Tag: Puerto Rico

October 20 – October 26, 2017

Polluted waterways in India…

It’s a light posting – I’ve been out of pocket for the last several days. Regardless, I will catch up with the content from those days and mix it in with new content.

However, since I’ve had some mixed feed back, I would like to open it up in a poll. Do you prefer daily or weekly posts?

Headlines

FT – Pollution-related deaths exceed 9m per year 10/19. “…Equivalent to one in six of all deaths across the world.” Of which, 6.5m are from air pollution, 1.8m from water pollution, and 0.8m from pollution in the workplace.

FT – China lifts ban on Anbang sales of high-yield investment products 10/21. After being banned from selling new products in May, the insurance group (known for its purchase of the Waldorf Astoria in New York and a $6.5bn hotel portfolio from the Blackstone Group), has been enabled to get back to it.

NYT – Puerto Ricans Ask: When Will the Lights Come Back On? 10/19. “…80% of Puerto Rico still does not have electricity. Some residents have not had power for 45 days…”

Worthy Insights / Opinion Pieces / Advice

Politico – The Boomtown (Cape Coral, FL) That Shouldn’t Exist – Michael Grunwald 10/20

Perspective

National Geographic – These Are the World’s Happiest Places – Dan Buettner 10/18

NYT – A Boom in Credit Cards: Great News for Banks, Less So Consumers 10/19

National Geographic – Where to Find The Good Life – Manuel Canales & Kennedy Elliott 10/18

Real Estate

13D Research – The destabilizing truth of the retail apocalypse: it’s more about inequality than e-commerce – 10/5

Asia – excluding China and Japan

NYT – Myanmar, Once a Hope for Democracy, Is Now a Study in How It Fails 10/19

Europe

FT – EU opens investigation into Chinese e-bike dumping – Michael Pooler 10/20

Featured

WSJ – The World’s Next Environmental Disaster – Krishna Pokharel and Preetika Rana 10/20

  • “The Yamuna River that flows through this ancient city has helped sustain some of India’s greatest empires. Hindu poets celebrated its life-giving properties. The Mughal dynasty built the Taj Mahal and other monuments along its banks.”
  • “Today, the Yamuna is a foul sludge for much of its 855-mile run. In Delhi, it is black and nearly motionless, covered in many areas with a foam of industrial chemicals, floating plastic and human waste.”
  • “Every 100 milliliters of the Yamuna in Delhi contains 22 million fecal coliform bacteria, up from 12,250 in 1988, scientists say. Anything over 500 is unsafe for bathing, India’s government says. The comparable standard in Vermont is 235.”
  • “Illnesses ranging from diarrhea to brain worms are reported along the river’s edges. By the time the Yamuna exits Delhi, it is so defiled that scientists have declared the next 300 miles ‘eutrophic,’ or incapable of sustaining animal life.”
  • “For years, global environmentalists have focused on China, whose rapid industrialization made it one of the world’s most polluted major nations. Now it’s India’s turn.”
  • “Unlike China, which has become wealthier and is starting to clean up, India is in the early stages of industrial growth. It is following the same road China took to get richer, meaning more factories and cars. Yet, it already has some of the world’s worst environmental problems.”
  • “A government report in 2015 found that 275 of 445 rivers in India are severely polluted, including the Ganges. An international nonprofit, WaterAid, says 70% of India’s surface water is contaminated. Diarrhea, often caused by drinking bad water, is the fourth-leading cause of death in India, ahead of any cancer, and kills far more people than in China, which has a larger population.”
  • “Greenpeace says that in 2015, the average Indian was subjected to more air pollution than the average Chinese for the first time, as China’s ‘systematic efforts’ to improve air have started working. A 2016 WHO report found that 10 out of the world’s 20 most polluted cities were in India, based on residents’ exposure to deadly small particulate matter.”
  • “One reason India is an environmental mess at such an early stage of its development is that it has failed to master the basic services of sewage and water treatment which some other developing nations addressed when incomes rose.”
  • “Of the over 16 billion gallons of sewage that India produces every day, 62% ends up on nearby water bodies untreated, according to the Central Pollution Control Board, a federal pollution monitor.”
  • “Many Indian cities that built wastewater treatment systems don’t fully use them because of electricity shortages or other problems. Several others haven’t built them at all.”

October 9, 2017

Perspective

NYT – Nothing Divides Voters Like Owning a Gun – Nate Cohn and Kevin Quealy 10/5

Worthy Insights / Opinion Pieces / Advice

NYT – For Many on Puerto Rico, the Most Coveted Item is a Plane Ticket Out – Jack Healy and Luis Ferre-Sadurni 10/5

A Wealth of Common Sense – Good Advice vs. Effective Advice – Ben Carlson 10/5

WP – The troubling case of the young Japanese reporter who worked herself to death – Eli Rosenberg 10/5

WSJ – Income Investors: It’s OK to Be Sad, But Don’t Get Desperate – Jason Zweig 10/6

  • “Old bull markets don’t produce new ideas. They just produce new ways for investors to hurt themselves with old ideas.”
  • “With stocks at record highs and the income on bonds not far from record lows, circumstantial evidence suggests investors are getting restless — if not desperate.”
  • “Chasing ‘yield,’ or trying to get higher investment income, is one form of desperation. Last month, $1.6 billion in new money poured into exchange-traded funds holding high-yield corporate bonds, according to FactSet.”
  • “A recent survey of 750 individual investors by Natixis Global Asset Management found that they ‘need’ returns of 8.9%, after inflation, to reach their financial goals. In the same survey last year, investors said they needed a mere 8.5%. Since 1926, the return on U.S. stocks after inflation has averaged about 7% annually, according to Morningstar.”
  • “Such hankering for unrealistic returns can prompt investors to take imprudent risks. Just about any get-rich-quick story can look tempting.”
  • “This past week, an obscure Nasdaq-listed company called Bioptix, which had been licensing fertility hormones for cows, horses and pigs, announced that it was getting into the cryptocurrency business and changing its name to Riot Blockchain. The stock nearly doubled over its levels a week earlier.”
  • “This reminds market veterans of the dozens of companies that changed their names to include ‘Internet’ or ‘.com’ in 1998 and 1999. They outperformed comparable firms by an average of 53 percentage points in the five days surrounding the announcement of a name change, a study found in 2001.”
  • “Consider, too, Strategic Student & Senior Housing Trust, Inc., a firm in Ladera Ranch, Calif., looking to raise $1.1 billion to buy properties that serve college students and the elderly around the U.S.”
  • “Strategic’s prospectus for the offering, filed with the Securities and Exchange Commission on Sept. 26, says the firm will seek to ‘provide regular cash distributions to our investors’ and to sell out, merge with another company or go public within three to five years.”
  • “In the meantime, public investors are being asked to pay up to $10.33 for shares that the company has been selling to a select group of private investors for $8.50. Commissions and fees can exceed 10%, depending on the class of shares.”
  • “Strategic, which commenced operations only on June 28, is a ‘blind pool,’ meaning that the firm hasn’t yet determined what it will invest the proceeds of the offering in. Investors thus can’t ascertain the quality of the assets their money will buy. Strategic’s prospectus also says: ‘There is currently no public market for our shares and there may never be one’.”
  • “At times like these, reaching for yield and taking bigger risks might pay off for a few speculators in the short run. Investors, however, should hoard their cash and remember that in the long run it doesn’t pay to chase returns greater than the markets can realistically provide.”

Bloomberg View – A Volatility Trap Is Inflating Market Bubbles – Alberto Gallo 10/5

FT – Puerto Rico’s recovery depends on debt forgiveness – Gillian Tett 10/5

  • “Either way, the saga should be a wake-up call to investors. Yes, hurricanes may be rare. But Puerto Rico is not the only arena in which asset managers have chased after high yields with scant regard for risk. Just look at emerging markets and the high yield corporate bond world. If the tragedy in Puerto Rico shakes investors out of their complacency, that would be a thoroughly good thing — and long overdue.”

