There has probably never been a better time to be in
the sand business. The world uses nearly 50bn tons of sand and gravel a
year—almost twice as much as a decade ago. No other natural resource is
extracted and traded on such an epic scale, bar water.
Demand is greatest in Asia, where cities are growing
fast (sand is the biggest ingredient in cement, asphalt and glass). China got
through more cement between 2011 and 2013 than America did in the entire 20th
century. Since the 1960s Singapore—the world’s largest importer of sand—has
expanded its territory by almost a quarter, mainly by dumping it into the sea.
The OECD thinks the construction industry’s demand for sand and
gravel will double over the next 40 years. Little wonder then that the price of
sand is rocketing. In Vietnam in 2017 it quadrupled in just one year.
In the popular imagination, sand is synonymous with
limitlessness. In reality it is a scarce commodity, for which builders are now
scrabbling. Not just any old grains will do. The United Arab Emirates is
carpeted in dunes, but imports sand nonetheless because the kind buffeted by
desert winds is too fine to be made into cement. Sand shaped by water is
coarser and so binds better. Extraction from coastlines and rivers is therefore
surging. But according to the United Nations Environment Program (UNEP), Asians
are scooping up sand faster than it can naturally replenish itself. In
Indonesia some two dozen small islands have vanished since 2005. Vietnam
expects to run out of sand this year.
All this has an environmental cost. Removing sand
from riverbeds deprives fish of places to live, feed and spawn. It is thought
to have contributed to the extinction of the Yangzi river dolphin. Moreover,
according to WWF, a conservation group, as much as 90% of the
sediment that once flowed through the Mekong, Yangzi and Ganges rivers is
trapped behind dams or purloined by miners, thereby robbing their deltas both
of the nutrients that make them fecund and of the replenishment that counters
coastal erosion. As sea levels rise with climate change, saltwater is surging
up rivers in Australia, Cambodia, Sri Lanka and Vietnam, among other places,
and crop yields are falling in the areas affected. Vietnam’s agriculture ministry
has warned that seawater may travel as far as 110km up the Mekong this winter.
The last time that happened, in 2016, 1,600 square kilometers of land were
ruined, resulting in losses of $237m. Locals have already reported seeing dead
fish floating on the water.
Curbing sand-mining is difficult because so much of
it is unregulated. Only about two-fifths of the sand extracted worldwide every
year is thought to be traded legally, according to the Global Initiative
Against Transnational Organized Crime. In Shanghai miners on the Yangzi evade
the authorities by hacking transponders, which broadcast the positions of
ships, and cloning their co-ordinates. It is preferable, of course, to co-opt
officials. Ministers in several state governments in India have been accused of
abetting or protecting illegal sand-mining.
Scientists are experimenting with alternatives to
concrete and cement. Architects are trying to find ways to use such materials
more sparingly. Even the odd government is taking action. In 2018, Maharashtra
passed regulations requiring contractors to use plastic waste as filler when
building or repairing roads. Singapore is creating a new patch of land by
draining it of water rather than piling it with sand. Kiran Pereira of
SandStories.org, which promotes awareness of the issue, says “there are plenty of
solutions” if only governments would find the will to implement them. Time to
pull heads from the sand.
This is going to be my last post for the foreseeable future. I have appreciated your readership and the occasional comment.
I will continue to read all of the various sources of content that have filled these posts and will continue to curate what I find to be the more meaningful articles and graphics. However, going forward I will not be posting/distributing so frequently. At this point I’m not certain of the appropriate frequency (being mindful of my time). Perhaps annually.
“An entire generation of young adults increasingly do not aspire to one day afford season tickets like some of their parents did. ‘If you’re in your mid-20’s and move into your new job in a new city, you arrive without the ability to pay for a ticket to go to a game anymore, no cable package to watch, and no subscription to the local newspaper to follow the team.’ This is not my opinion, I heard this from the owner of a professional sports team about his own son. All eyes are on cord-cutters while a generation of cord-never-had-em emerges.”
“Land reclamation isn’t cheap but soil becomes significantly more valuable when it’s moved to create new land in Manhattan, Boston’s Back Bay and Monaco.”
Energy
WSJ – Daily Shot: US Total Crude Oil Production 7/19
“WeWork’s steep valuation depends on a blinkered faith in its originality despite a crowded market of competitors. If the company’s equity value was based on the same multiple of sales as flexible workspace peer IWG (formerly Regus) it would be worth less than $3bn.”
“The company’s pitch is scale. WeWork envisions a world in which offices are so attractive that workers will choose to spend more time in them. Eventually, it pictures global cities of We-flats and We-offices, where members work out at We-gyms, learn at We-schools and network at We-events — all the while tracked by the We-operating system.”
“WeWork’s valuation comes courtesy of the deep pockets of Japan’s SoftBank and the Saudi-backed $100bn Vision Fund , which led a $3bn investment last year. That came with an additional $1.4bn raised for WeWork’s Asian subsidiaries. The fundraising round transformed WeWork into one of the world’s top 10 most valuable start-ups. Further financing from the Vision Fund, valuing WeWork at $35bn, has been mooted. This would exceed the value of SpaceX, Elon Musk’s space technology company.”
