Tag: Real Estate

August 16, 2017

If you were to read only one thing…

FT – IMF warns China over ‘dangerous’ levels of debt – Tom Mitchell 8/15

  • “In an annual review of the world’s second-largest economy, IMF staff said China’s annual economic growth would average 6.4% in 2018-20, compared with a previous estimate of 6%. The IMF is also predicting that the Chinese economy will expand 6.7% this year, up from its earlier forecast of 6.2% growth.”
  • “The Chinese government, which pledged to double the size of the economy between 2010 and 2020, has tolerated a rapid run-up in debt in order to meet its target. ‘The [Chinese] authorities will do what it takes to attain the 2020 GDP target,’ the IMF said.”
  • “As a result, the IMF now expects China’s non-financial sector debt to exceed 290% of GDP by 2022, compared with 235% last year. The fund had previously estimated that debt levels would stabilize at 270% of GDP over the next five years.”
  • “’International experience suggests that China’s current credit trajectory is dangerous with increasing risks of a disruptive adjustment,’ the IMF said in the strongly worded report.”
  • “In the aftermath of the global financial crisis, Chinese authorities unleashed a lending spree that more than quadrupled total debt to $28tn at the end of 2016.” 
  • “In its report, the IMF noted that China’s ‘credit efficiency’ had deteriorated sharply over the past decade, with ever larger amounts of money needed to generate the same amount of growth. ‘In 2008, new credit of about Rmb6.5tn was needed to raise nominal GDP by Rmb5tn,’ the fund said. ‘In 2016 it took Rmb20tn in new credit.’”
  • “The IMF added that had the Chinese government not turned on the credit taps, average real GDP growth in the five years to 2016 would have averaged 5.3% rather than 7.3%.”

Perspective

WSJ – Daily Shot: John Burns Real Estate Consulting – Gross Govt Debt as % of GDP v 10-Yr Bond Yield –  8/15

Worthy Insights / Opinion Pieces / Advice

FT – Shell’s strategic move into electricity – Nick Butler 8/13

  • Shell is thinking ahead – getting into the electricity supply business (to industrial and commercial users).

Real Estate

WSJ – Daily Shot: John Burns Real Estate Consulting – Home Value Index –  8/15

Energy

WSJ – Daily Shot: Dealogic – Oil & Gas High Yield Bond Issuance 8/14

WSJ – Daily Shot: IHS Markit & Houston Chronicle – Pumped Water into Hydraulic Fracturing Wells –  8/15

China

FT – China’s economy is addicted to debt – Jamil Anderlini 8/14

August 11, 2017

Perspective

FT – The long and winding road to economic recovery – Claire Manibog and Stephen Foley 8/9

Data Is Beautiful – City maps from Airbnb location ratings – txafer 8/9

Worthy Insights / Opinion Pieces / Advice

Bason Asset Management – Shame, Status and The American Dream – James Osborne 7/24

  • Sometimes less is more.

Bloomberg View – Canada’s Housing Bubble Will Burst – Ben Carlson 6/21

  • “The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13% from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56%.”
  • “From the 2006 peak, it took until late 2012 for real estate in the U.S. to bottom. We’ve since witnessed a 19% recovery from what was a 27% decline nationwide, on average. While the U.S. real estate downturn lasted almost six years, Canada’s housing market experienced just a 7% drawdown that lasted less than a year. And house prices in Canada reclaimed those losses in about a year and a half. Canadian housing has also outpaced its neighbors to the south since the 2012 bottom in U.S. real estate, with a 30% gain in that time.”
  • “To recap: On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.”

Business Insider – Maverick Capital, a $10.5 billion hedge fund, is struggling to make money – Rachael Levy 8/9

  • “The proliferation of capital focused on non-fundamental factors confuses short-term stock price responses, causing investors to question links between price and fundamentals. Flows into instruments that allocate capital through predetermined ratios without regard to current or future fundamentals distort prices in the short term, but such distortions create wonderful opportunities that fundamental investors should be able capitalize upon over a longer-term timeframe.” – Lee Ainslie, Maverick Capital

Markets / Economy

WSJ – Daily Shot: Retailer Stock Market Valuations 8/10

WSJ – Daily Shot: Comex Copper Inventory (short ton) 8/9

  • “The COMEX copper inventories have risen significantly lately. It suggests that perhaps the copper market isn’t as tight as the recent rally may indicate.”