Markets / Economy

Yahoo Finance – U.S. economy loses jobs in September for first time 2010 – Myles Udland 10/6

Bloomberg Businessweek – Warren Buffett and Truck Stops Are a Perfect Match – Tara Lachapelle 10/3

Energy

Bloomberg – Solar Grew Faster Than All Other Forms of Power for the First Time – Anna Hirtenstein 10/4

  • “Solar power grew faster than any other source of fuel for the first time in 2016, the International Energy Agency said in a report suggesting the technology will dominate renewables in the years ahead.”
  • “The institution established after the first major oil crisis in 1973 said 165 gigawatts of renewables were completed last year, which was two-thirds of the net expansion in electricity supply. Solar powered by photovoltaics, or PVs, grew by 50%, with almost half of new plants built in China.”
  • “The IEA expects about 1,000 gigawatts of renewables will be installed in the next five years, a milestone that coal only accomplished after 80 years. That quantity of electricity surpasses what’s consumed in China, India and Germany combined.”
  • “The surge of photovoltaics in China is largely due to government support for renewables, which are being demanded by a population concerned about air pollution and environmental degradation that has led to deadly smogs. The country is seeking to reduce its reliance on coal and has become the world’s largest market for renewables, particularly solar.”
  • “’The solar PV story is a Chinese story,’ said Paolo Frankl, head of the IEA’s renewable energy division. ‘China has been for a long time the leader in manufacturing. What’s new is the share in the market. This year, it was equivalent to the total installed capacity of PV in Germany.’”
  • “The U.S. and India are among other nations pushing renewables. They along with China are projected to make up two-thirds of the clean-energy expansion worldwide. Despite President Donald Trump’s vow to bolster coal’s position in the power market, the U.S. is expected to be the second-largest market for renewables.”

Finance

WSJ – Daily Shot: Evercore ISI – US Corporate Debt as Percentage of GDP 10/6

VC – The Trillion Dollar Club of Asset Managers – Jeff Desjardins 10/6

Health / Medicine

NYT – As Overdose Deaths Pile Up, a Medical Examiner Quits the Morgue – Katharine Q. Seeyle 10/7

Other Links

VC – U.S. Interstate Highways, as a Transit Map – Jeff Desjardins 10/6

October 4, 2017

Perspective

USA Today – $5 to access your own money? ATM fees jump to record high and these cities are the worst – David Carrig 10/2

  • “Among the top 25 metropolitan areas, Pittsburgh residents encountered the highest fees. The top 25 metro areas with the highest average ATM fee, according to Bankrate.com:
    1. Pittsburgh: $5.19
    2. New York: $5.14
    3. Washington D.C.: $5.11
    1. Cleveland: $5.11
    2. Atlanta: $5.05″

Vox – These charts show Fox News really did ignore Puerto Rico’s crisis – Alvin Chang 10/2

Vox – Gun violence in America, explained in 17 maps and charts – German Lopez 10/2

VC – The Most Congested Cities in the World – Jeff Desjardins 10/3

Worthy Insights / Opinion Pieces / Advice

NYT – Nothing Will Change After the Las Vegas Shooting – Steve Israel 10/2

Bloomberg – Puerto Rico Governor’s Dire Warning: Millions May Flee the Island – Jonathan Levin 10/3

  • “You’re not going to get hundreds of thousands of Puerto Ricans moving to the states – you’re going to get millions.” Puerto Rican Governor Ricardo Rossello

Markets / Economy

WSJ – Hurricane Maria Packs a One-Two Punch for Insurance – Paul J. Davies 10/3

China

WSJ – China, With Methodical Discipline, Conjures a Market for Electric Cars – Trefor Moss 10/2

  • “In the U.S. and elsewhere, there is some skepticism about whether electric vehicles will be a significant market soon. China has made up its mind. One goal is to curb pollution and reduce reliance on foreign oil. China’s chief aim, though, is to use the emerging electric market to improve the patchy quality of its domestic auto makers. To that end, it is using industrial-policy measures to create a giant test bed for its companies’ designs and technology.”
  • “Already, Chinese-made models dominate. More than 100 electric models are on the domestic market. Sales of plug-in passenger vehicles reached 351,000 in 2016—nearly half the global total, according to EV-Volumes, a research group that tracks electric-car sales.”
  • “Foreign manufacturers were already making millions of gasoline cars in China annually, but they had held off building electric cars in the country until recently, and imports were discouraged by a 25% tariff. Bill Russo, a former Chrysler executive who is now managing director of auto consultancy Gao Fung Advisory Co. in Shanghai, said they had been reluctant to plunge into a market that didn’t yet offer significant scale.”
  • “Hints of scale are appearing. Sales of plug-in passenger cars in China have increased 40% this year, EV-Volumes said. They will make up 22% of Chinese auto purchases by 2025, projects Bernstein Research, up from 1% to 2% this year.”
  • “Volkswagen AG was firmly committed to diesel engines until it recently announced a sharp shift to embrace electric vehicles after its diesel-emissions scandal forced it to rethink strategy. China accounts for half its revenues, and VW Chief Executive Matthias Müller at last month’s Frankfurt auto show indicated China will help drive VW’s global transformation: ‘China and California are leading the way.’”
  • “Propelled by a China sales target of 1.5 million annual electric cars by 2025, VW will invest $83 billion rolling out 300 electric models world-wide by 2030, he said.”
  • “Some auto makers wonder if China’s electric-car demand growth will slow as the government dials back subsidies, as it has begun doing.”
  • “China began actively promoting electric cars in 2009 by introducing subsidies and setting sales targets. Sales began to take off in 2013. Electric vehicles took center stage in China’s industrial strategy with the 2015 launch of the Made in China 2025 plan, which calls for China to become a world leader in 10 future industries, including electric-vehicle production. China has provided $8 billion in subsidies so far.”
  • “China has gone a step beyond with its incentives. Authorities have guaranteed sales for Chinese makers, in part by buying vehicles for public fleets. Beijing’s municipal government has earmarked $1.3 billion to replace 70,000 city taxicabs with electric models.”
  • “China will have 4.8 million charging points by 2020, the government forecasts, up from 156,000 in March. The U.S. had 43,000 points in June, according to a University of Michigan study.”
  • “At those rates, China has roughly one charging point for every six electric cars, versus about one for every 17 in the U.S. and Norway.”
  • “Beijing’s most persuasive tool—and a reason foreign makers are eager to start producing in China—is restricting license plates for new gasoline-powered cars in seven cities. In Beijing, more than 11 million people typically enter a monthly lottery for 14,000 gasoline-car plates. Shanghai auctions them to the highest bidders. Electric-vehicle buyers in the cities can get tags almost instantly at no cost.”
  • Essentially, cars are going to happen. China has decided.

October 2, 2017

If you were to read only one thing…

Reuters – Chaos and hackers stalk investors on cryptocurrency exchanges – Steve Stecklow, Alexandra Harney, Anna Irrera and Jemima Kelly 9/29

  • “Online exchanges for trading bitcoins and other virtual currencies can make fortunes for their owners. But they are largely unregulated, besieged by hackers and thieves, and fraught with risk for consumers.”
  • “Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions, but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, a Reuters examination shows, posing an underappreciated risk to anyone who trades digital coins.”
  • “Huge sums are at stake. As the prices of bitcoin and other virtual currencies have soared this year – bitcoin has quadrupled – legions of investors and speculators have turned to online exchanges. Billions of dollars’ worth of bitcoins and other cryptocurrencies – which aren’t backed by any governments or central banks – are now traded on exchanges every day.”
  • “’These are new assets. No one really knows what to make of them,’ said David L. Yermack, chairman of the finance department at New York University’s Stern School of Business. ‘If you’re a consumer, there’s nothing to protect you.’”
  • “There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4 billion. Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation.”
  • “Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400 million.”
  • “So-called ‘flash crashes’ – when cryptocurrencies suddenly plummet in value – are also a threat. Unlike regulated U.S. stock exchanges, cryptocurrency exchanges aren’t required to have circuit breakers in place to halt trading during wild price swings. Digital coin exchanges are also frequently under assault by hackers, resulting in down times that can sideline traders at critical moments.”
  • Caveat emptor.

