Tag: Pensions

October 12, 2017

Perspective

Business Insider – Trump’s net approval rating has dropped dramatically in every state – Allan Smith 10/10

Brookings – White, still: The American upper middle class – Richard Reeves and Nathan Joo 10/4

Economist – A new study details the wealth hidden in tax havens 10/7

  • “…A new study by Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman, three economists, (using Bank for International Settlements data) concludes that tax havens hoard wealth equivalent to about 10% of global GDP. This average masks big variations. Russian assets worth 50% of GDP are held offshore; countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60-70% range. Britain and continental Europe come in at 15%, but Scandinavia at only a few per cent.”
  • “One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.”
  • “Accounting for offshore holdings suggests wealth inequality is even greater than was thought. In Britain, France, and Spain the top 0.01% of households stash 30-40% of their wealth in tax havens. In Russia, most of it goes there. In America, the share of wealth held by the richest 0.01% is as high today as in early 20th-century Europe. Including offshore data increases the wealth share of the super-rich.”
  • “Yet plenty of data are still missing. A few big centers, including Panama and Singapore, still do not disclose these statistics. The BIS data also cover only bank deposits, not the securities in which most offshore wealth is held. Researchers made estimates to plug the gap, but their figures are likely to be conservative.”

Worthy Insights / Opinion Pieces / Advice

NYT – How Israel Caught Russian Hackers Scouring the World for U.S. Secrets – Nicole Perlroth and Scott Shane 10/10

Economist – The bull market in everything – Leaders 10/7

Economist – A deathly silence: After the massacre in Las Vegas, nothing is set to change – Leaders 10/5

Economist – Politicians choosing voters: The Supreme Court ponders whether gerrymandering has gone too far 10/7

Economist – Chiang Kai-shek’s former homes are open to tourists 10/5

Markets / Economy

Economist – From Uber to kinder 10/7

Economist – American public pensions suffer from a gaping hole 10/5

  • “Schools in Pennsylvania ought to be celebrating. The state gave them a $125m budget increase for 2017-18—enough for plenty of extra books and equipment. But John Callahan of the Pennsylvania School Boards Association says all the increase and more will be eaten up by pension costs, which will rise by $164m this year. The same happened in each of the previous five years; cumulatively the shortfall adds up to $586m. The pupil-teacher ratio is higher than in 2010. Nearly 85% of the state’s school boards said pensions were their biggest source of budget pressure.”
  • “A similar squeeze is happening all over America. Sarah Anzia, at the University of California, Berkeley, examined 219 cities between 2005 and 2014 and found that the mean increase in their real pension costs was 69%; higher pension costs in those cities were associated with falls in public-sector employment and capital spending.”
  • “The problem is likely to get worse. Moody’s, a rating agency, puts the total shortfall of American public-sector pension plans at around $4trn. That gap does not have to be closed at once, but it does mean that contributions by employers (and hence taxpayers) will increase even more than they already have (see chart).”
  • “Higher costs are the result of improved longevity, poor investment returns and inadequate past contributions.”
  • As to making plans…
  • “Experts can differ, it seems. But small changes in assumptions can make a huge difference to the amount employers need to contribute. According to the National Association of State Retirement Administrators, cutting the return assumption by a quarter of a percentage point increases the required contribution rate (as a proportion of payroll) by two to three points.”
  • “In consequence, it is in no one’s interest to make more realistic assumptions about future returns. Workers (and their unions) fear it might generate calls for their benefits to be cut; states worry it would require them to raise taxes. Don Boyd, the director of fiscal studies at the Rockefeller Institute of Government, a think-tank, reckons that with a 5% assumed rate of return, states would have to stump up an extra $120bn a year just to tread water—i.e., to fund their pensions without making any progress on closing the deficit. So the game of ‘extend and pretend’ continues.”
  • “As years go by, voters and legislators across the country will have to make a trade-off. They can pay more taxes and cut services; or they can reduce the benefits they pay people who teach their children, police their streets and rescue them from fires. There will be no easy answers.”