WSJ – Do Businesses Need Foreign Workers? Martha’s Vineyard Is Finding Out – Laura Meckler 8/10

  • “Jamaicans and other foreign workers have long powered the summer economy in the upscale tourist haven of Martha’s Vineyard, cleaning hotel rooms, waiting tables and mixing fudge. This year, many local businesses had to come up with a Plan B.”
  • “Facing a shortage of foreign laborers, local restaurants have reduced hours of operation and pared back menus. Managers are cleaning hotel rooms, laundry is piling up and at least one restaurant is using disposable cups to ease the dishwashers’ load.”
  • “The problem is a scarcity of the H-2B visas used to bring foreign seasonal workers to the U.S. It has affected many resorts and other businesses that depend on such workers, including Alaskan fisheries. Isolated locations such as Martha’s Vineyard—it has a tiny year-round population and is accessible only by ferry or plane—are especially vulnerable.”

WSJ – Dairies’ Fix for Souring Milk Sales: Genetics and Bananas – Mike Cherney and Heather Haddon 8/9

Britain

Economist – How to solve Britain’s housing crisis – 8/3

  • This prescription applies to many other places besides Britain.
  • “What makes Britain’s housing squeeze maddening is that, unlike many other problems, something can easily be done about it. Britain needs to get building. The consensus is that, to keep prices in check, it must put up 300,000 houses a year, double what it erected in 2015-16.”

China

FT – Chinese top official warns economy ‘kidnapped’ by property bubble – Gabriel Wildau 8/10

  • “A top Chinese lawmaker has warned that profiteering by real estate developers is sapping the lifeblood from China’s economy, as authorities make efforts to contain runaway property prices.”
  • “The real estate industry’s excessive prosperity has not only kidnapped local governments but also kidnapped financial institutions — restraining and even harming the development of the real economy, inflating asset bubbles and accumulating debt risk. The biggest problem currently facing the country is how to reduce reliance on real estate.” Yin Zhongqing, deputy director of the finance and economics committee of the National People’s Congress

FT – China targets mobile payments oligopoly with clearing mandate – Gabriel Wildau 8/9

  • Apple is not the only company that must yield to China.
  • “China’s central bank has ordered online payment groups to operate through a centralized clearing house, a move likely to undercut the dominance of Ant Financial and Tencent by forcing them to share valuable transaction data with competitors.”
  • “China is the world leader in mobile payments, with transaction volumes rising nearly fivefold last year to Rmb59tn ($8.8tn), according to iResearch. They are now widely used for everything from high-street shopping to peer-to-peer lending.” 
  • “In addition to generating fees directly, online and mobile payments are a source of valuable data that can be used for such purposes as targeted advertising and credit scoring.” 
  • “Now the People’s Bank of China is requiring all third-party payment companies to channel payments through a new clearing house by next June, according to a document sent to payment companies on August 4 and seen by the Financial Times.” 

FT – Chinese crackdown on dealmakers reflects Xi power play – Lucy Hornby 8/9

  • President Xi, the master of the long game.
  • “For China’s ruling Communist party, its foreign exchange reserves are a symbol of national strength and are a crucial buffer against economic shocks. So the alarming announcement that forex reserves had fallen below $3tn in January marked a shift in political fault lines that is only being felt this summer.”
  • “As more than $1tn left the country over the previous 18 months amid a flurry of large overseas acquisitions, a sense of crisis grew within the party.”
  • “Technocrats in Beijing had already prepared the ground to take action. In December, they had managed to link the phrase ‘national security’ to the concept of financial risk at the annual agenda-setting economic work conference. Backed with the reserves figures, they were poised to strike against what they saw as the leading culprit — the new generation of highly acquisitive private Chinese companies.”
  • “These tensions within the system have exploded into the open in the past two months with the humiliation of some of China’s best-known and most well-connected private companies, which in recent years have acquired high-profile foreign assets such as New York’s Waldorf Astoria Hotel and French leisure company Club Med.”
  • “In an abrupt turn, a group of businessmen once lauded as the international face of China are now derided in state media as the instruments of systemic financial risk. The private sector has been shaken by leaked documents, smears and the detention of China’s brashest businessman.”