Perspective

Vox – What every American needs to know about Puerto Rico’s hurricane disaster – Brian Resnick and Eliza Barclay 9/29

  • “3.4 million US citizens live in Puerto Rico, and they are entitled to the same government response as any state. But half of Americans don’t even know that.”
  • “Puerto Ricans have been citizens of the United States since 1917, when President Woodrow Wilson signed the Jones-Shafroth Act. Citizens mean citizens. Puerto Ricans can travel freely to and from the continental United States without a passport. They’re protected by the same Bill of Rights as anyone else born in the United States. They vote in presidential primaries.”
  • “The island does not get electoral votes in general presidential elections. It also does not have voting representatives in Congress. Jenniffer González-Colón serves as resident commissioner of Puerto Rico, a non-voting member of the US House of Representatives.”
  • “If Puerto Rico were a state, it would be the 30th most populated — with more people than Wyoming, Vermont, and Alaska combined.”
  • “This hurricane season has been punishing for Puerto Rico. First, it got clipped by Hurricane Irma, a huge Category 5 storm whose eye passed just north of the island. That storm — which had ravaged several Caribbean islands — left 1 million people without power on Puerto Rico. By the time Maria hit, 60,000 people were still without electricity. That means there are many people on the island who haven’t had power for 20 days (Irma passed by on September 7).”
  • “Maria was a slightly smaller storm, but it was far, far more devastating. That’s because it charted a course directly over Puerto Rico, hit near its peak intensity, and passed around 25 miles away from San Juan, the capital, which is home to about 400,000 people. No nation or territory could suffer such a direct hit without some damage.”
  • “’It was as if a 50- to 60-mile-wide tornado raged across Puerto Rico, like a buzz saw,’ Jeff Weber, a meteorologist with the National Center for Atmospheric Research, says. ‘It’s almost as strong as a hurricane can get in a direct hit.’”
  • “By the record books, it was the fifth-strongest storm ever to hit the US, and the strongest storm to hit the island in 80 years.”
  • “Exact figures on the extent of the damage and the costs of repairs on the island are not yet known. This is partly due to the fact that communications on the island are strained. But it’s also because many roads are damaged and it’s hard to get around. AIR Worldwide, a catastrophe risk consultancy, estimates the storm caused $40 billion to $85 billion in insurance claims throughout the Caribbean, with 85% of those losses in Puerto Rico.”
  • “It could be four to six months before power is fully restored on the island. That’s half a year with Puerto Rico’s 3.4 million residents relying on generators, half a year without air conditioning in the tropical climate, half a year that electric pumps can’t bring running water into homes, half a year when even the most basic tasks of modern life are made difficult.”
  • “PREPA, the electric company on the island, has a massive $9 billion debt, as Vox’s Alexia Fernández Campbell has explained, and in July it defaulted on an interest payment. For years, it hasn’t had the money to invest in modernizing Puerto Rico’s electrical systems. Even without hurricanes, power outages are frequent on the island. Making things worse: There aren’t enough workers to fix the infrastructure. Young people have been leaving the island in droves as the economy has tightened, and older workers have been retiring en masse, securing their pensions.”
  • “No electricity means no power to pump water into homes, no water to bathe or flush toilets. FEMA said Saturday that 55% of people on the island still are without potable water.”
  • “The storm knocked out 1,360 out of 1,600 cellphone towers on the island. Many communities have been isolated from the outside world for days, relying only on radios for news.”
  • It’s bad. And of course, Puerto Rico is not alone. “The island of Barbuda has been completely abandoned, and residents still can’t return home. Twenty-seven people died in Dominica. And 48,000 people are still without power in the US Virgin Islands.”

Worthy Insights / Opinion Pieces / Advice

NYT – For Homeless Advocates, a Discouraging Lesson in Los Angeles: Money Is Not Enough – Adam Nagourney 9/29

Markets / Economy

FT – Value of private equity dealmaking at highest level since 2007 – Javier Espinoza, Robert Smith, and Arash Massoudi 9/28

Real Estate

WSJ – Daily Shot: UBS Global Real Estate Bubble Index 9/29

Finance

FT – South Korea joins global backlash against initial coin offerings – Bryan Harris and Edward White 9/29

  • “Country is latest to ban the fundraising platform involving digital currencies.”

Health / Medicine

Bloomberg – This State Has the Best Health Care in America – Vincent Del Giudice and Wei Lu 9/28

  • Hint, according to Bloomberg, it’s Hawaii.

Sovereign Wealth Funds

FT – SWFs pull money from asset managers for 12th consecutive quarter – Jennifer Thompson 9/29

  • “Sovereign wealth funds have withdrawn billions of dollars from asset managers for a 12th consecutive quarter as low oil prices continue to take their toll. The net amount repatriated in the past three years has reached $182bn.”
  • “The state-backed funds, which many oil-rich nations use to save for a rainy day or to provide money for future generations, withdrew a net $6bn in the three months to the end of June, according to eVestment, the data provider.”
  • “Redemptions by SWFs began in the latter half of 2014, shortly after a glut in oil supply, due to increased US shale production, triggered a sharp drop in the oil price.”
  • “However, disenchantment with high fees charged by fund managers as well as a desire by some state-backed vehicles to put cash to work themselves are additional inducements for SWFs to take back control.”
  • “There are signs of moderation. The net outflow in the second quarter of 2017 was below the quarterly average of the past three years, which has been around $15.1bn every three months.”

September 26, 2017

If you were to read only one thing…

NYT – How Did Marriage Become a Mark of Privilege? – Claire Cain Miller 9/25

  • “Marriage, which used to be the default way to form a family in the United States, regardless of income or education, has become yet another part of American life reserved for those who are most privileged.”
  • “Fewer Americans are marrying over all, and whether they do so is more tied to socioeconomic status than ever before. In recent years, marriage has sharply declined among people without college degrees, while staying steady among college graduates with higher incomes.”
  • “Currently, 26% of poor adults, 39% of working-class adults and 56% of middle- and upper-class adults are married, according to a research brief published today from two think tanks, the American Enterprise Institute and Opportunity America. In 1970, about 82% of adults were married, and in 1990, about two-thirds were, with little difference based on class and education.”
  • “A big reason for the decline: Unemployed men are less likely to be seen as marriage material.”
  • “As marriage has declined, though, childbearing has not, which means that more children are living in families without two parents and the resources they bring.”
  • “’The sharpest distinction in American family life is between people with a bachelor’s or not,’ said Andrew Cherlin, a sociologist at Johns Hopkins and author of Labor’s Love Lost: The Rise and Fall of the Working-Class Family in America.”
  • “Just over half of adolescents in poor and working-class homes live with both their biological parents, compared with 77% in middle- and upper-class homes, according to the research brief, by W. Bradford Wilcox and Wendy Wang of the Institute for Family Studies. 36% of children born to a working-class mother are born out of wedlock, versus 13% of those born to middle- and upper-class mothers.”
  • “The research brief defined ‘working class’ as adults with an adjusted family income between the 20th and 50th percentiles, with high school diplomas but not bachelor’s degrees. Poor is defined as those below the 20th percentile or without high school diplomas, and the middle and upper class as those above the 50th percentile or with college degrees.”
  • “Americans across the income spectrum still highly value marriage, sociologists have found. But while it used to be a marker of adulthood, now it is something more wait to do until the other pieces of adulthood are in place — especially financial stability. For people with less education and lower earnings, that might never happen.”
  • “Evidence shows that the struggles of men without college degrees in recent years have led to a decline in marriage. It has been particularly acute in regions where well-paying jobs in male-dominated fields have disappeared because of automation and trade.”
  • “’A bad economy lowers the cost of having bad values — substance abuse, engaging in crime, not looking for a job right away,’ said Gordon Hanson, an economist at the University of California, San Diego, who wrote the paper with David Autor of M.I.T. and David Dorn of the University of Zurich.”
  • “Never-married adults cite financial instability as a major reason for being single, especially those who are low-income or under 30, according to a new Pew Research Center survey. Most men feel it’s important for a husband to be a financial provider, especially men without college degrees, according to another new Pew survey.”
  • “Women, meanwhile, have learned from watching a generation of divorce that they need to be able to support themselves. And many working-class women aren’t interested in taking responsibility for a man without a job.”
  • “’They say, ‘If he’s not offering money or assets, why make it legal?’’ said June Carbone, a law professor at the University of Minnesota and the author with Naomi Cahn of Marriage Markets: How Inequality Is Remaking the American Family.”
  • “While researchers say it’s stability, not a marriage license, that matters for children, American couples who live together but don’t marry are generally less likely to stay committed.”
  • Clearly changing this momentum will take a lot. From an improved economy to strengthened cultural supports. A recommendation from Mr. Wilcox – “a bigger emphasis in high schools and pop culture on what’s known as the success sequence: degree, job, marriage, baby. ‘The idea is that if people follow that sequence, their odds of landing in poverty are much lower.'”