Real Estate

WSJ – Daily Shot: John Burns RE Consulting – Home Refinancing 10/11

Health / Medicine

FT – Global childhood obesity rises 10-fold in 40 years – Clive Cookson 10/10

  • “The number of obese children and teenagers across the world has increased 10-fold over the past four decades and is about to overtake the number who are underweight, according to the most extensive analysis of body weight ever undertaken.”
  • “The study, led by Imperial College London and the World Health Organization, used data on 31.5m children and adolescents worldwide to estimate trends in body mass index (BMI) from 1975 to 2016. The results are published in the Lancet.” 
  • “Over this period the number of obese girls, aged 5 to 19, rose from 5m to 50m, while the total for boys increased from 6m to 74m.”
  • “The world’s highest childhood obesity levels are in the Pacific islands of Polynesia and Micronesia. Nauru has the highest prevalence for girls and the Cook Islands for boys: both above 33%.”
  • “Among wealthy countries, the US has the highest obesity rates for girls and boys of about 20%. Levels in most of western Europe are in the 7% to 10% range.” 
  • “A further 213m children are overweight but not sufficiently so to meet the WHO’s obesity criteria, which vary by age. Forty years ago, 0.8% of the world’s children were obese; now the prevalence is close to 7%.” 
  • “The study also looked at adult obesity, which increased from 100m people in 1975 to 671m in 2016. A further 1.3bn adults were overweight (with a BMI above 25) but below the threshold for obesity (BMI above 30).” 
  • “But the authors are most concerned about the findings about childhood obesity, because of their implications for public health many decades into the future.”

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

  • “Anecdotal evidence suggests that in some areas of the country, finding workers who can pass a drug test has been challenging.”

WSJ – Daily Shot: John Burns RE Consulting – Builder Labor Shortages 10/11

  • “Skilled (and drug-free) worker shortages in construction are especially acute.”

  • This will only get tighter in the continental U.S. as natural disasters continue to rack up, resulting in acute demand for labor in the affected areas. Harvey, Irma, Maria, Nate, and now wildfires in Northern California. Of course, this will have effects on the neighboring regional labor pools.

Shipping

Economist – How protectionism sank America’s entire merchant fleet 10/5

  • “In April 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.”
  • “Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fueled calls to repeal the law completely.”
  • Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport. Building a cargo ship in America can cost five times as much as in China or Korea, says Basil Karatzas, a shipping consultant. And the cost of operating an American-flagged and -crewed vessel is double that of foreign ones, reckons America’s Department of Transportation.”
  • “Inflated sea-freight rates push most cargo onto lorries, trains and aircraft, even though these are pricier and produce up to 145 times as many carbon emissions. So whereas 40% of Europe’s domestic freight goes by sea, just 2% does in America. Lacking overland routes, Alaska, Guam, Hawaii and Puerto Rico are hardest hit. Hawaiian cattle ranchers, for instance, regularly fly their animals to mainland America. A recent report by the Government Development Bank for Puerto Rico found that the Jones Act inflated transport costs for imports to twice the level of nearby islands.”
  • “Jones-Act shipowners retort that the rules are to help producers, not consumers. Rail firms lobbied for the 1920 law, out of fear that an excess of foreign ships from the first world war was flooding the market. National security was also cited. German submarine warfare, it was argued, showed the need for a merchant fleet built and crewed by Americans. But the law has virtually wiped out American shipping. Between 2000 and 2016 the fleet of private-sector Jones-Act ships fell from 193 to 91. Britain binned its Jones-Act equivalent in 1849. Its fleet today has over three times the tonnage of America’s. Marc Levinson, an economic historian (and former journalist at The Economist ) notes that the laws also made American container lines less able to compete on international routes. Drawn by profits at home they underinvested in their foreign operations, and fell behind their foreign rivals because they lacked the same scale.”
  • “Recognizing the harm to their domestic fleets, countries from Australia to China are loosening the rules protecting their fleets. Not America.”