NYT – A Missing Tycoon’s Links to China’s Troubled Dalian Wanda – Michael Forsythe 8/10

FT – Dalian Wanda reshuffles $1bn of assets – Emily Feng 8/10

Bloomberg – China Is Taking On the ‘Original Sin’ of Its Mountain of Debt – Emma O’Brien, Eric Lam, Adrian Leung, Jun Luo, Jing Zhao, Helen Sun, Xize Kang, and Vicky Wei 8/8

Economist – China tries to keep foreign rubbish out – 8/3

  • “China dominates international trade in many goods, but few more than waste for recycling. It sucked in more than half the world’s exports of scrap copper and waste paper in 2016, and half of its used plastic. All in all, China spent over $18bn on imports of rubbish last year. America, meanwhile, is an eager supplier. In 2016 nearly a quarter of America’s biggest exporters by volume were recyclers of paper, plastic or metal. Topping the list was America Chung Nam, a California-based supplier of waste paper which last year exported a whopping 333,900 containers, almost all of them to China.”
  • “This may soon change. On July 18th China told the World Trade Organization that by the end of the year, it will no longer accept imports of 24 categories of solid waste as part of a government campaign against yang laji or ‘foreign garbage’. The Ministry of Environmental Protection says restricting such imports will protect the environment and improve public health. But the proposed import ban will disrupt billions of dollars in trade. Recyclers worry that other categories of waste may soon receive the same treatment.”

August 10, 2017

Perspective

NYT – Public Works Funding Falls as Infrastructure Deteriorates – Binyamin Appelbaum 8/8

FT – Who was convicted because of the global financial crisis? – Kara Scannell and Richard Milne 8/8

Worthy Insights / Opinion Pieces / Advice

NYT – The Political Payoff of Making Whites Feel Like a Minority – Lynn Vavreck 8/8

NYT – Our Broken Economy, in One Simple Chart – David Leonhardt 8/7

A Teachable Moment – Do You Own this Ticking Time Bomb in Your Retirement Account? – Anthony Isola 8/8

  • Watch out for single entity stable value products.

Real Estate

WSJ – The Best Place for a New Warehouse? An Old Mall – Esther Fung 8/8

  • “The pressure for speedy online package delivery is prompting companies to look for distribution facilities closer to residential areas or highways.”
  • “Some of the best locations, it turns out, are dead malls.”
  • “Warehouse landlords say they like former malls because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.”
  • “But it isn’t easy to convert a mall into logistics space quickly. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.”
  • “The dramatic shift in the retail industry and growth of e-commerce have led some analysts to estimate that 400 or so of the roughly 1,100 malls in the U.S. will close in the coming years.”
  • “Meanwhile, the appetite for industrial space continues unabated. Roughly 247 million square feet of industrial space is expected to be delivered this year, according to real-estate services firm JLL.”

Finance

WSJ – Daily Shot: TheAtlasInvestor.com – Euro Junk Bonds & US Treasuries 8/9

South America

NYT – As Maduro’s Venezuela Rips Apart, So Does His Military – Nicholas Casey and Vanessa Herrero 8/8

  • “A growing number of Venezuelan officers are openly breaking ranks with the president and taking up weapons.”
  • “Venezuela has a history of coups and attempted overthrows at times of crisis, and many in the country now wonder if this is one of those times.”
  • “But the nation’s leaders are keenly aware of that, too, and as they face their greatest turmoil in years, they appear to have come prepared: The government has spent years ensuring that the military’s top commanders are deeply invested in the status quo.”
  • “In a single day Mr. Maduro promoted 195 officers to the rank of general. Venezuelan generals, more than 2,000 strong, enjoy a range of privileges, from lucrative control of the food supply to favorable rates for exchanging dollars.”
  • “Eleven of the 23 state governors in Venezuela are current or retired generals, along with 11 heads of the 30 ministries, giving them an extraordinary stake in preserving the government’s control over the country.”
  • “And the defense minister, Vladimir Padrino López, an army general, has been granted an even more lucrative arrangement, with expanded powers to control the country’s ports, as well as parts of the oil and mining industries.”
  • “’Maduro has made sure to give many rewards to senior military officers in exchange for loyalty,’ said John Polga-Hecimovich, a political scientist who studies Venezuela at the United States Naval Academy. ‘While he is completely dependent on them to stay in power, they have much to lose if he is gone.’”
  • But…
  • “Most midlevel officers, however, are far removed from the high ranks or patronage systems on offer from the government. Instead, said Raúl Salazar, a retired general who served as defense minister under Mr. Chávez, they see a deepening poverty caused by the food and medicine shortages that are plaguing the country.”
  • “’Their families, their friends, their acquaintances, everyone is suffering and they begin to ask themselves if it’s getting better or worse,’ General Salazar said. ‘Everyone has the same voice that talks to them each day, and that is their conscience.’”