“In the meantime, WeWork needs financing. It is likely to require at least $2bn from investors in the next two years. To plug future outflows, it may seek far more. A successful initial public offering will require WeWork to convince investors that its value is based on more than giddy markets and a millennial-friendly aesthetic.”
“Unfortunately for WeWork, costs are growing just as steeply. Some look extravagant. Last year the group spent an additional $6.5m on events that included a weekend summer camp. The company justifies this as the price of growth.”
“However, WeWork’s valuation is based on its growth potential. Airbnb might therefore be a better comparison. It is valued at a higher $31bn. Yet even this is a more sober reflection of business than WeWork’s. The value is equal to 12 times trailing sales versus 20 for WeWork.”
“For now, WeWork is far from self-sustaining. The company lost nearly $1bn last year. Office occupancy at 82% is higher than IWG’s 75%. However, average membership fees are falling. There is little reason to think the decline will reverse while expansion is driven by Asia, where rates are lower.”
“Funding rounds were the only reason the company ended 2017 with cash of $2bn on the balance sheet. On FT estimates it is likely to need about $2bn more by the end of 2019.”
Markets / Economy
WSJ – Daily Shot: Deutsche Bank – US-Europe monetary policy divergence 7/3
“FlyHomes’ ability to turn clients into cash buyers exploits a quirk in the capital markets that’s arisen since the housing meltdown: Consumers are being put through more rigorous standards when they apply for a mortgage. Meanwhile, it’s comparatively easy for companies—even those with new, barely tested ideas—to get buckets of money from banks, venture capitalists, and other institutional investors.”
“Redfin CEO Glenn Kelman says these new ventures are part of a shift in how homes will be bought and sold. ‘There is just money coming out of every possible part of the world, and it isn’t going toward the consumer,’ he says. ‘It’s going toward real estate businesses who charge the consumer for access to that money.’”
Considering the headwinds of retail over the last few years, I’d say things are doing not too shabby considering it took the closure of Toys ‘R’ Us to push the absorption rate negative (granted local situations vary).
“Cut from 68-hour maximum aims to improve life balance for country of workaholics.”
“The country is home to the longest working hours and highest suicide rate in the developed world. South Koreans put in an average of 2,024 hours in 2017, the second-most after Mexico among members of the Organization for Economic Cooperation and Development (OECD). But the long hours have not translated into better productivity, with the country’s per-hour productivity ranking near the bottom.”
“As long as Chinese investors can make money gambling on housing – and companies can make money building or selling them – weakness in the stock and bond markets may not be enough to trigger a full-scale stampede out of the yuan.”
“Panic or no panic, a weaker Chinese currency in the months ahead still seems likely.”
“Katerra saves money by buying everything from wood to toilets in bulk and using software and sensors to closely track materials, factory output, and construction speed. Its architects use software to build a catalog of standard buildings, rather than starting from scratch on each project, and to ensure contractors aren’t making impulsive structural decisions. Each generation of buildings has become steadily more prefab, requiring less work on-site and speeding construction.”
“…but Katerra has a lot of serious worries. While there are only a few standard models of iMac or Xbox, apartments are beholden to 110,000 U.S. municipalities’ building codes, each with its own idiosyncrasies. Regional seismic and weather needs can vary widely. And Katerra’s aim to steadily cut labor costs, meaning jobs, won’t exactly endear it to the industry.”
“The shutdown of a key oil-sands facility in Canada is flipping the global oil market on its head and slamming shares of producers that depend on the plant.”
“Just as OPEC and allied producers agreed to pour more oil into global markets, a transformer blast first reported by Bloomberg News last week cut power to Alberta’s giant Syncrude plant, which turns heavy crude into synthetic light oil for U.S. markets.”
“As less oil flows from up north, traders are paying a record premium for crude at America’s biggest distribution hub in Cushing, Oklahoma. Globally, the gap between Brent crude and West Texas Intermediate is narrowing rapidly after widening for months. Goldman Sachs Group Inc. called the shutdown the most dramatic event in the oil market last week, as opposed to OPEC’s meeting in Vienna. Shares of Suncor Energy Inc., which controls the plant, plunged the most in more than two years.”
“The 350,000-barrel-a-day facility, one of the biggest of its kind in the world, is going to be out of commission until the end of July, the company said.”
“While Saudi Arabia’s push to make sure OPEC boosts supplies by close to 1 million barrels a day is strongly weighing down on Brent crude futures in London, the shortage in Canada is supporting U.S. prices. That’s helping narrow the gap between the two benchmarks, reversing months of widening when the focus was on record production from shale fields. It has global implications because the premium helps buyers around the world decide whether to ship crude from the U.S. or elsewhere.”
“A new study has confirmed what we’ve long expected: Facebook is no longer the most popular social media site among teens ages 13 to 17.”
“The Pew Research Center revealed on Thursday that only 51% of US teens use Facebook. That’s a 20% drop since 2015, the last time the firm surveyed teens’ social media habits.”
“Now, YouTube is the most popular platform among teens — about 85% say they use it. Not surprisingly, teens are also active on Instagram (72%) and Snapchat (69%). Meanwhile, Twitter (TWTR) followed at 32%, and Tumblr’s popularity (14%) remained the same since the 2015 survey.”
“When it comes to the platform they access most frequently throughout the day, Snapchat is king.”