Perspective

NYT – The Best Investment Since 1926? Apple – Jeff Sommer 9/22

  • “The iPhone helped to catapult Apple into its position as the world’s most valuable publicly traded company. But now Apple has another and, arguably, more exalted stock market distinction.”
  • “In the history of the markets since 1926, Apple has generated more profit for investors than any other American company.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Ray Dalio and the Market’s Pulse – Andy Kessler 9/24

  • “The core of investing is quite simple: Determine what everyone else thinks, and then figure out in which direction they are wrong. That’s it. No one tells you what they think. You’ve got to feel it.”
  • “It’s all about figuring out what is priced into a stock right now. That’s the pulse of the market, the collective mind meld aggregated into stock prices. I know from experience this is the hardest part of running a hedge fund. You can find the greatest story ever, but if everyone already knows it, there’s no money to be made.”
  • “And the pulse changes with each government statistic, each daily ringing of cash registers and satellite images taken of parking lots. That’s why stocks trade every day. Real-world inputs and the drifting pulse drive the psychotic tick of the stock market tape. Once you feel the pulse, then and only then can you figure out how everyone’s wrong about tomorrow, next month or next year. And believe me, they’re always wrong. Stocks rarely tread water.”
  • “How do you find that pulse? It’s hard enough to invest your IRA. Can you image managing $160 billion?”

FT – Plentiful oil will sustain the age of hydrocarbons – Nick Butler 9/24

  • “The aggregate message is that there is no shortage. Sporadic spikes and volatility will be driven by political instability but demand can be supplied at a relatively high level for many years to come. Oil is not going away any time soon. That will comfort those companies that are unprepared for the energy transition but is more disturbing in terms of emissions and climate change.”
  • “David Howell, the UK’s former energy secretary, writes in the new edition of his fascinating book on energy policy that there is a fundamental conflict between different views of the energy future — what he describes as the Black and the Green. That conflict will shape the public debate on energy for a long time to come. The age of hydrocarbons is far from over.”

Bloomberg Gadfly – Harvard Should Ignore the Freshman Slump – Nir Kaissar 9/25

  • “It doesn’t take fancy consultants to spot the problem. Harvard abandoned one of the stalwart adages in finance: Pick an investment philosophy and stick to it. With its revolving door of chief executives, the endowment has been anything but stable.”

Inc. – 6 High-Performance Habits Only the Most Extraordinary People Share, Backed by Science – Jeff Haden 9/19

Markets / Economy

WSJ – Daily Shot: Consumer Staples Selloff 9/25

  • Consumer push back against food incorporated.

Examples…

WSJ – Daily Shot: General Mills, Inc Stock Price 9/25

WSJ – Daily Shot: Kellogg Company Stock Price 9/25

WSJ – Daily Shot: Kraft Heinz Stock Price 9/25

FT – The return of the stock picker – Robin Wigglesworth 9/24

Energy

Bloomberg – In World’s Hottest Oil Patch, Jitters Mount That a Bust Is Near – Dan Murtaugh 9/25

  • “Ups and downs are so ingrained in this business that crazy success in the Permian Basin is seen as an omen that a crash looms.”

Finance

WSJ – The Global Stock Market’s Hidden Juice – Paul J. Davies 9/24

  • “One common sign of trouble ahead is people borrowing heavily to buy equities.”
  • “Investors should be worried then that stocks are being supported by record amounts of margin debt, according to research released last week from the Bank for International Settlements, the Switzerland-based central bank for central banks.”
  • “These kinds of loans secured against stocks have often proved dangerous in a downturn because when share prices fall borrowers are forced to sell.”
  • “In the U.S., margin debt is more than three-times the level ahead of the 2008 crisis and is greater even than its peak in 2000 before the dot-com crash, according to the B.I.S.”
  • “However, lending volume alone isn’t a clear indicator of risk because equity values have increased, too. In the U.S. at least, lending as a share of market capitalization has been relatively steady for the past four years, most recently at 2.12%. But that level is much higher than the period before 2007 and above even the dotcom-era peak of 2.05%.”
  • “Rich clients’ desire to borrow against stocks has been stoked by the low interest rates and rising stock markets. It is attractive for banks, too. Lending against shares is seen as less risky than mortgages because stocks can be sold more quickly than a house, so banks can hold less capital against margin loans. Also, if the borrowed money is invested with the bank, rather than spent on yachts or cars, that boosts assets under management.”
  • “The banks themselves all say that while lending looks high, their own approach is conservative and the general competition for clients is less aggressive than in the past. But neither the banks nor their investors have a full view of leverage across the system and the risk that may pose.”
  • “Equities have to fall 20% to 30% before margin loans are underwater. That protects the banks, but doesn’t stop a wave of selling to repay debt when a downturn comes. That could spell real pain for everyone else.”

WSJ – Leveraged Loans Are Back and on Pace to Top Pre-Financial Crisis Records – Christopher Whittall 9/24

Construction

San Gabriel Valley Tribune – California construction workers are among the highest paid in the nation – Kevin Smith 9/24

  • “Construction workers in California are among the highest paid in the nation, according to figures from the Bureau of Labor Statistics.”
  • “Fixr.com, an online website that provides cost guides, comparisons and other information for people looking to do remodeling or repair projects, crunched the Bureau of Labor Statistics numbers to create a state-by-state ranking of average hourly wages for workers in the industry.”
  • “California landed 10th on the list of the 10 Highest Wage States, with average hourly earnings of $21.26. Connecticut and Washington ranked just above California with slightly higher pay, and Hawaii and Illinois were tied for the top slot. Construction workers in both of those states earn an average of $27.01 an hour.”
  • “Massachusetts, followed with $25.84 an hour and New Jersey ranked fourth with an average hourly wage of $24.05. Construction workers in Arkansas are hurting the most, according to the report, as their average wage is just $12.38 an hour.”
  • “The national average wage for construction workers is $18.22 an hour, which equates to $37,897 a year. In California, construction workers earn an average of $44,221 a year.”
  • “Mike Balsamo, CEO of the Building Industry Association of Southern California, isn’t surprised that California ranks near the top. But he said wages can be considerably higher for someone with specific skills and more experience.”

China

NYT – As China Piles on Debt, Consumers Seek a Piece of the Action – Keith Bradsher and Ailin Tang 9/25

  • Get Chinese citizens to adopt the consumer and debt habits of the Americans. This has always been the goal – at least for the MNCs (Multi-National Corporations) and it takes a burden off the central government in regard to boosting demand.