Africa

Economist – The birthplaces of African leaders receive an awful lot of aid 10/7

  • “Scholars have long had a hunch that Chinese aid could be more easily manipulated than the Western sort, which often comes with strings attached. A Chinese white paper in 2014 stated that the government would not impose any ‘political conditions’ on countries asking for help. The commerce ministry, China’s lead aid agency, says most projects are initiated by recipient states. This approach makes aid more vulnerable to misuse by local leaders, say critics.”
  • “In a working paper, the pundits show that China’s official transfers to a leader’s birth region nearly triple after he or she assumes power. Even when using a stricter definition of aid provided by the OECD, a club of mostly rich countries, an increase of 75% was found. They got similar results when looking at the birthplaces of presidential spouses. Crucially, they found no such effect with aid doled out by the World Bank, their benchmark for Western assistance. ‘We believe Chinese aid is special,’ says Andreas Fuchs, a co-author of the study.”
  • “China’s approach to aid has other side-effects. In a paper released earlier this year, Diego Hernandez, an economist, showed that China’s rise as a development financier has increased competition between donors. This, in turn, has strengthened recipients’ bargaining power, says Mr Hernandez. Traditional donors have responded by lowering conditionality, or the number of strings attached to aid. Using data from 1980 to 2013, he finds that African countries have received 15% fewer conditions from the World Bank for every 1% increase in Chinese aid.”

September 15, 2017

If you were to read only one thing…

FT – To coin a craze: Silicon Valley’s cryptocurrency boom – Richard Waters 9/13

  • “So-called initial coin offerings, or ICOs, like this have turned into the year’s most striking financial craze. More than $1.8bn has been raised by software developers from the sale of new currencies with names such as Tezzies, Atoms and Basic Attention Tokens.”
  • “In unofficial online markets where these and other digital tokens are traded, the mania has hit even more bizarre levels. The value of Ripple — at five years, a cryptocurrency veteran — soared this year on a wider boom that was led by bitcoin. Ripple’s notional value, including coins held by the company for later sale, jumped from $500m at the start of the year to more than $35bn, before falling back to $19bn.”
  • “The boom in cryptocurrency prices has been fed by uncontrolled speculation, leading regulators to act. In recent days, Chinese authorities have banned ICOs and are now reported to be on the brink of shutting down all cryptocurrency exchanges. The Financial Conduct Authority, the UK regulator, warned anyone thinking of buying coins in an ICO that they should only do so if they are prepared to lose everything. Jamie Dimon, chief executive of JPMorgan, sent bitcoin prices down 10% on Tuesday when he called the currency a ‘fraud’ and threatened to sack anyone at his bank caught trading it.”
  • “But cryptocurrencies’ promoters argue that beyond the speculative mania, something profound is taking place. It has created a new way for start-ups developing platforms based on blockchain and other technologies to raise money, using online crowdfunding techniques.”
  • “Networks such as IPFS are based on a vision of decentralized online services where ordinary users interact directly with each other, rather than through internet companies that set themselves up as gatekeepers to the online world. According to the enthusiasts, many of the most popular internet applications could be remade in this way, leaving the control — and the profits — in the hands of the users.”
  • “But there is another view that draws on a different aspect of internet investment history. ‘There’s a tendency to turn the brain off and jump in. It’s like Pets.com [which shut down in 2000],’ says Mark Williams, a lecturer in financial risk management at Boston University. The speculation is being fed by a hype that is as insidious as the dotcom craze of the late 1990s, he says: ‘People are treating it like a lottery ticket.’”
  • “The value of the best-known digital currency, bitcoin, has risen eightfold in the past year. That has led to a hunt for the next untapped markets, lifting the notional value of all cryptocurrencies to more than $130bn. With nothing more needed to launch a coin sale than a ‘white paper’ — the document that coin promoters use to lay out their grand plans — and the promise of some computer code, the steady flow of ICOs in the past year has turned into a flood.”
  • “The boom, which began in early summer, is already exhibiting many of the characteristics of other speculative crazes. New coins have proliferated: more than 150 token sales have been conducted or announced this year. CoinMarketCap lists prices for about 1,100 coins, with more than 120 ICOs planned before the end of September.
  • “Celebrity endorsements have followed. Paris Hilton used Twitter to boost LydianCoin, a currency for a mooted advertising market that its backers hope will raise $100m. Boxer Floyd Mayweather got there before her, using the run-up to his late August bout with Conor McGregor to promote the prediction market Stox.com and content marketplace Hubii Network.”
  • “Underpinning new blockchain-based networks such as IPFS are protocols, or rules, embedded in software that govern how participants interact. At least in theory, many of the interactions that happen online, such as those on social networks, ecommerce sites and search engines, could take place between willing users on decentralized networks.”
  • “What supporters see as a profound financial innovation, however, others warn can be an easy route to creating funny money. When buyers have been so willing to purchase currencies issued on nothing more than the promise of a future market, it’s not surprising that so many are trying to mint new ones.”
  • “Selling coins has another advantage that the ICOs are less keen to highlight: it exploits a regulatory loophole. By selling a currency rather than shares they stay outside the scope of securities regulation, removing any constraints on how they market their offerings.”
  • “Regulators are working on closing this loophole. The US Securities and Exchange Commission said in July that it had determined that many coins were in fact a type of security, and would look at the underlying nature of each ICO to determine whether they should be regulated as securities.”
  • “For their creators, ICOs have another obvious attraction. They have made it possible to raise far larger amounts than start-ups can usually tap, at least as long as enough investors can be persuaded to suspend their disbelief.”
  • Caveat emptor.