“Although the study was only conducted among nearly 750 teens in a one month period starting this spring, the new numbers might be worrying for Facebook. The company recently rebounded from its first-ever decline in users in the US and Canada. But overall, its global growth has slowed. The two countries account for 185 million daily users.”
“But Daniel Ives, chief strategy officer and head of technology research at GBH Insights, argues Facebook-owned Instagram-owned is more important to the parent company than Facebook itself when it comes to younger users.”
“‘Instagram has captured that demographic better than anyone could have expected,’ Ives said. The numbers highlight ‘why Instagram is one of the best tech acquisitions done in the past 15 years.'”
“Last year’s most successful adult comedy, Girls Trip, took in $117 million in the U.S. and Canada. The last time the year’s highest-grossing comedy grossed so little was 1995, when tickets cost 52% less on average.”
“It wasn’t an anomaly. The five most successful adult comedies grossed an average of $141 million in 2013, $109 million in 2015 and just $85 million last year.”
“So far in 2018, the biggest live-action comedy has been Game Night, which took in just $69 million. Melissa McCarthy’s Life of the Party, has grossed $52 million, her lowest-grossing comedy ever. Amy Schumer’s I Feel Pretty is finishing its box office run with $49 million, less than half of her debut hit Trainwreck. Action Point, from the producer and star of Jackass, has grossed just $5 million, compared with $117 million for Jackass 3-D in 2010.”
“Just five years ago, things were quite different. In 2013, Ms. McCarthy and Sandra Bullock’s The Heat and the raucous R-rated We’re the Millers each grossed more than $150 million domestically. Another movie with Ms. McCarthy, Identity Thief, was close behind with $135 million. Grown Ups 2, Anchorman 2, Bad Grandpa, This is the End and even the widely maligned Hangover Part III all exceeded $100 million in domestic ticket sales.”
“Now, the only major comedy hits are those made for children. Peter Rabbit, featuring computer-generated critters that outsmart real-life adults, grossed a healthy $115 million in February, and animated comedies like Despicable Me 3 and The Boss Baby were top grossers last year.”
“The Incredibles 2, which mixes family-friendly action, comedy and drama, scored a massive $182.7 million in its opening weekend.”
“Though certain subgenres like romantic comedy have nearly disappeared, most studios aren’t yet abandoning adult comedy. They have, however, slashed spending on them so that they can potentially become profitable on lower grosses than were needed in the past. No comedy stars earn the $20 million per picture that Messrs. Carrey and Sandler and Ms. Roberts sometimes did in the past.”
“Tag is a recent example of the new approach. Made for just $28 million, it features no major comedy stars and was sold primarily on its concept, a real-life story about grown friends in a decades long game of tag that was based on a Wall Street Journal article.”
“’There was a time when comedies were being made for $70 million. Then $45 million. Now the sweet spot is in the 20s,’ said Todd Garner, a producer of Tag who previously produced comedies starring Mr. Sandler.”
“Apathy towards climate change is common across the Middle East and north Africa, even as the problems associated with it get worse. Longer droughts, hotter heatwaves and more frequent dust storms will occur from Rabat to Tehran, according to Germany’s Max Planck Institute for Chemistry. Already-long dry seasons are growing longer and drier, withering crops. Heat spikes are a growing problem too, with countries regularly notching lethal summer temperatures. Stretch such trends out a few years and they seem frightening—a few decades and they seem apocalyptic.”
“The institute forecasts that summer temperatures in the Middle East and north Africa will rise over twice as fast as the global average. Extreme temperatures of 46°C (115°F) or more will be about five times more likely by 2050 than they were at the beginning of the century, when similar peaks were reached, on average, 16 days per year. By 2100 ‘wet-bulb temperatures’—a measure of humidity and heat—could rise so high in the Gulf as to make it all but uninhabitable, according to a study in Nature (though its most catastrophic predictions are based on the assumption that emissions are not abated). Last year Iran came close to breaking the highest reliably recorded temperature of 54°C (129°F), which Kuwait reached the year before.”
“Water presents another problem. The Middle East and north Africa have little of it to begin with, and rainfall is expected to decline because of climate change. In some areas, such as the Moroccan highlands, it could drop by up to 40%. (Climate change might bring extra rain to coastal countries, such as Yemen, but that will probably be offset by higher evaporation.) Farmers struggling to nourish thirsty crops are digging more wells, draining centuries-old aquifers. A study using NASA satellites found that the Tigris and Euphrates basins lost 144 cubic kilometers (about the volume of the Dead Sea) of fresh water from 2003 to 2010. Most of this reduction was caused by the pumping of groundwater to make up for reduced rainfall.”
“Climate change is making the region even more volatile politically. When eastern Syria was ravaged by drought from 2007 to 2010, 1.5m people fled to cities, where many struggled. In Iran, a cycle of extreme droughts since the 1990s caused thousands of frustrated farmers to abandon the countryside. Exactly how much these events fueled the war that broke out in Syria in 2011 and recent unrest in Iran is a topic of considerable debate. They have certainly added to the grievances that many in both countries feel.”
