in April.”
    • The University of Michigan’s consumer-confidence index has been exceeding the average held during the 2003-2007 boom. “According to a recent Fed survey, 69% of Americans say they are ‘doing okay’ or ‘living comfortably’, up from 62% in 2013.”

Special Reports

Graphics

FT – Stocks under pressure as bond yields rise 6/10

FT_JGB 10 year yield_6-10-16

FT – China spent $470bn to maintain confidence in renminbi – Gabriel Wildau and Tom Mitchell 6/12

FT_China spent $470bn to maintain confidence in renminbi_6-12-16

Mauldin Economics – Hot Summer Economic Weirdness – John Mauldin 6/11

Mauldin Economics_Race to Negative Bond Yields_6-11-16

WSJ – German Benchmark Bond Yield Dips Below Zero 6/14

WSJ_German 10-year bund drops below zero_6-14-16

The Big Picture – Foreigners selling US equities at record pace – Torsten Slok 6/15

Big Picture_Foreigners losing confidence in US equities_6-15-16

WSJ – China’s Suddenly Shrinking Corporate Bond Market 6/15

WSJ_China’s Suddenly Shrinking Corporate Bond Market_6-15-16

Visual Capitalist – The Shift to a Cashless Society is Snowballing – Jeff Desjardins 5/17

Visual Capitalist_Going Cashless Around the World_5-17-16

Bloomberg – China Dumping More Than Treasuries as U.S. Stocks Join Fire Sale 6/15

Bloomberg_China dumping US Stocks_6-15-16

Featured

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

Panama Canal, the Reboot. Alex Nussbaum, Naureen Malik, and Christopher Cannon. Bloomberg. 2 Jun. 2016.

“Nine years of construction work, at a cost of more than $5 billion, have equipped the Panama Canal with a third set of locks and deeper navigation channels, improvements that will double its capacity. When the new locks slide open for the first time in late June, the reverberations will be felt at Asian gas terminals, on Great Plains farms, and in ports from Long Beach, Calif., to Santiago, Chile.”

Bloomberg_Panama Canal, the reboot_6-2-16

Why Billions in Proven Shale Oil Reserves Suddenly Became Unproven. Asjylyn Loder. Bloomberg. 14 Jun. 2016.

“Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak.”

“Then came the bust. Almost half of Ultra’s reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion.”

“Proven reserves – gas and oil resources that are among the best measure of a company’s ability to reward its shareholders and repay its debts – are disappearing across the shale patch. This year, 59 U.S. oil and gas companies deleted the equivalent of 9.2 billion barrels, more than 20% of their inventories, according to data compiled by Bloomberg.  It’s by far the largest amount since 2009, when the Securities and Exchange Commission tweaked a rule to make it easier for producers to claim wells that wouldn’t be drilled for years.”

For reference, after the 2009 rule change “reserves surged 67%” in the following five years based on the 53 companies with records that far back.  “Almost half the gains came from wells that existed only on paper.”

“Drillers face pressure to keep reserves growing. For many, the size of their credit line is tied to the measure.” Thing is that “there are two ways to increase reserves: buy more or find more.  Fracking made it easier to do the latter, and the industry lobbied the SEC to count more undeveloped acreage as proved reserves…”

“The SEC agreed, with two key limits. First, the wells must be profitable to drill at a price set by an SEC formula. The companies got a temporary reprieve for 2014 because the SEC number was about $95 a barrel even though crude had plummeted to less than $50 by the time results were reported in early 2015.”

“That advantage has disappeared.”

“The SEC also requires that undeveloped wells be drilled within five years of being added to a company’s books.”

Other Interesting Articles

The Economist

Bloomberg – Earth’s Heat Extends Unprecedented Streak of Shattered Records 6/16

FT – Nigerian economy drops further into freefall 6/8

FT – Chinese tourists search far and wide for Japan’s rare whiskies 6/9

FT – The hedge fund fee structure consumes 80% of alpha 6/11

FT – Why hasn’t the productivity crisis caused a bear market (yet)? 6/12

FT – Tax rises on foreign homebuyers in Australia 6/13

FT – Japanese government bond yields fall to fresh lows 6/13

FT – MSCI A-shares denial sends Beijing clear message 6/15

FT – Gold is no safe port in this storm 6/15

FT – Uber points to profits in all developed markets 6/16

Herald News – Wood tower at the University of British Columbia a game-changer for construction 6/14

NYT – A Russian Cybersleuth Battles the ‘Dark Ages’ of the Internet 6/10

NYT – At the Birthplace of a Graft Scandal, Brazil’s Crisis Is on Full Display 6/10

NYT – The Overinflated Fear of Being Priced Out of Housing (Robert Shiller) 6/10

REBusiness Online – French Billionaire Buys Manhattan Office, Retail Building from Thor Equities for $525M ($5,250 PSF) 6/13

WSJ – These Chinese Developers Shed Property in Name Only 6/10

WSJ – China’s Banks: How Fixing Problems Can Make Them Worse 6/10

WSJ – China Economy: That Sputtering Sound Returns 6/13

WSJ – MSCI and China: Why There’s No Fear of Missing Out 6/15

Yahoo Finance – Real estate pros see recession by 2017, survey shows 6/16