August 9, 2017

Perspective

Howmuch.net – The Richest Person in Every State 2017 – Raul 8/7

Bloomberg Businessweek – Japan’s Doomsday Preppers Are Buying $19,000 Bomb Shelters – Justin Mattingly 7/25

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Gundlach, Wary of Pricey Market, Sets Cap on DoubleLine Size – Erik Schatzker 8/7

Real Estate

WSJ – Daily Shot: Goldman Sachs – Notable Announced Retail Store Closures 2017 8/8

China

FT – Beijing hails success in battle against capital flight – Gabriel Wildau 8/7

  • “China’s capital flow turned positive in the first half of 2017, a reversal from unprecedented outflows during the previous two years that sparked worries over financial stability.”
  • “Data released on Monday indicate that Beijing’s support for the renminbi and a crackdown on foreign deal making and other outflow channels have largely succeeded in curtailing capital flight.”
  • “China ran a $16bn surplus over the first half of this year, excluding central bank intervention, compared with a $417bn deficit in 2016, balance of payments data showed. The figures also showed that China added to its foreign exchange reserves on a valuation-adjusted basis in the second quarter for the first time since early 2014.”
  • “‘Hot money’ — short-term money movements viewed as a gauge of investor sentiment toward Chinese assets — continues to flow out of the country, albeit more slowly, according to FT estimates based on official data.”
  • “Hot money outflow was $126bn in the first half on a net basis, well behind the $891bn full-year pace for 2016. The FT uses a broad definition of the term, treating all money flows not related to goods trade or foreign direct investment as hot money.”
  • “That suggests investors are eager to take money out of China if they can skirt capital controls, despite recent tightening. Indeed, a Reuters poll of 60 forex analysts in late July showed that they expect the renminbi to erase most of this year’s gains over the next 12 months.”
  • “In a sign that the government remains vigilant despite the improvements, regulators have imposed new measures in recent weeks to prevent capital flight.”
  • “Last week, the foreign exchange regulator named and shamed nine banks for violating forex rules. The agency is also requiring lenders to issue daily reports on all foreign bank card purchases by customers worth more than Rmb1,000 ($149) beginning later this month.”

WSJ – China Gives Up Global Role for a Stronger Yuan – Nathaniel Taplin 8/7

  • “The yuan, which as recently as 2015 had overtaken the Japanese yen as the fourth most popular currency for global payments, now clocks in at No. 6, according to international-transaction service provider Swift, below the Canadian dollar and barely above the Swiss franc. Only 1.98% of international payments tracked by Swift were yuan-denominated in June 2017, down from 2.09% two years ago.”
  • “Given the scale of the bleeding in 2015 and 2016, China’s leaders likely had little choice but to close the drawbridge.”