FT – China property developers dip on new sales restrictions – Hudson Lockett 9/24

  • “Hong Kong-listed developers saw share prices drop on Monday as investors reacted to new property sales restrictions imposed across eight major Chinese cities in response to rising house prices.”
  • “The cities of Changsha, Chongqing, Guiyang, Nanchang, Nanning, Shijiazhuang, Wuhan and Xi’an had all tightened controls on housing sales since Friday, with state news agency Xinhua stating most had banned sales within two to three years of purchase.”
  • “Authorities in Shijiazhuang imposed particularly strict limits, requiring home buyers to wait for five years before reselling property.”

Puerto Rico

NYT – Puerto Rico’s Agriculture and Farmers Decimated by Maria – Frances Robles and Luis Ferre-Sadurni 9/24

  • “There is no more agriculture in Puerto Rico. And there won’t be any for a year or longer.” – Jose A. Rivera, farmer
  • “In a matter of hours, Hurricane Maria wiped out about 80% of the crop value in Puerto Rico — making it one of the costliest storms to hit the island’s agriculture industry, said Carlos Flores Ortega, Puerto Rico’s secretary of the Department of Agriculture.”
  • “Plantain, banana and coffee crops were the hardest hit, Mr. Flores said. Landslides in the mountainous interior of the island took out many roads, a major part of the agriculture infrastructure there.”
  • “The island suffered a loss of $780 million in agriculture yields, according to the department’s preliminary figures. Hurricane Georges in 1998 wiped out about 65% of crops and Hurricane Irma, which only grazed the island, took out about $45 million in agriculture production.”
  • “Puerto Rico already imports about 85 percent of its food, and now its food imports are certain to rise drastically as local products like coffee and plantains are added to the list of Maria’s staggering losses. Local staples that stocked supermarkets, school lunchrooms and even Walmart are gone.”

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 16, 2017

If you were to read only one thing…

WSJ – China’s Debt Addiction Will Be Hard to Cure – Anjani Trivedi 5/15

  • “China is attempting cure itself of an addiction to debt. The problem is, that could just stoke yet more demand.”
  • “Take local-government debt, one of the biggest contributors to the overall growth in debt in recent years. A major concern has been off-balance-sheet ‘local-government financing vehicles,’ whose debt now represents around 10% of China’s $8 trillion bond market.”
  • “The money raised is supposed to finance infrastructure projects and the like. But much of it—around half, according to Wind Info—has been put to unproductive uses like paying down old debt and keeping moribund local companies alive. The debt is often issued in the guise of corporate bonds, and can be bought by banks.”
  • “Beijing is now trying to rein in the financing vehicles’ voracious debt appetite. Though the debt isn’t recorded on local governments’ books, there’s little doubt they will be on the hook if defaults start growing. As of 2016, local-government debt totaled 33 trillion yuan ($4.782 trillion), of which UBS analysts estimate a third is implicit or hidden liabilities.”
  • “Earlier this month, authorities issued a directive restricting local governments from guaranteeing debt issued by these financing vehicles and other public-private partnerships. It also prohibited injecting public assets such as land into these vehicles to improve their credit quality.”
  • “So far, so sensible. The problem is the likely cost in overall economic growth, a point China’s central bank acknowledged in its quarterly report this weekend. While bursting this particular debt balloon could reduce the amount of money being misused, it could also stymie genuine investment. Depending on how thoroughly the new directive is executed, it could drain 2 trillion yuan of infrastructure financing this year, according to UBS analysts, and leave local governments with a financing gap exceeding 1 trillion yuan. That’s more than 10% of annual infrastructure investment in China.”
  • “The last time Beijing tried to reduce this kind of debt—in 2014—the knock-on effect on investment and growth was so severe that it soon backed down: Issuance bounced back to record highs just months later.”

Perspective

WSJ – Amazon’s IPO at 20: That Amazing Return You Didn’t Earn – Steven Russolillo 5/14

  • “A $10,000 investment in Amazon.com Inc. 20 years ago would be worth $4.9 million today. Good luck finding an Amazon investor who can brag about a return like that.”
  • “Monday is the 20th anniversary of Amazon’s initial public offering. Its vertiginous stock chart is a reflection of the internet giant’s dominance. Shares have gone from under $2 on a split-adjusted basis to $961.35 at Friday’s close. The 36% compounded annual gain by buying Amazon at its first-day closing price earned an investor 155 times what would have been made in the S&P 500, including dividends. At $460 billion, Amazon now sports the fourth-largest market capitalization in the S&P 500.”
  • “’This massive outperformance has led to an explosion in hindsight bias, with investors fooling themselves into believing Amazon’s ascent was somehow obvious or inevitable,’ writes Michael Batnick, director of research at Ritholtz Wealth Management and author of the popular ‘Irrelevant Investor’ blog. ‘You had to be some sort of sociopath, void of any human emotions, to earn these monstrous gains.’”
  • “History shows stock investors regularly underperform the market’s returns. Volatility often triggers irrational behavior when investors almost always would fare better by ignoring the noise. Similar patterns are only exacerbated when focusing on individual securities.”
  • “As Mr. Batnick points out, Amazon shares have had daily declines of 6% 199 times. The stock has fallen 15% over a three-day span on 107 different occasions. And the damage was far worse over longer time horizons.”
  • “Amazon has suffered at least 20% pullbacks in 16 of its 20 years on the public markets. The drawdowns were more than 40% apiece in nearly half of those instances, including a 64% plunge in 2008 during the depths of the financial crisis. Worst of all, shares lost 95% of their value when the tech bubble burst from December 1999 through October 2001.”
  • “Most investors just couldn’t ride that out.”

Worthy Insights / Opinion Pieces / Advice

Zero Hedge – Hedge Fund CIO: “This Is Unprecedented… No Trader Has A Model For This” – Tyler Durden 5/14

  • “’Everyone buying assets today is building somewhat plausible arguments, but they’re really all just geared to decisions made in Beijing.’” – Eric Peters, CIO of One River Asset Management
  • “The most crowded trade in the world is cognitive dissonance on China. ‘We need persistent increases in debt relative to GDP for the world economy to function. And since 2011, 100% of global non-financial private-sector net credit creation has occurred in China. Across the western world, it’s been zero.’ Since 2008, non-financial private-sector credit has risen 20% per year in China. In the west, net credit creation occurred through rising government debt – but for that fact, our economies would’ve suffered profoundly. Instead, global asset and liability levels have grown inexorably, led by Chinese credit creation.”
  • “’At 20% annual credit growth, China’s asset (and liability) base doubles every 3.5 years.‘ Seven years ago China’s asset base was roughly $15tn. Then it doubled. And doubled again.”
  • “’China’s asset base today is roughly $60tn, on its way to $120tn sometime in 2020,’ he laughed, his spreadsheet sprouting trees, racing to the sky. ‘The US asset base is $90tn. They’ll pass us in 2yrs. When we were $60tn, China was $10tn.’”
  • “‘People believe they’re leveraged to all of these wonderful things happening in the world. But they’re simply leveraged to what happens in China.’”
  • “Oil prices, iron ore, copper, real estate, and today’s global cyclical recovery are all directly tied back to China. And this can all continue for a time. Or end abruptly.”
  • “’What makes this so difficult to model is that this’ll be the first cycle that ends based on decisions made in Beijing, not Washington or Frankfurt.’”

Markets / Economy

WSJ – How Big Are Mutual Funds’ Puerto Rico Losses? $5.4 Billion – Heather Gillers and Tom McGinty 5/14

  • “Those losses, which are both actual and unrealized, were tucked inside a wide range of funds managed by Franklin Resources Inc., OppenheimerFunds Inc., Vanguard Group, Goldman Sachs Asset Management, Western Asset Management Co., Lord, Abbett & Co., AllianceBernstein Holding LP and Dreyfus Corp., which is part of BNY Mellon Investment Management.”
  • The two companies with the largest losses are Oppenheimer and Franklin with losses as much as $2.1bn and $1.6bn respectively.