Worthy Insights / Opinion Pieces / Advice

FT – China exploits the vulnerability of open democracy – Jamil Anderlini 9/13

  • “Soft targets like New Zealand are testing grounds for Chinese global espionage.”

WSJ – The Life of a Contractor Worker Is a Grind of Snubs, Anxiety and Stagnation – Lauren Weber 9/13

Bloomberg Businessweek – Kim’s Nukes Aren’t a Bargaining Chip. They’re an Insurance Policy – Michael Shuman 9/7

Markets / Economy

WSJ – Daily Shot: Moody’s – US State Pension Burdens 9-14

Environment / Science

NYT – Cassini’s Mission to Saturn in 100 Images – Jonathan Corum 9/14

WEF – Business Insider – This map reveals that temperatures have risen in nearly every US state over the last century – Leanna Garfield 9/13

Agriculture 

Bloomberg Businessweek – This High-Tech Vertical Farm Promises Whole Foods Quality at Walmart Prices – Selina Wang 9/6

August 22, 2017

Perspective

WSJ – Daily Shot: Business Insider – Most Popular Food Restaurants by State 8/21

Bloomberg – How Far Does $1 Million Go in Retirement – Suzanne Woolley 8/21

Bloomberg View – Trump-Friendly Idaho Doesn’t Put America First – Matthew Winkler 8/18

Worthy Insights / Opinion Pieces / Advice

The Registry – McNellis: Hollowing out the Museum – John McNellis 8/21

  • “(Housing) Density is like heaven: everyone wants to go to heaven, but no one wants to die.”

FT – Will China buy Saudi Aramco – Nick Butler 8/20

Markets / Economy

FT – More companies sell bonds to fund pension obligations – Eric Platt 8/20

  • “This is a Goldilocks moment for companies who want to fund their pensions given the hunger for yield and attractive returns today.” – Owais Rana, Conning (an investment management company)

Real Estate

Bloomberg – Manhattan Gets $20,000-a-Month Homes for New Breed of Seniors – Oshrat Carmiel 8/21

Shipping

WSJ – Daily Shot: Baltic Dry Index 8/18

  • Enough consolidation has occurred to the point that shipping costs are back up.

July 12, 2017

If you were to read only one thing…

Bloomberg News – Shoppers Can Buy Bad Debt on China’s Equivalent of Ebay – 7/11

  • “Used by millions of Chinese to buy everything from clothes to food and electronics, the platform (Taobao), known for its bargains, typically markets more than 1 billion yuan of soured assets a day, according to Bloomberg calculations. Recent listings include a portfolio of 118 non-performing loans from some companies in Yunnan province, a villa seized by a bank in the southern canal city of Shaoxing, and a property in central Beijing that’s also in default.”
  • “China’s embrace of e-retailing is helping it tackle another byproduct of the country’s rapid economic evolution: the rise of bad debt.”
  • “Slowing growth and an uptick in corporate defaults has fueled the market, with NPLs at commercial banks more than doubling over the past two years to 1.6 trillion yuan as of the end of March. As Beijing pushes lenders to find market-oriented ways of dealing with soured loans, interest in distressed debt has climbed, spurring banks and asset managers to look beyond traditional venues like auction houses and exchanges to dispose of the assets.”
  • “China Cinda Asset Management Co. — one of the country’s biggest distressed asset managers, and the firm marketing the steel company’s debt — said last month that it’s collaborating with Alibaba to set up a special section on Taobao to auction its wares.”
  • “Following Taobao’s lead, more than 50 other websites marketing their services to banks and other sellers of bad loans emerged in China in the first half of last year, according to a March report from PricewaterhouseCoopers LLP. More than 20 financial institutions are listed as partners on Taobao’s auction platform for soured assets, including Shenzhen-based Ping An Bank Co., Beijing’s China Minsheng Banking Corp. and China Citic Bank Corp.”
  • “E-commerce platforms provide access to more investors and the lender has garnered interest for assets marketed on Taobao that failed to yield inquiries offline. But while they can bring a level of transparency to bad loan trading, sites like Taobao also attract individual investors who don’t typically have the skills needed to do full due diligence on an NPL deal…”