August 7, 2017

If you were to read only one thing…

FT – Venezuela suspended from South American trade bloc – Andres Schipani 8/5

  • “South American trade bloc Mercosur has suspended Venezuela indefinitely in a symbolic show of force following President Nicolás Maduro’s decision to push ahead with an election for an all-powerful constituent assembly, which critics fear will crush the last vestiges of democracy in the crisis-ridden nation.”
  • “Foreign ministers of Argentina, Paraguay, Uruguay, and Brazil said after a meeting in São Paulo on Saturday that they have triggered its ‘democratic clause’ and decided ‘unanimously to suspend Venezuela from the bloc for a rupture of the democratic order’. They said they would not allow it back in the group until democracy is restored.”
  • “Mr. Maduro’s move to install the assembly has met widespread international condemnation, including from the Vatican on Friday. The two biggest exceptions are China and Russia. Beijing, which has loaned Caracas $60bn, said the elections were ‘generally held smoothly’, though noting ‘the reaction from all relevant sides’.” 
  • “Venezuelan attorney-general Luisa Ortega Díaz, who has become a vocal critic of Mr. Maduro’s government, had also filed a motion for a court order to block the constituent assembly’s installation. But on Saturday, Ms. Ortega Díaz was sacked as members of the constitutional assembly moved ahead with vows to swiftly punish foes.”
  • “For Raúl Gallegos, a Venezuela analyst at Control Risks: ‘The new assembly will give a new lease on life to the unpopular Maduro government. Maduro is far from cornered, despite violent anti-government protests and a hostile international community.’”

Perspective

NYT – Short Answers to Hard Questions About the Opioid Crisis – Josh Katz 8/3

Worthy Insights / Opinion Pieces / Advice

Bloomberg Quint – Paul Singer Says Passive Investing Is ‘Devouring Capitalism’ – Simone Foxman 8/4

FT – Venezuela shows how not to run a socialist government – Alan Beattie 8/3

  • “‘Venezuela shows that socialism always fails’ is perhaps one of the most common and least interesting reactions to the collapse of that country into economic and political chaos.”
  • “Without doubt, radical leftism accompanied by massive state intervention in the economy has a terrible record in Latin America, and indeed elsewhere — though whether that constitutes the entirety of ‘socialism’, given the prevalence of successful center-left, self-styled socialist parties in western Europe, is highly tendentious.”
  • “More interesting is whether progressive redistributive governments can ever succeed in poor countries marked by deep inequality. This particularly applies to those rich in minerals and hence vulnerable to the ‘resource curse’ that unbalances their economies and poisons their politics.”
  • “Venezuela shows what happens when it all goes wrong.”
  • “Meanwhile Bolivia, another, much poorer, South American country, has shown that it is perfectly possible to use oil and gas revenue to achieve widescale redistribution. In the 11 years that Evo Morales has served as Bolivia’s president — and despite a similar line in frothy revolutionary rhetoric to Messrs. Chávez and Maduro — he has managed to reduce the poverty rate in the country by a third while maintaining economic stability.”
  • “Mr. Morales must be one of the world’s few presidents who inveighs fervently against the iniquities of global capitalism while receiving regular plaudits from the International Monetary Fund. Like Mr. Chávez, he has increased social spending, though not always efficiently. Unlike Venezuela, Bolivia has maintained fiscal buffers, cushioning public spending from falls in the oil and gas price.”
  • “Meanwhile, although the rest of the economy remains under-developed, Mr. Morales’s government has been restrained in taking over private businesses, including those owned by foreign investors, and the currency has been pegged against the dollar at a reasonably competitive rate with free movement of capital.”
  • “The point is not that Mr. Morales is a technocratic wizard who has come up with an unprecedented way of managing natural resources. He has simply been one of the few leaders who has — thus far — managed to stop a mineral-rich country becoming an all-out scramble for loot.”
  • “There are serious reasons for concern about the political situation, including Mr. Morales’s plans to ignore a referendum barring him from seeking a fourth term in office, and some high-profile instances of corruption.”
  • “But economically, there is no particular reason that Bolivia’s redistributive model, whether or not called socialism, must collapse.”
  • “Venezuela is what happens when a corrupt and thuggish socialist regime gets hold of oil revenues and then destroys the economy. But it does not follow that large-scale income redistribution in a natural resource state must necessarily end in disaster.”

WSJ – Why Jobs, Wages and Savings Mean Weaker Profits – Justin Lahart 8/4

  • “Weak wage growth has Americans saving less. That can’t go on forever.”