Real Estate

NYT – Real Estate’s New Normal: Homeowners Staying Put – Conor Dougherty 5/14

  • “‘Once mortgage rates climb to 5 or 5.5%, we are going to start to see the lock-in effect really take hold,’ said Svenja Gudell, chief economist at Zillow.”

WSJ – Daily Shot: Bloomberg – US Apartment Sales Volume 5/15

China

FT – China real estate investment rises as sales slowdown drags on – Hudson Lockett 5/14

May 8, 2017

Worthy Insights / Opinion Pieces / Advice

FT – Puerto Rico: island of despair – Lex 5/4

Scientific American – High Ground Is Becoming Hot Property as Sea Level Rises – Erika Bolstad 5/1

  • “One of the great ironies of those historic housing patterns in Miami is that for decades under Jim Crow, laws and zoning restricted black people to parts of the urban core, an older part of the community that sits on relatively higher ground along a limestone ridge that runs like a topographic stripe down the eastern coast of South Florida. Now, many of those neighborhoods, formerly redlined by lenders and in some places bound in by a literal color wall, have an amenity not yet in the real estate listings: They’re on higher ground and are less likely to flood as seas rise.”

Real Estate

Visual Capitalist – Chart: The Downfall of Canada’s Largest Alternative Mortgage Lender – Jeff Desjardins 5/5

Energy

FT – Bullish bets on oil price fall to lowest since Opec output cut – Gregory Meyer 5/5

  • “A derivatives dealer who works with hedge funds said this week’s exodus was most severe in contracts for delivery in distant months such as December, rather than futures for imminent delivery, suggesting heightened concerns for the long-term price of oil.”

Finance

Investment News – LPL may have to refund up to $8 million to resolve New Hampshire REIT case – Bruce Kelly 5/3

  • “A third-party review found that 200 clients from the New England state bought nontraded REITs that violated LPL’s guidelines and are eligible for an average of $40,000 apiece.”

China

WSJ – China’s War on Debt Causes Stocks to Drop, Bond Yields to Shoot Up and Defaults to Rise – Lingling Wei and Chao Deng – May 5

  • “A wave of regulations aimed at cutting risk in China’s financial system is rippling through the country’s markets and sending banks and companies scrambling for funds.”
  • “During the past month, Chinese shares have fallen nearly 5%, draining almost half a trillion dollars out of the country’s markets. Bond yields have shot up to their highest levels in two years, and bond defaults hover at record levels. The uncertainty has also weighed on metals and commodity prices, already hurt by doubts around China’s growth momentum. The price of iron ore plunged 8% on Thursday, the daily trading limit.”
  • “Investors blame the volatility on a host of measures Chinese authorities have rolled out to curb runaway debt levels, from raising the cost of short-term funds to measures that are prompting banks to unwind hidden loans and securities. A particular target is high-risk, high-yielding investment products that banks have used to boost returns, but that regulators say may conceal dangerous amounts of risky lending.”
  • “The market turbulence will test Beijing’s resolve in tackling China’s snowballing debt, especially if it looks like regulators’ crackdown is jeopardizing short-term growth. If they can withstand the short-term squeeze and continue to push it through, the effort will help put China’s economy on a sounder footing longer-term.”
  • “Many economists and analysts say China’s economy has become so reliant on debt that leverage will have to keep growing to reach the leadership’s annual growth target, set at about 6.5% for this year. Recent official data show overall credit in China is still growing.”
  • “According to Fitch, total debt reached 258% of China’s GDP last year, a ratio it expects will grow this year and next. Beijing needs to keep interest rates at relatively low levels to not cause companies to default on their mounting debts, economists say.”
  • “’At most, the regulators can slow down the pace of leveraging,’ said Victor Shih, a professor at the University of California, San Diego who specializes in China’s politics and economy. ‘The day China sees true deleveraging is the day a financial crisis begins.'”

FT – Beijing chokes in Gobi desert sandstorm – Emily Feng 5/4

  • “A haze of sand has enveloped northern China, leading to extreme air pollution in Beijing as the country’s expanding deserts blow into cities hundreds of kilometers away.”
  • “Air quality index scores for PM10 – particulate matter with a diameter of 10 microns or less – for Beijing and surrounding cities hovered around 900-999, the upper limit for AQI apps, on Thursday. World Health Organization guidelines recommend a score no higher than 50.”

South America

FT – The implosion of the Venezuelan thugocracy 5/4

May 4, 2017

Worthy Insights / Opinion Pieces / Advice

FT – The era of ‘deflationary progress’ means betting on automation – David Eiswert 5/3

  • “Investors need to come to reconcile themselves to the contradiction of progress and slower growth.”

A Wealth of Common Sense – Experts on an Earlier Version of the World – Ben Carlson 5/2

Markets / Economy

FT – US car sales drop faster than expected – Peter Campbell 5/2

WSJ – Daily Shot: BMI Research – Peak Auto Demand 5/2

Real Estate

WSJ – Japan’s Pension Fund Plows Into Real-Estate Investing – Peter Grant 5/2

China

WSJ – The China Debt Crisis Is Still Ripening – Nathaniel Taplin 5/2

  • “Chinese firms are still borrowing heavily and the Chinese banks backing them continue to rely heavily on risky interbank funding-eventually both firms and banks will need to pay the piper, or Beijing will need to absorb much more debt itself.”
  • “But as in the U.S., the breaking point is more likely to come when borrowers start feeling the pinch from slowing incomes and higher real borrowing costs. If the Chinese real-estate sector and inflation surprise on the downside later in 2017, or the dollar and rapid capital outflows bounce back, the piper could come knocking quicker than expected.”

WSJ – The Hot-Air Model of Chinses Asset Markets – Nathaniel Taplin 5/2

  • “Total financing to the real economy (including local government debt) was up more than 15% on the year in March, just marginally below the 17% peak in 2016.”
  • “All than money needs somewhere to go. And with stocks and bonds under pressure, and sending money abroad to buy Italian soccer clubs and dollar bonds getting tougher, cash is instead heading back into Chinese investors’ old standby: real estate.”

Puerto Rico

WSJ – Puerto Rico Placed Under Bankruptcy Protection – Andrew Scurria 5/3

  • “Federal officials placed Puerto Rico under bankruptcy protection, setting up a showdown with Wall Street firms owed billions of dollars in the largest-ever U.S. municipal debt restructuring and further complicating the U.S. territory’s efforts to pull itself out of a financial mess.”
  • “Puerto Rico and its agencies owe $73 billion to creditors, dwarfing the roughly $18 billion owed by the City of Detroit when it entered what was previously the largest municipal bankruptcy in 2013. The territory racked up its tremendous debt load during a decade long recession, beginning when tax credits that had built up its manufacturing based expired.”

March 3 – March 9, 2017

In the UK the economy has grown but wages have declined. Does your bond index have Chinese bonds – it will soon. The Puerto Rican teacher’s pension ponzi scheme (really several US states and cities aren’t far away from a similar situation).

Headlines

WSJ – Macau Casinos Face Impending Shuffling of Decks 3/2. Two of the six casino operators will see their gambling concessions expire in 2020 and the other four in 2022. At that time expect the cost-of-doing business to increase enormously, the public tender to go to mainland Chinese companies (as opposed to foreigners), or the number of concessions to increase – either way, competition will be fierce.

NYT – Sweden Reinstates Conscription, With an Eye on Russia 3/2. Abolished in 2010, Sweden is reinstating the draft starting next year.

FT – Wealth of China’s richest 200 lawmakers tops $500bn 3/2. “According to Hurun data, the 200 richest members of the National People’s Congress and Chinese People’s Political Consultative Congress, an advisory body, have combined fortunes worth nearly Rmb3.5tn ($507bn). The wealth of the 100 richest lawmakers soared over the past four years to Rmb3tn, up from Rmb1.64tn in 2013.”