Perspective

WSJ – Daily Shot: FRED – 2015 Median Household Income Adjusted by RPP 7/11

Bloomberg – America’s Pension Bomb: Illinois Is Just the Start – Laurie Meisler 6/30

  • “We’ve been hearing it for years: America’s public pensions are a ticking time bomb. Well, at long last, the state of Illinois is about to expose just how big this blowup could be. As of the 2015 fiscal year, Illinois had promised its employees $199 billion in retirement benefits. Right now, it’s $119.1 billion short. That gap lies at the center of a years-in-the-making fiscal mess that’s threatening to drop the state’s credit rating to junk-bond status. But Illinois is hardly alone. Connecticut and New Jersey—states that, to most of the world, seem like oases of prosperity—are under growing financial strain, too.”

Worthy Insights / Opinion Pieces / Advice

NYT – How We Are Ruining America – David Brooks 7/11

  • “Over the past generation, members of the college-educated class have become amazingly good at making sure their children retain their privileged status. They have also become devastatingly good at making sure the children of other classes have limited chances to join their ranks.”

Bloomberg Businessweek – The Next Job Humans Lose to Robots: Real Estate Appraiser – Joe Light 7/11

  • “Advances in big data at Zillow and elsewhere are helping automation creep into knowledge-based professions.”

Silicon Beat – World’s 10 least affordable housing markets include San Jose (least affordable in the US) and SF – Richard Scheinin 7/10

  • Using the Median Multiple (median house price / median household income), the Demographia International Housing Affordability Survey (2017) has ranked the following cities as the least affordable in the world.
  1. Hong Kong
  2. Sydney, Australia
  3. Vancouver, Canada
  4. Auckland, New Zealand
  5. San Jose, USA
  6. Melbourne, Australia
  7. Honolulu, USA
  8. Los Angeles, USA
  9. San Francisco, USA
  10. Bournemouth and Dorset, UK

Markets / Economy

WSJ – Daily Shot: FRED – US Consumer Credit as Percentage of GDP 7/11

WSJ – Daily Shot: FRED – US Student Loans Owned by Federal Govt 7/11

  • “Student loans owned directly by the government now total $1.1 trillion, representing about 30% of the overall consumer credit. Note that this figure does not include student debt that is guaranteed but not directly owned by the federal government.”

WSJ – Daily Shot: FRED – Nonrevolving Consumer Loans owned by Credit Unions 7/11

  • “Starting in 2013, credit unions have built up a sizeable auto loan portfolio. This is quite a bet on the US consumer for these small lenders.”

Real Estate

WSJ – Daily Shot: Calculated Risk – Number of Negative Equity Mortgages 7/11

China

FT – China trial paves way for ‘unhackable’ communications network – Yuan Yang 7/10

  • “Success of Jinan project points to commercial application for quantum communications.”

WSJ – Here Comes Another Chinese Company on a Buying Binge – Jacky Wong 7/10

  • “China wants its biggest, most acquisitive, highly leveraged companies to tone it down — apparently by selling assets to other big, acquisitive highly leveraged companies.”
  • Case in point, Sunac’s purchase of 76 hotels and 13 theme parks from Dalian Wanda.
  • “But the deal won’t reduce the overall risks in China’s financial system. Sunac has been loading up on debt over the past year as it bought land aggressively. Its net debt, including perpetual securities, had more than tripled in 2016 to $7.8 billion — more than twice its shareholders’ equity.”
  • “Sunac has just enough cash, including restricted cash, to finance the Wanda purchase, but that would more than double its net debt. This seems to defeat the purpose to contain runaway debt within China’s financial system. But unlike Wanda, Sunac has raised all debt to buy domestic land and properties, important drivers for China’s economy, instead of splurging on overseas assets.”
  • “Capital outflows, instead of leverage, are Beijing’s real worry.”