Real Estate

FT – Debt investors cool on ailing US retail sector – Joe Rennison 8/3

  • The prophecy is becoming self-fulfilling. Want to see retail landlords really struggle… It probably won’t be from tenant fallout. However, if you cut off access to credit, it will only be a matter of time.
  • “The inclusion of loans to bricks-and-mortar retailers in commercial mortgage-backed securities has halved since 2010, as investors cool over providing financing for an industry under siege from ecommerce.” 
  • “The retail sector has accounted for an average of just over 24% of the loans underlying newly issued CMBS assessed by the credit rating agency Fitch. That is down from 31.4% last year and 51.5% in 2010. Figures from S&P Global, another rating agency, illustrate the same trend.”
  • “’The entire investor community is definitely more conscious of retail exposure and the quality of that retail exposure,’ said Darren King, a portfolio manager at Semper Capital. ‘There are fewer secondary and tertiary quality assets appearing in CMBS because of those concerns.’”
  • “As retail concentration has declined, mortgages on office properties have increased as a proportion of CMBS, in part thanks to investor demand. Offices comprise 43.3% of the CMBS transactions rated by Fitch so far in 2017, up from 28.7% in 2016.” 
  • “Following the election of Donald Trump in November, expectations of a stronger economy prompted analysts to forecast the need for more office space.”
  • “But Tracy Chen, head of structured credit at Brandywine Global Investment Management, said the prices of office-backed loans have begun to falter given the combination of tepid economic data and the new administration’s struggles to pass stimulative economic policies through Congress.”
  • “‘Office exposure has been increased to compensate the decline in retail. But business needs for space have reduced,’ she said. ‘You have multiple sectors to worry about.’”

August 4, 2017

Perspective

WSJ – Daily Shot: JPMorgan – Changes in Local Consumer Commerce Index (LCCI) 8/3

  • “With wages stagnant, older Americans have cut back on spending more than other generations. In particular, restaurant spending by those who are 55 and older has cratered (second chart below). “LCCI” stands for Local Consumer Commerce Index.”

Worthy Insights / Opinion Pieces / Advice

WP – Trump’s golf game tells us an awful lot about Trump – Dana Milbank 8/2

WSJ – Struggling Americans Once Sought Greener Pastures – Now They’re Stuck – Janet Adamy and Paul Overberg 8/3

Real Estate

WSJ – Daily Shot: R Street – Real Estate Double Bubble – Alex Pollock 8/3

August 1, 2017

Perspective

FT – Apple removes apps that bypass China’s censors – Hannah Kuchler and Max Seddon 7/30

  • “Apple has removed from its Chinese app store applications that enable users to bypass China’s ‘Great Firewall’, in a move that developers have condemned as ‘censorship’.”
  • “The Silicon Valley company has withdrawn virtual private network (VPN) apps from the store, as it pulls all software that do not comply with local law, even if the makers are based outside the country.”
  • “VPNs allow users to access content banned by Chinese censors to control access to information online. This has, in effect, created a ‘Chinese internet’, without many western social media or search engine sites.”

Project Syndicate – Venezuela’s Unprecedented Collapse – Ricardo Hausmann 7/31

  • “In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.”
  • “Venezuelans clearly want out – and it’s not hard to see why.”
  • “But is this just another bad run-of-the-mill recession or something more serious?”
  • “The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.”
  • “Put another way, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe, or the rest of Latin America. And yet these numbers grossly understate the magnitude of the collapse…”
  • “Inevitably, living standards have collapsed as well. The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017. Measured in dollars at the black-market exchange rate, it declined by 88%, from $295 per month to just $36.”
  • “Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Could Football Ever End? – Jason Gay 7/30

  • “A new concussion study provokes more existential worry in the NFL – and, reportedly, an early retirement.”

FT – With oil prices, half a step is not enough – Nick Butler 7/30

  • Saudi Arabia’s additional production curbs are a step in the right direction, but there are just too many other producers that they don’t control.

Markets / Economy

WSJ – Daily Shot: FRED – Velocity of M2 Money Stock 7/31

Real Estate

WSJ – Supermarkets Face a Growing Problem: Too Much Space – Heather Haddon and Julie Jargon 7/31

  • “A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.”
  • “Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group, a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.”
  • “To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.”
  • “But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.”
  • Additionally, this article doesn’t mention the increasing foot prints of these grocers. Many are resembling department stores, but with an emphasis on food.

Finance

WSJ – Private Equity Takes Fire  as Some Retailers Struggle – Lillian Rizzo 7/30

  • “A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.”
  • “Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”
  • “In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.”
  • “Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.”
  • “In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.”
  • “Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.”
  • “Bankruptcy cases are messy by nature, and creditors—typically facing losses—are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.”