“The mere prospect of shortages can lead to conflicts, as states race to secure water supplies at the expense of downstream neighbors. When Ethiopia started building an enormous dam on the Nile, potentially limiting the flow, Egypt, which relies on the river for nearly all of its water, threatened war. Turkish and Iranian dams along the Tigris, Euphrates and other rivers have raised similar ire in Iraq, which is beset by droughts.”
“Politics often gets in the way of problem-solving. Countries are rarely able to agree on how to share rivers and aquifers. In Gaza, where the seepage of saltwater and sewage into an overused aquifer raises the risk of disease, a blockade by Israel and Egypt has made it harder to build and run desalination plants. In Lebanon there is little hope that the government, divided along sectarian lines, will do anything to forestall the decline in the water supply predicted by the environment ministry. Countries such as Iraq and Syria, where war has devastated infrastructure, will struggle to prepare for a hotter, drier future.”
“China’s carbon emissions are on track to rise at their fastest pace in more than seven years during 2018, casting further doubt on the ability of the Paris climate change agreement to curb dangerous greenhouse gas increases, according to a Greenpeace analysis based on Beijing’s own data.”
“The latest finding comes as climate researchers express concern over rising emissions in China, which accounts for more than a quarter of global carbon dioxide output.”
“Global emissions were flat from 2014-16 but began rising again in 2017 as the Chinese economy recovered and as emission grew in the EU and the rest of Asia. Scientists are concerned the trend in China will continue this year.”
“Although China has invested heavily in renewable energy such as wind and solar, a key reason for its emissions growth is rising demand for oil and gas due to increased car ownership and electricity demand.”
“KPMG has said its annual audits of 1Malaysia Development Berhad from 2010 to 2012 were unreliable after information was withheld by former 1MDB managers, the scandal-hit fund said.”
“’If the documents had been disclosed to the auditors, KPMG believed the information would have materially impacted the financial statements and the relevant audit reports,’ the fund said in a statement on Tuesday.”
“The wealth fund, which was established in 2009 under then-prime minister Najib Razak, is the focus of a global corruption investigation, with authorities alleging that $4.5bn has gone missing.”
“The allegedly omitted audit details came to light after the new government of Mahathir Mohamad — which won power in a stunning election victory in May — released an auditor-general’s report into 1MDB that had been classified under the previous administration.”
“KPMG was sacked as 1MDB auditor at the end of 2013 after raising concerns about more than $2.3bn said to have been held in the Cayman Islands on behalf of the fund, according to an auditor-general draft report seen by the Financial Times in 2015.”
“The accounting firm was unhappy because 1MDB would not share documents KPMG wanted to help it assess the fund’s financial activities linked to the Caribbean islands.”
“It was an important demand, if one with little hope of success. On May 29th the Netherlands’ foreign minister, Stef Blok, insisted at the UN Security Council in New York that Russia ‘accept its responsibility’ in the downing of Malaysian Airlines flight MH17. The airliner was shot down by an anti-aircraft missile over Ukraine in 2014, killing 196 Dutch nationals, 38 Australians and 64 others. Last week a UN-mandated Joint Investigation Team (JIT), led by Dutch prosecutors, announced it had determined that the missile belonged to a unit deployed to the area by the Russian Army’s 53rd anti-aircraft brigade, presumably to help Russian-backed secessionists fighting the Ukrainian army.”
“The Kremlin has always denied any involvement in the downing of MH17 or the war in Ukraine. (Asked about the JIT’s findings, Mr Putin responded, ‘Which plane are you talking about?’) Instead it has spread conflicting alternative theories blaming the Ukrainians, often backed up with demonstrably fake evidence. But the investigators’ dossier is voluminous. It includes photos and video taken by passers-by that track the convoy carrying the missile from its base near Kursk, in Russia, to the Ukraine border. The JIT also has the fuselage of what appears to be the missile itself, recovered near the crash site. The Netherlands and Australia now say they will hold Russia accountable for its role, and want negotiations on a settlement.”
“The global construction industry is a $10 trillion behemoth whose structures determine where people live, how they get to work and what cities look like. It is also one of the world’s least efficient businesses. The construction productivity rate — how much building workers do for each hour of labor they put in — has been flat since 1945, according to the McKinsey Global Institute. Over that period, sectors like agriculture, manufacturing and retail saw their productivity rates surge by as much as 1,500%. In other words, while the rest of the economy has been supercharged by machines, computers and robots, construction companies are about as efficient as they were in World War II.”
“Erratic US policy and fraying alliances give China a free hand.”
“What China is winning is de facto control of nearly the entire South China Sea, including all activities and resources in it, despite the other surrounding Southeast Asian states’ respective legal rights and entitlements under international law.” – Jay Batongbacal, director of the University of the Philippines Institute for Maritime Affairs and Law of the Sea
“At stake is the huge commercial and military leverage that comes with controlling one of the world’s most important shipping lanes, through which up to $5 trillion worth of trade passes each year.”
“The country’s economic output is smaller now than it was in 2004, and employment policies are skewed to protecting jobs, not creating them. The number of Italians registered as living abroad rose 60% from 2006 to 2017, to almost 5 million. Among those who stay, it’s common for unemployed young people to live with their parents instead of starting their own families, which is one reason the country has one of the world’s lowest birthrates.”