FT – US and North Korea on collision course, says China 3/7. The U.S. has sent its THAAD missile defense system to South Korea in light of increasing aggression from North Korea – despite concern from China.

Bloomberg – L.A. Voters Reject Measure AIDS Group Backed, Developers Opposed 3/8. LA voters rejected ballot Measure S that sought to put a two-year moratorium on development in LA.

Economist – The Iraqi army is on the brink of defeating Islamic State 3/8. “But the government must move fast if it is not to squander its victory.”

Bloomberg – Manhattan Rents Fall for Every Apartment Size, Even Studios 3/9. “Apartments available for rent at the end of February totaled 6,872, a jump of almost 12% from a year earlier. The number of new leases fell 28% last month to 3,634, while the median monthly rent for units of all sizes slipped 0.9% to $3,350.”

Special Reports / Opinion Pieces

Briefs

  • Cat Rutter Pooley and Attracta Mooney of the Financial Times highlighted that US pension funds have halved their private equity allocations.
    • “Big US investors have halved their allocations to private equity this year. It is the first sign that pension funds are concerned investment returns will suffer as buyout houses struggle to deploy record levels of cash.”
    • “Pension funds and other institutional investors gave $3.2bn to private equity funds in January and February compared with $8.9bn announced during the same period last year, according to data from MandateWire, the FT news service that collected the figures.”
    • Why… “investors are now worried about lower returns and difficulties exiting their investment in the future, as the number of initial public offerings decreases.” Further, “there are also concerns that the private equity market has become overcrowded, with buyout companies struggling to find suitable businesses to back.”
    • “According to a report from Pitchbook, the data provider, the level of cash, so-called dry powder, that private equity companies have to invest hit a record high of $754bn in 2016.”
    • “More than 80% of the capital raised by private equity companies in 2015 has yet to be deployed, said Pitchbook.”
  • Gabriel Wildau of the Financial Times covered the milestone that China has overtaken the eurozone as the world’s biggest banking system.
    • “China’s banking system has surpassed that of the eurozone to become the world’s largest by assets, a sign both of the country’s increased influence in world finance and its reliance on debt to drive growth since the global financial crisis.”
    • “While China’s gross domestic product surpassed the EU’s economic bloc in 2011 at market exchange rates, its banking system did not take over the top spot until the end of 2016, Financial Times analysis shows.”
    • “Chinese bank assets hit $33bn at the end of 2016, versus $31tn for the eurozone, $16tn for the US and $7tn for Japan. The value of China’s banking system is more than 3.1 times the size of the country’s annual economic output, compared with 2.8 times for the eurozone and its banks.”
    • As Esward Prasad, former China head at the International Monetary Fund and an economist at Cornell University, “the massive size of China’s banking system is less a cause for celebration than a sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks.”
  • Bloomberg News illustrated that capital controls have triggered a backlash amongst China’s corporate titans resulting from scrapped deals.
    • “Chinese corporate chiefs are turning vocal critics of the nation’s capital controls as the pile of scrapped deals grows.”
    • “The complaints reflect a tumble in foreign deals, with the $19 billion of acquisitions abroad announced by Chinese companies so far this year amounting to a 74% drop from a year ago, according to data compiled by Bloomberg.”
    • “China’s leadership faces a balancing act in trying to stoke domestic companies’ influence on the international stage while avoiding the kind of bad investments that Japanese firms became famous for in the 1980s. The more immediate concern has been record outflows of capital that have only diminished in recent months after a steady tightening in oversight of and limits on cross-border transactions.”
  • Justin Lahart of The Wall Street Journal discussed a taxing problem for investors…
    • “A corporate tax cut could provide a big boost to companies’ profits. The boost might not be quite as big, or come as soon, as investors think, though.”
    • “Yes, the U.S. corporate tax rate, at 35%, is among the world’s highest. President Donald Trump and the Republican-led Congress aim to change that. Mr. Trump has proposed dropping it to 15%, while the plan that House Republicans drew up last June would lower it to 20%.”
    • “So by how much would a tax cut juice corporate profits? The first thing to recognize is that few large public companies pay the statutory rate. By Goldman Sach’s reckoning, the effective tax rate for companies in the S&P 500 – which includes not just federal, but also state and local taxes – is 28%. Under the House plan, Goldman figures it would drop to 24%, boosting after-tax earnings by about 10%.”
    • “That could make the stock market look significantly less rich. The S&P 500 now trades at about 18 times analysts’ expected earnings for 2016, according to FactSet. Raise earnings by 10% and that price / earnings ratio slips to a more reasonable but still expensive 16.4.”
    • However, “a lower corporate tax rate also might convince some companies to reassess their use of tax havens, notes Tax Policy Center co-director Eric Toder. Any profits they direct toward the U.S. would then be subjected to a higher tax rate (20% is low, but Bermuda’s 0% is lower), raising their tax rate. Thus, the effective rate might not fall as much as advertised.”
    • Bottom line, “stock prices are supposed to be a reflection of expected future earnings. If investors are expecting too much from a corporate tax cut, and expect it to come too early, then prices will have to come down.”
  • Ben McLannahan and Barney Jopson of the Financial Times highlighted that over the past election cycle Wall Street spent a record $2bn on US election influence.
    • “Wall Street spent a record $2bn on lobbying and campaign contributions during the last US election cycle, according to a new survey, as big banks, hedge funds and other financial institutions stepped up efforts to reshape rules to their advantage.”
    • “Contributions of $1.1bn in the two years ended December 2016, combined with payments to lobbyists of $898m, meant that spending by Wall Street topped $2bn, about 25% higher than the previous high in 2007-2008.”
    • “The election contributions went to both presidential campaigns and congressional races, with donors sticking to the common practice of spreading their largesse across both parties.”
    • “The sums do not include so-called ‘dark money,’ or support to non-profits which do not have to disclose their donors. Nor do they include spending on research or policy staff who are not registered as lobbyists.”
    • “The financial sector is by far the largest source of campaign contributions to federal candidates and parties and ranks as the third-largest spender on lobbying, according to the survey [done by Americans for Financial Reform, a left-leaning coalition of consumer, labor and community groups], which was based on data collected by the Center for Responsive Politics. Insurers (excluding health insurers) were the biggest spenders during the last cycle, with $224m, followed by securities and investment ($192m) and real estate ($183m).”
    • Lisa Donner, executive director of Americans for Financial Reform, “noted that there were few outright victories for Wall Street in recent years, as lobbyists sought to roll back Dodd-Frank reforms. One example was a battle in December 2014 which allowed the big banks to continue to fund derivatives trades using federally-insured deposits.”
    • “But she said that much of the lobbying had succeeded in ‘slowing or weakening’ proposed reforms. Rules on curbing incentive pay, for example, have yet to see the light of day, even though such measures appear to have broad support among voters.”
    • “‘That is really what the money story is about; we end up with outcomes that are not what people voted for,’ said Ms. Donner.”

Graphics

WSJ – Daily Shot: Statista – Tech IPO performance 3/2

WSJ – Daily Shot: Reliance on Undocumented Labor 3/2

WSJ – Daily Shot: Migrant Hosting and Sending Countries 3/2

WSJ – China Shifts Stance, Letting Dying Firms Go Bankrupt – Chuin-Wei Yap 3/3

WSJ – Daily Shot: Goldman Sachs – US Auto Inventory 3/5

Bloomberg – Saudi Arabia Still Bears Brunt of Oil Cuts as OPEC Output Drops – Angelina Rascouet and Julian Lee 3/2

NYT – ‘Superstar Firms’ May Have Shrunk Workers’ Share of Income – Patricia Cohen 3/8

WSJ – Americans Are Richer Than Ever, But They Don’t Feel That Way – Steven Russolillo 3/8

Featured

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

How wages fell in the UK while the economy grew. Valentina Romei. Financial Times. 2 Mar. 2017.