China

Bloomberg – China Asks Waldorf Owners Anbang to Sell Assets Abroad, Sources Say 7/31

  • “Chinese authorities have asked Anbang Insurance Group Co., the insurer whose chairman was detained in June, to sell its overseas assets, according to people familiar with the matter.”
  • “The government has also asked Anbang to bring the proceeds back to China after disposing of holdings abroad, said the people, who asked not to be identified because details are private. It is not clear yet how Anbang will respond, the people said.”
  • “Anbang was among the most prominent of Chinese insurers that went on a buying binge across the globe, fueled by soaring sales of investment-type insurance policies, with its 2014 acquisition of New York’s Waldorf Astoria hotel catapulting it into the public eye. Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators.”
  • “Anbang’s rise in recent years was fueled by sales of lucrative investment products that offered among the highest yields compared with peers. China’s insurance regulator this year started clamping down on what it termed ‘improper innovation’ and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.”
  • “One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.”

FT – One of China’s biggest P2P lenders quits ahead of clampdown – Louise Lucas and Sherry Fei Ju 7/30

  • “China’s pending regulatory crackdown on the $120bn peer-to-peer lending industry has claimed its first scalp before it has even begun, with one of the biggest players saying it will wind up its business in an industry full of bad loans and no profits.”
  • “Beijing this month said it would delay regulations that will bar online lenders from guaranteeing principal or interest on loans they facilitate, cap the size of loans at Rmb1m for individuals and Rmb5m for companies, and force lenders to use custodian banks — a requirement only a fraction of the industry has met so far.”
  • “Imposition of the new rules has been delayed from next month until June next year to give companies more time to comply.”
  • “But Hongling Capital has already thrown in the towel, with founder and chairman Zhou Shiping last week admitting that ‘P2P lending is not what we are good at, neither is it something we see potential in. This [P2P lending] business of ours would always be cleared out eventually — it’s only a matter of time.'”
  • “Hongling, which has Rmb17.6bn ($2.6bn) in loans, plans to wind down its eight-year online lending business by the end of 2020.”
  • “According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015, while 3,795 platforms have collapsed since 2011.”
  • “Outstanding loans from China P2P lending platforms totaled Rmb816.2bn ($121bn) at the end of December, double the figure of a year earlier, according to P2P consultant WDZJ.com.”

WSJ – Chinese Banks’ Dash for Capital Gets Under Way – Anjani Trivedi 7/31

  • “Investors have long questioned when China’s banking system, with its heaps of bad loans and hidden leverage, would resort to raising much-needed equity. From the look of it, the weakest lenders are starting to do so.”
  • The method, convertibles. To start, “Ping An Bank, a midsize lender notorious both for selling piles of high-yielding investment products and for sitting on masses of overdue loans, said last week that it plans to issue 26 billion yuan ($3.9 billion) of convertible bonds—uncommon in China—that can be switched into its Shenzhen-listed shares. While convertibles don’t count as equity straight away, they could help improve Ping An’s equity levels when they are turned into stock.”
  • Debt is the green

South America

FT – Venezuelans snub Maduro vote on day marred by violence – Gideon Long 7/31

  • In a word, impunity…
  • “Venezuelans on Sunday largely snubbed Nicolás Maduro’s election for a new all-powerful political assembly, in a vote marred by violence that killed at least 10 people and left seven police officers injured by a bomb attack.”
  • “Opposition leaders rejected the electoral commission’s turnout figure of 8.1m — 41.5% of the electoral register — saying only about 2m had actually voted. Analysts estimated the turnout at 3m-4m.”
  • “The president’s critics say the new assembly, which will be convened within 72 hours, will snuff out the last vestiges of democracy in Venezuela after nearly two decades of populist leftwing rule, turning the country into a new Cuba. It will have the power to dissolve the democratically elected Congress, where the president’s opponents have a majority, rewrite the constitution, scrap future elections and draft new laws.”
  • “In the run-up to the vote, all reliable polls had suggested that between two-thirds and three-quarters of Venezuelans opposed Mr. Maduro’s assembly. One poll said only about 12% of the electorate would vote for it.”
  • The country’s decent continues.

WSJ – Daily Shot: Venezuela Money Supply YoY Change 7/21

  • “Venezuela’s money printing has accelerated. The broad money supply has risen 400% over the past year.”