“Last weekend, Venezuela’s President Nicolás Maduro dragged his Socialist government into a third decade in power by winning elections that were boycotted by the opposition, ignored by most of his countrymen and rejected by the international community. As sluggish voting drew to a close, a smiling and confident Mr. Maduro posted a video of himself waving not to throngs of adoring supporters but to a largely empty public square.”
“By the end of 2018, it will have shrunk by an estimated 35% since 2013, the steepest contraction in the country’s 200-year history and the deepest recession anywhere in the world in decades. From 2014 to 2017, the poverty rate rose from 48% to 87%, according to a survey by the country’s top universities. Some nine out of 10 Venezuelans don’t earn enough to meet basic needs. Children die from malnutrition and medicine shortages. An estimated three million Venezuelans, 10% of the population, have left the country in the two decades of Socialist rule, almost half of them in the past two years, according to Tomás Páez, a researcher at the Central University of Venezuela.”
“If Mr. Maduro didn’t know when to stop the music, the idea for the endless party came from his predecessor, Hugo Chávez, who died just a month before I arrived in 2013. The strongman charmed his countrymen with a silver tongue, his love of dancing and singing and his disdain for the hated austerity packages imposed by previous Venezuelan presidents. As oil prices shot up in his last decade, Mr. Chavez not only failed to save any of the windfall but buried the country in debt.”
“Along the way, he imposed capital controls to try to stop money from fleeing the country. The arbitrary exchange rate system suffocated private enterprise and investment, but the poor got subsidized food and free housing. The middle class got up to $8,000 of almost-free credit card allowances a year for travel and shopping. And the rich and politically connected siphoned off up to $30 billion a year of heavily subsidized dollars through shell companies, according to the planning minister at the time.”
“The currency and price controls implemented by Mr. Chávez broke the basic link between supply and demand, creating surreal economic distortions. A business-class Air France return ticket from Caracas to my hometown in Siberia would cost me $400, yet a 15-year-old Suzuki jalopy with no air conditioning and 150,000 miles set me back $4,600.”
“Caracas in 2013 reminded me of a tropical version of the Soviet periphery. Basic goods like flour and aspirin had fixed prices and were so cheap that companies had no incentive to make them. When you did find them, it made sense to grab as much as you could carry. Who knew when you would find them again? Like Russia in the 1980s, people dealt with shortages by resorting to the black market, hoarding goods and trading perks of their jobs, like bureaucratic stamps of approval or access to car batteries, for other favors or products.”
“But Venezuela’s collapse has been far worse than the chaos that I experienced in the post-Soviet meltdown. As a young person, I was still able to get a good education in a public school with subsidized meals and decent free hospital treatment. By contrast, as the recession took hold in Venezuela, the so-called Socialist government made no attempt to shield health care and education, the two supposed pillars of its program. This wasn’t Socialism. It was kleptocracy—the rule of thieves.”
“In Venezuela, I saw children abandon schools that had stopped serving meals and teachers trade their lesson books for pickaxes to work in dangerous mines. I saw pictures of horse carcasses on the grounds of the top university’s veterinary school—killed and eaten because of the lack of food.”
“Hyperinflation, set to reach 14,000% this year, has transformed the most basic transactions into Kafkaesque trials. Cash is extremely scarce, card payment networks are overloaded, cell phone coverage is worse than in Syria, and online banking systems constantly crash because of underinvestment. Paying for a cup of coffee can take an hour.”
“The crisis has even made it harder for the ruling elite to enjoy its privileged status. Despite access to official dollars and the protection of security details, top apparatchiks now avoid the best restaurants, the plushest resorts and business-class lounges, where they fear encountering the hatred of their compatriots. Sanctions and fears of corruption probes have barred many of them from trips to the U.S. and much of Europe.”
“After 2016, I no longer had to travel to report on the toll of the economic crisis. It was visible all around me: in the sagging skin of neighbors, the dimming eyes of janitors and security guards, the children’s scuffles for mangos from a nearby tree. It is profoundly depressing to watch people you know grow thinner and more dejected day by day, year after year. When I look back at my five years in Venezuela, it’s not the time I spent covering riots, violent street protests or armed gangs that stirs the most feeling. It’s the slow decay of the people I encountered every day.”
“For most ordinary Venezuelans I know, Mr. Maduro’s foreordained victory last weekend snuffed out the last glimmer of hope that their lives can improve through democratic and peaceful means. What’s left is exile or further misery.”
Perspective
WSJ – Daily Shot: CNN – Global School Shootings Since 2009 5/25
“Clouds are hovering over New York’s housing market. A couple of years ago, property prices were spiraling ever higher — much like the new luxury skyscrapers now springing up in midtown Manhattan.”
“But estate agents say that sales volumes in the first quarter of 2018 were at their lowest level for six years. Meanwhile the median price per square foot was 18% lower than a year earlier, according to some reports.”
For those of you not living in Manhattan and that don’t own property there, you think, so what? The thing is … “last month the IMF published its first comprehensive analysis of global property and this suggests that real estate is becoming prone to synchronization too. Two decades ago, only 10% of property price movements could be blamed on global — not local — factors. Now it is 30%.”
“…What is striking is that this real estate synchronization is affecting urban centers in both emerging and advanced economies. Or as the report notes: ‘House prices in major cities outside the United States — Beijing, Dublin, Hong Kong SAR, London, Seoul, Shanghai, Singapore, Tokyo, Toronto and Vancouver — are positively associated with US house price dispersions’.”