“Between 2007 and 2015, the UK was the only big advanced economy in which wages contracted while the economy expanded. In most other countries, including France and Germany, both the economy and wages have grown.”

“Britain’s GDP went back to pre-crisis levels in the third quarter of 2013 and it is now nearly 10% larger than in the second quarter of 2008. Yet in 2014 wages were almost 10% lower than seven years before. During the same period, salaries in France and Germany grew 7%.”

“Only the US and Canada have greater flexibility in labor market regulation than the UK, according to the OECD. Thanks to a more flexible job market, people were able to find jobs quicker than in other countries. Employment expanded by 2.4% in the six years to 2013, while in France there was no job expansion and the EU as a whole experienced job losses.”

What gives…

“After the crisis, labor supply increased, but these ‘unusual increases in labor supply’ were absorbed by the market, writes the OECD in its latest country survey. Pension reform and other policies contributed to the increase in supply with a rising number of older workers and incentives to work rather than live off benefits. Meanwhile ‘sustained inflows of well-educated immigrants have boosted the working-age population,’ says the OECD.”

“Such employment expansion coincided with the loss of labor bargaining power due to the risk of unemployment and ‘slack’ remaining higher than pre-crisis levels. Unemployment, underemployment and involuntary part-time working, for example, were far above their levels in 2008. Coupled with low and falling levels of unionization, employment growth came at the expense of a fall in real wages.”

While the economy is close to full employment, instead of tight labor conditions pushing up wages, there is enough slack and labor demand that wages are soft.

Unfortunately, “inflation is likely to squeeze real wages in the next couple of years just as it did after the crisis.” Rather than higher prices for goods and services feeding into higher profits and higher wages, productivity growth has languished, so people are dealing with lower living standards.

“Between 2007 and 2015 the UK had one of the highest inflation rates among big advanced economies, largely because of high energy prices and the depreciation of the pound. Consumer prices expanded at an annual rate of over 5% at their peak in September 2011, well above the rate of expansion of nominal earnings.”

Further “employment growth was driven largely by self-employment and part-timers, while the number of full-time jobs shrank. ‘The rapid rises in employment over the past few years have been made up by a larger than usual share of low-skilled jobs which tend to be lower paid,’ say Capital Economics.”

China’s Massive Bond Market Coming to Index Near You. Anjani Trivedi. The Wall Street Journal. 7 Mar. 2017.

“China’s bond-market dreams could finally be coming true. But global investors should tread with care.”

“Citigroup announced Tuesday that mainland Chinese bonds were eligible for inclusion in its widely followed indexes of investment-grade bonds. Once included, most passive investors could end up holding Chinese bonds in some way in their portfolios. Citi says the entry will be staggered over three months given the overall Chinese market’s $9 trillion size.”

“Index inclusion is big business – and isn’t a sleep subject. Opening the world up to China, also opens the world up to a host of risks that investors haven’t quite figured out how to price.”

“Even though Beijing is seemingly freeing up its bond markets, repatriating funds remains an issue. A recently introduced currency-hedging tool helps, but details are still fuzzy. And the risk of sudden capital controls perpetually looms.”

“For China, this could mean much needed inflows into its financial markets to counter the billions of monthly outflows. Around $2 trillion of assets under management track Citi’s World Government Bond Index. That could mean inflows of up to $120 billion if China has a 5% to 6% weight, according to Goldman Sachs. ETF’s like Tokyo-listed Listed Index Fund also track the Citi World Government Gond Index as do some BlackRock government bond funds.”

To be fair, it’s hard not to include bonds from the world’s second largest economy.

“There are fundamental issues to contend with especially the market’s lack of discernment between safe and risky bonds as reflected in narrow credit spreads. Foreign presence is unlikely to instill such discipline anytime soon.”

“Concerns around a host of trading technicalities abound…. Along with adding China to its main indexes, Citi has created two new ones that cap exposure, perhaps a hint that for many, China’s inclusion is too soon.”

“Ready or not, China’s bond market is joining an important club.”

The Chinese government, but more importantly, Chinese corporates will be able to pass on their debt risks to foreign investors and the sheer mechanics of indexes create a relatively indiscriminate buyer… the proverbial can continues to be kicked down the road.

In Puerto Rico, Teachers’ Pension Fund Works Like a Ponzi Scheme. Mary Williams Walsh. The New York Times. 8 Mar. 2017.

“Puerto Rico, where the money to pay teachers’ pensions is expected to run out next year, has become a particularly extreme example of a problem facing states including Illinois, New Jersey and Pennsylvania: As teachers’ pension costs keep rising, young teachers are being squeezed – sometimes hard. One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back.”

“‘I think they’re really being taken advantage of,’ said Richard W. Johnson of the Urban Institute, a co-author of the research. ‘What’s so tragic about this is, often the new hires aren’t aware that they’re getting such a bad deal.'”

“The problem is magnified by the fact that the Puerto Rico teachers union – like many teachers and police unions around the country – opted out of Social Security long ago, hoping it could save both workers and the government money by not paying Social Security taxes.”

Conceptually, “pension funds are supposed to be giant, largely self-sustaining pools of money, contributed by taxpayers and often workers, that earn investment income. Over time, the money is supposed to grow enough to pay retirees. Knowing this, teachers might reasonably expect to get a pension worth more than what they invested.”

However, in Puerto Rico “the pension funds are so short of cash that money contributed by working teachers basically flows straight out to retirees. None of Puerto Rico’s current teachers can expect to get their money back, because the fund is due to run out of money in 2018, long before they retire.”

“That is, essentially, a Ponzi scheme. But this structure is legal in Puerto Rico because of a complicated series of changes in the law brought about in recent years by the island’s financial crisis.”

Back to pension programs in general, “benefits are typically backloaded. This means that teachers build up their benefits very slowly in their early years – even as they make big contributions – then speed up in middle age and earn the biggest part just before they retire.”

“But because of high turnover and other factors, relatively few teachers reach the sweet spot where they earn a pension larger than their contributions. Most change jobs or move away first, leaving behind money that subsidizes the pensions of the relative few who teach for decades.”

Regardless, pension stress resulting from largess promised in good times and a lower investment return world have led to major cuts to younger teachers in the system. “In Illinois, for example, Mr. Johnson of the Urban Institute found that a teacher hired at age 25 who worked for 35 years could earn a pension worth $1.3 million – as long as that teacher had been hired before 2011. If hired after 2011, the same teacher would earn a pension worth only $609,000, even though both groups contribute 8.4% of every paycheck.”

“‘Overall, 84% of all newly hired teachers lose money’ in Illinois, Mr. Johnson said.”

Further, eight states (Delaware, Hawaii, Illinois, Maryland, New York, North Carolina, Pennsylvania, and West Virginia) recently doubled their vesting periods (“the time a teacher must work before vesting, or earning a nonforfeitable right to a pension”) to 10 years. “That is more than three times the maximum allowed for companies.” On top of that, “three of every 10 new teachers will quit in five years or less.” Basically free money for these pension programs.

“Martin F. Lueken of EdChoice, formerly the Friedman Foundation for Educational Choice, looked at the largest school districts in each state and found three where, because of cost-cutting, newer teachers might work their whole careers without ever earning a pension worth the value of their contributions: Boston, Chicago and the northern suburbs of Minneapolis.”

For more see: NYT – The State of State Teachers’ Pension Plans – Karl Russell and Mary Williams Walsh 3/6

Other Interesting Articles

Bloomberg Businessweek

The Economist

 

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FT – Japan returns to inflation for first time since 2015 3/3

FT – Jack Bogle: ETFs have beaten hedge funds 3/4

FT – China warns on hidden local government debt risks 3/5

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FT – Germany’s trade surplus sparks concern at home and abroad 3/6

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