WSJ – Dalian Wanda Rides China’s Financial Merry-Go-Round with Latest Deal – Anjani Trivedi and Jacky Wong 7/11

  • “When it comes to managing debt burdens, Chinese companies know how to keep it all between friends.”
  • “In a maneuver that will reduce the need for external financing, Wanda is lending some 29.6 billion yuan ($4.4 billion) to Sunac to buy its own assets.”
  • “The structure of the loan is a typical example of so-called entrusted lending, a common form of shadow banking in China in which one company lends money to another. Because that isn’t strictly legal, such loans are arranged via a bank that acts as a middleman, often earning a cut of the deal for its pains. Entrusted lending has ballooned to account for some 10% of credit in China, led by cash-rich state-owned companies that have branched out to loans as they struggle to find growth in their core businesses.”
  • “With the current Sunac-Wanda deal, Sunac should book the loan as debt, although it could bury it in one of its many joint ventures. Wanda will presumably record the loan as an asset, meanwhile. The ultimate effect is that most of Wanda’s debts haven’t been dealt with; they have just been shifted elsewhere within China Inc.”
  • “Wanda is lending the cash cheaply too. The three-year loan will be at the benchmark lending rate, now around 5%. Typically such loans are priced at a premium, especially those to indebted borrowers like Sunac, which has an eye-popping net debt-to-equity ratio of over 160%.”
  • “Still, if one of your friends is helping you out, it is rude to make them pay over the odds.”

FT – Sunac receives fresh ratings warning after $9.3bn Wanda deal – Nicholas Megaw 7/11

July 6, 2017

Perspective

FT – China changes tack on ‘social credit’ scheme plan – Lucy Hornby 7/4

  • “Beijing delays licenses for country’s tech champions amid conflict of interest fears.”

WSJ – Ill-Funded Police Pensions Put Cities in a Bind – Heather Gillers and Zusha Elinson 7/4

  • “Police pensions are among the worst-funded in the nation. Retirement systems for police and firefighters have just a median 71 cents for every dollar needed to cover future liabilities, according to a Wall Street Journal analysis of data provided by Merritt Research Services for cities of 30,000 or more.”
  • “The combined shortfall in the plans, which are the responsibility of municipal governments, is more than $80 billion, nearly equal to New York City’s annual budget.”
  • “Broader municipal pension plans have a median 78 cents of every dollar needed to cover future liabilities, according to data from Merritt. The 100 largest U.S. corporate pension plans have 85% of assets needed on hand, according to Milliman Inc. data as of March 31.”
  • “And yet any attempt to bring police pensions into line with today’s municipal budgets and stock-market performance runs into the reality that many officers won’t stand for it—and they often have the public behind them.”

Worthy Insights / Opinion Pieces / Advice

FT – Apple has built an office for grown-ups – Lucy Kellaway 7/2

Markets / Economy

FT – Fed ready to begin unwinding stimulus ‘within months’ 7/5

Africa

Economist – South African mining is in crisis – 7/4

  • “The industry faces tough times, made worse by foolish policies.”

China

FT – Hyundai’s China sales plunge 60% amid ‘anti-Korea sentiment’ – Song Jung-a 7/4

  • “Hyundai Motor’s problems in China are worsening as China’s backlash over the deployment of a controversial US missile shield continues to dent sales in one of its key overseas markets amid heightened competition with fast-growing local automakers.”
  • “Hyundai said on Tuesday its China sales dropped 64% to 35,000 in June from a year earlier while Kia’s fell 58% to about 19,000 units. ‘Because of the anti-Korea sentiment, fewer Chinese are visiting our showrooms these days,’ said a company spokeswoman.”

June 6, 2017

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

Real Estate

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

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

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

Finance

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

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

China

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

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

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

Puerto Rico

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

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

South America

WSJ – Daily Shot: Brazil GDP 6/1

May 29, 2017

Worthy Insights / Opinion Pieces / Advice

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

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

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

Markets / Economy

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

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

Energy 

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

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

Finance

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

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

Canada

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

China

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

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

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

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