“This might seem unsurprising. After all, the global elite hop across borders at dizzying speed. So does financial capital, and sentiment-shaping news. Meanwhile, the market capitalization of the real estate investment trust sector has tripled in the past 15 years, and large asset managers allocate on average of 11% of their portfolios to property.”
“This has made the housing market more ‘financialized’, since some investors are treating housing more like a tradeable asset, chasing yields around the world. No wonder that a decade of ultra-loose monetary policy in the west has lifted so many geographically dispersed real estate boats.”
“…the key point is this: if (or when) global financial conditions eventually become less benign, there will probably be downward movement in housing markets too, with some unexpected spillover effects.”
“Indeed, the most intriguing point in the IMF report is that ‘heightened synchronicity of house prices can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment’.”
“In plain English, this means that a correlated boom in global real estate markets can signal trouble ahead. We should keep a close eye on those estate agents’ reports in New York — as well as London or Hong Kong. The Big Apple’s jitters might yet be a canary in the coal-mine.”
“The world’s biggest container shipping group Maersk Line told customers it is raising prices in response to increased marine fuel costs, showing how the surge in oil prices to their highest levels in four years is rippling through the global supply chain.”
“Bunker prices, as marine fuel is known, have risen more than 20% since the start of the year, and in Europe have hit $440 per metric ton, the highest since 2014. That has forced Maersk to introduce an ’emergency bunker surcharge’, the company told customers in a note.”
“Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”
“More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.”
“For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.”
“More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.”
“Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included.”
“Mr. Meru’s financial records—provided to The Wall Street Journal—show he borrowed $601,506 to attend USC—a debt swelled to more than $1 million by fees and interest.”
“The cash confiscated last week from a luxury Kuala Lumpur apartment linked to the 1Malaysia Development Berhad investigation was worth RM114m ($28.6m), Malaysian police said on Friday.”
“The hoard, composed of Malaysian ringgit, US dollars and 24 other currencies, was seized alongside 284 luxury handbags and 37 other bags full of jewelry and watches from an empty apartment at the Pavilion Residences condominiums.”
We’re talking liquid-hard currency…
“Amar Singh, the head of the commercial crime unit, said it took police and 21 officers from Malaysia’s central bank three days to count the stash, which is now being held in the bank’s vaults.”
“There were just 2.6 new homes sold annually for every thousand people aged 16 and over living in the U.S. last month. That compares with a peak rate of 6.1 in July 2005 and an average rate of 3.5 during the 1990s.”
“In the years immediately following the financial crisis, when household balance sheets were still in tatters, tepid new home sales came down to a lack of buying power. More recently, the problem has been supply—there are far fewer new homes on the market than there tended to be before the crisis.”
“Builders can’t easily step up construction. Labor availability has become a persistent concern. One reason that Toll Brothers shares fell sharply following its results Tuesday is that it said labor costs had eaten into margins. Raw materials are costlier too, with framing lumber fetching 39% more than a year ago, according to lumber industry newsletter Random Lengths. Last, but not least, 30-year mortgage rates just hit a seven-year high.”
WSJ – Daily Shot: FRED – Average Sales Price for New Homes Sold in the US 5/24
WSJ – Daily Shot: FRED – Percent of New Homes Sold in the US Between $300k-$399k 5/24
WSJ – Daily Shot: FRED – Percent of New Homes Sold in the US $750k and Over 5/24
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Automotive
WSJ – Daily Shot: Calculated Risk – Light Vehicle Sales Percentage of Total 5/24
“When oil collapsed in 2014 under the weight of US shale production, it ushered in a new-found belief that prices would remain ‘lower for longer’.”
“The rampant new source of crude supplies was seen to be capable of meeting rising world demand almost single-handedly, obviating the need for extra Opec barrels ever again.”
“As such, the concept of a ‘shale price band’ emerged of roughly $40 to $55 per barrel, reflecting the range within which the majority of US shale producers could turn a profit without the risk of the industry growing so fast that it would again flood the market. And for the better part of three years, from 2015 to 2017, oil prices traded in this range.”
“But in 2018, this narrative has been slowly picked apart and is now in the process of disintegrating.”
“While there has been breathless attention paid to prompt Brent prices climbing to $80 a barrel for the first time since 2014, what has received less attention is that the entire Brent forward curve is now trading above $60, including contracts for delivery as far out as December 2024.”
“This development is an important psychological milestone for the oil market. The market is, in effect, saying that ‘lower for longer’ is dead.”
“The reality is that US shale has been unable to meet rising global oil demand, which has averaged 1.7m b/d per year since 2014 — double the level at the start of this decade — and inventories have drawn down as a consequence, eliminating the buffer that had been built up.”
“This inventory fall has been helped by strong demand growth and the Opec/non-Opec deal to curtail output since January 2017, which has since been superseded by rapid declines in Venezuelan and Angolan production and, more recently, non-Opec production outside of the US.”
“The inevitable supply deficit is very worrying, with very limited spare production capacity available globally.”
“Two main themes are now starting to impact investor thinking and drive the new-found interest in exposure to energy.”
“First, recent supply data are finally reflecting the ill effects from under-investment due to the collapse in capital expenditure since 2015. The data are now showing accelerating decline rates across important suppliers such as Brazil, Norway and Angola.”
“Second, the impressive strength in demand has been overshadowed in the past two years by the narrative dominated by electric cars.”
“But slowly this has given way to a recognition that while electric cars will undoubtedly alter the trajectory for global oil demand in the long term, this trend will not reach critical mass in the medium term (the next five years) to sufficiently make up for the expected fall in oil supplies due to the lack of investment.”
“So, even though expectations are for oil demand growth to slow from current levels, consumption will still be robust enough that — barring a major recession — the market will need new supplies to meet that growth.”
“The physical oil market is only going to face greater strain ahead of the marine fuel specification change in 2020, which is set to boost demand for products such as diesel and ultra-low sulphur fuel oil by 2m to 3m b/d.”
“As a result, we believe that oil prices may spike to above $100 per barrel, a price forecast we have held for the latter half of 2019 for three years now.”
“The shale price band has been decisively broken and 2018 will be a watershed year: the market will realize that US shale alone cannot meet the world’s incremental demand growth and future prices must rise to re-incentivize long-cycle investments (or curtail demand).”
“Nothing ever moves in a straight line, but the broader oil market is perhaps not prepared for what will happen to oil prices over the next couple of years.”
“The age of the unicorn likely peaked a few years ago. In 2014 there were 42 new unicorns in the United States; in 2015 there were 43. The unicorn market hasn’t reached that number again. In 2017, 33 new U.S. companies achieved unicorn status from a total of 53 globally. This year there have been 11 new unicorns, according to PitchBook data as of May 15, but these numbers tend to move around, and I believe the 279 unicorns recorded globally in late February by TechCrunch was the peak, where the start-up bubble was stretched to its limit.”
“A recent study by the National Bureau of Economic Research concludes that, on average, unicorns are roughly 50% overvalued. The research, conducted by Will Gornall at the University of British Columbia and Ilya Strebulaev of Stanford, examined 135 unicorns. Of those 135, the researchers estimate that nearly half, or 65, should be more fairly valued at less than $1 billion.”
“Don’t let the few recent successes in the 2017 IPO market fool you. After two years of stagnation in terms of the number of IPOs being filed in the United States — 275 IPOs (2014), 170 IPOs (2015) and 105 IPOs (2016) — deal counts have dropped to their lowest figure since 2012.”
“Seventy-six percent of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida’s Warrington College of Business, and recently featured in The New York Times. This is the largest number since the peak of the dot-com boom in 2000, when 81% of newly public companies were unprofitable.”
“The current volatility and correction evolving in the private market will be amplified for companies that have yet to make money and are burning cash faster than they’re bringing it in. Growth at all costs will not weather an economic storm.”
“Since the Snap IPO in March 2017 at $17 a share, when its shares surged 44% during its first day of trading, they have now declined to $11. Dropbox also went public. It had a first-day pop of 36%; however, with only 200,000 paying customers compared to its 500 million users, I would be hesitant to rush in to buy, even as it comes off that year-to-date high considerably. Another highly valued start-up, Blue Apron, went public at $10 a share in June and is now trading at $3. Remember Fitbit was a $45 stock in 2015 — it’s currently trading at just over $5.”
“Multiple signs of inflation in freight-related industries are at or near historical highs, in what could be an early sign that price pressures are building and ready to reverberate around the economy.”
“Freight marketplace DAT keeps track of supply and demand in the freight industry through a bulletin board that matches companies with loads to be delivered to the vehicles that will take the goods to the marketplace. The measures are in the spot market, where vendors that don’t contract their deliveries find drivers for their products.”
“Recent readings show demand for vehicles skyrocketing, a sign that generally points to inflationary pressures building up in the supply chain.”
“Loads on the spot market in general are up 100% from the same period a year ago. Another measure, the flatbed load-to-truck comparison, which tracks the amount of vendors looking for flatbeds and is generally the highest of all truck types, is up 142%.”
“The numbers by themselves, though, don’t indicate that inflation is ready to strike soon. Indeed, the most recent readings, such as the consumer and producer price indexes, show inflation pressures rising though relatively benign.”
“But they do jibe with some other indicators showing inflation is rising beneath the surface.”
“The US’s banks have largely sat out the mergers and acquisitions wave of recent years. While deal records have fallen in almost every other sector, big banks have done almost nothing, shrinking rather than expanding. And merger activity among small and mid-sized banks — some 5,607 of them, at last count — has been subdued.”
“But when Fifth Third Bancorp of Cincinnati revealed its $4.7bn swoop for Chicago’s MB Financial on Monday morning, shares in other Chicago-area banks began to move, too. Wintrust, a similar-sized bank based in Rosemont, Illinois, ended the day up almost 4%, while First Midwest of Itasca closed up 3%.”
“The implications were obvious: after years of thin activity in bank M&A, this deal could mark a turn.”
“The conditions for dealmaking look better than at any time since the financial crisis. Higher interest rates and lower taxes have pumped up bank profits, giving management teams stronger platforms from which to contemplate doing something radical.”
“Oil has had a leading role in geopolitics over the past 100 years, sucking western powers into an often disastrous dependence on the Middle East.”
“While black gold, as oil is sometimes known, is not always the overt cause of conflict, it is linked to between one quarter and a half of all interstate conflicts globally between 1973 and 2012, according to a 2013 study by Jeff Colgan of Brown University.”
“But it would be a mistake to assume that geopolitical tensions will miraculously ease in a future in which renewable energy sources dominate. Building wind turbines and creating lithium-ion batteries requires metals and raw materials from those countries which are blessed, or potentially cursed, with them.”
“And for some of these commodities, their high concentration in particular parts of the world sharpens the risks.”
“A clean energy economy will require a staggering volume of metals to be prized from the ground.”
“For example, Olivier Vidal of the University Grenoble Alpes estimates that to build the infrastructure for clean energy the amount of copper needed amounts to almost half the total mined since 1900.”
“There is also the real risk that the age of the electric car will generate corporate monopolies, echoing those of Standard Oil whose founder John D Rockefeller cornered the oil market more than a century ago as the combustion engine took off.”
“Glencore, the Switzerland-based and London-listed miner, is expanding its production of cobalt which is set to give it a 40% share of global supply by 2020.”
“The production of lithium, a key ingredient for batteries in electric cars as well as smartphones, is controlled by just five companies.”
“However, rather than tensions with the Middle East, the advent of the electric car will usher in greater friction with China. Beijing’s ambitions in clean energy are enormous.”
“As part of the ‘Made in China 2025’ plan to advance high-end manufacturing, the government wants to establish a grip on the production of electric cars and clean energy technology.”
“The rest of the year will provide further signs of the capital and scale that China is bringing to this competition.”
“No one is giving China a free run at the metals that have emerged as central to electric cars.”
“Trade tensions with US President Donald Trump are already brewing. This month his administration released a list of 35 minerals, including lithium and cobalt, that are ‘considered critical to the economic and national security of the United States.’”
“Chile, which has the world’s largest lithium reserves, is looking to build battery components, while South Africa, a producer of vanadium, wants to produce electrolytes for vanadium batteries, which are used to store energy for the electric grid.”
“Europe, too, is beginning to build its own giant battery factories to supply Germany’s car companies and the UK’s innovation agency has backed a study that uses satellites to look for lithium in Cornwall.”
“The geopolitics of the era of the electric car are in their infancy. While it is unlikely to lead to military conflict, the tensions, especially with China, over who will control the resources and technologies that will underpin electric cars will be heightened.”
“Over the long term, the winners are likely to be those countries and companies that can develop battery technology that relies on materials that are abundant rather than scarce. It might even help make the geopolitics a little less fraught.”
“Malaysia has paid almost RM7bn ($1.8bn) to service debt owed by 1MDB, the south-east Asian nation’s finance ministry said on Tuesday, as investigators ratcheted up their probe into the state investment fund from which $4.5bn is alleged to have gone missing.”
“Two weeks after voters ousted the government of Najib Razak, the finance ministry said it had been ‘bailing out’ the 1Malaysia Development Berhad fund since April 2017, adding that another RM144m interest payment was due on May 30.”
“The revelation ‘confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that [the payments] have been paid via a ‘successful rationalization exercise’,’ the ministry said in a statement. ‘All the while it has been the MoF [ministry of finance] who has bailed out 1MDB.'”
“Earlier on Tuesday, Malaysia’s new anti-corruption chief said he had been harassed and received a death threat after he pursued a 2015 investigation into 1MDB.”
“In 2016 — as global crude oil prices fell to about $40 per barrel — India, which imports nearly 80% of its petroleum, levied new excise duties on petrol and diesel to stabilize prices and prevent a surge in demand.”
“Since then, New Delhi has come to depend heavily on those revenues to shore up its fragile public finances, especially as receipts from the goods and services tax introduced last year have failed to stabilize at expected levels.”
“But after global crude oil prices hit a four-year high of more than $80 per barrel last week, India’s fuel pump prices — for decades subsidized by the government and held artificially low — have jumped to among the highest in south Asia.”
“Industry groups are pressing New Delhi to pare back excise duties on fuel, warning that the high prices will undermine an economy only now recovering from the successive disruption of a dramatic cash ban and the introduction of the goods and services tax.”
“But any meaningful rollback to ease pressure on consumers will raise doubts over the ability of Mr Modi’s administration to meet its target of cutting the fiscal deficit to just 3.3% of gross domestic product.”
“’India’s reliance on oil revenue has now surpassed the Malaysian government’s reliance on oil revenues — and Malaysia is an oil exporter,’ said Vikas Halan, senior vice-president at Moody’s Investors Service, the rating agency. ‘The government can always roll back excise duty — there is no one stopping them — but the issue is, how will they compensate for the loss of revenue?’”
“Last year, excise duties on petroleum products, which are about a quarter of the retail price of petrol and diesel, accounted for 17% of New Delhi’s total revenue collection. For every R1 that the government pares back these excise duties, it will lose an estimated $1.8bn in revenues, or about 0.1% of annual GDP.”
“Adding to the overall pressure is the recent weakening of the Indian rupee, which has fallen 6% this year to a 16-month low of Rs68.1 per dollar. Further depreciation will mean even higher local fuel prices. Bond markets are also jittery, with yields rising.”
