Tag: Real Estate

February 5, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – Still Clutching an Old iPhone? You’re Not Alone – Shira Ovide 1/4

Bloomberg_Smartphone sales growth_1-4-18

Bloomberg Businessweek – What If China Is Exempt From the Laws of Economics? – Michael Schuman 1/24

Bloomberg Businessweek – How Hedge Funds (Secretly) Get Their Way in Washington – Zachary Mider and Ben Elgin 1/25

FT – Forget bitcoin, give me old-fashioned gold as an inflation hedge – Merryn Somerset Webb 2/1

  • Ms. Webb offers an interesting perspective at why inflation may not be that far away. Why…because the primary source of deflation – China – appears to have changed tact.
  • “For years, party officials have been incentivized to force growth out of their regions, regardless of the effects on prices, global macroeconomics or, for that matter, pollution. But in the party conference in October, Xi Jinping shifted emphasis.”
  • “Instead of focusing on growth, China’s leader talked of ‘three tough battles’: against preventing major risks (mainly financial — the new target is to be ‘further deleveraging’); poverty (Xi fancies a ‘moderately prosperous society’ in all respects); and pollution (he wants to see the sky blue again).”
  • “The result has been pretty instant. Almost as the delegates headed home, say the analysts at Gavekal, prices of natural gas (a ‘clean fuel’) doubled; steel output stalled; and cement sector output actually fell even as demand for it and hence prices rose. China doesn’t seem to be adding new capacity to the global economy in the way that it was and that should mean it isn’t exporting deflation to the rest of the world any more either.”
  • “That is a dynamic that is arguably beginning to show up everywhere else. The slack is disappearing. There is no spare capacity left in Japan (or you would see new cuts to it). Industrial production in the US hit a record high in December, despite the US being too busy with buybacks and financial engineering over the past decade to build new capacity. Manufacturing output in the UK is at its highest in 10 years.”
  • “This could all lead us to several interesting conclusions. The first, highlighted by Gavekal, is that it is an explanation for the way stock markets in countries that have been hampered with too much productive space in the past are suddenly breaking out. See China, Japan and Korea — markets you might want to stick with for a bit.”
  • “The second is that, guess what, the boom in the US might not be entirely down to Donald Trump’s policies. The factories could be humming because global capacity constraints are being hit rather than because he’s the best economic manager ever. And the third is that the real inflation our great leaders (the central banks) think is impossible however much they might print, isn’t impossible at all.”

Markets / Economy

NYT – Cash-Strapped Chinese Giant Taps a New Money Source: Its Workers – Alexandra Stevenson and Cao Li 2/1

  • “Just before payday, an email went out to employees from top executives: Give us your money, and we’ll make it worth your while.”
  • “It was one of many pitches by HNA Group, a Chinese conglomerate struggling under an estimated $90 billion in debt accumulated during a global shopping spree that included buying stakes in multinationals like Hilton Hotels and Deutsche Bank.”
  • “The company, in an email, advertised an ’employee treasure’ product with an 8.5% return if workers handed over $1,500. A similar one dangled 9%. A third mentioned a return as high as 40% if employees ponied up $15,000.”
  • “These pitches, more than a dozen of which were reviewed by The New York Times, were not part of an employee stock program. Instead, they appear to be high interest loans, with the company as borrower and its workers as lenders.”
  • “The conglomerate has seen its borrowing costs rise sharply on the global bond market in recent months, an indication that some investors are increasingly worried about the company’s ability to pay its debts. Seven public companies under the umbrella of HNA have suspended trading of their stock, suggesting that big announcements that could affect key businesses are in the works. The company is also starting to sell assets.”
  • “It is unclear how much money HNA has raised from employees. The company has long offered such investments to its employees as a way to incentivize them and to share in the company’s success, Thomas A. Clare, an attorney for HNA, said in an email.”
  • “Companies around the world allow employees to buy stock or provide other ways for workers to invest in the business. But the HNA pitches do not offer direct ownership stakes in the business.”
  • “The offers reviewed by The Times had similar hallmarks, namely high returns for funding certain operations.”
  • “Chinese companies have often turned to individual investors or their own workers to raise money. But such moves, according to some China finance experts, can signal problems.”
  • “’It’s a desperation measure when companies really have no other source of financing and they are stuck,’ said Anne Stevenson-Yang, co-founder of J Capital Research, a corporate research firm.”
  • “A small company in the southeastern Chinese city of Wenzhou called Wenzhou Liren Educational Group made national news in 2011 after it went bankrupt and was unable to pay nearly $790 million it borrowed from employees and local residents. In 2015, an online peer-to-peer platform called Great Group pressured employees to buy investments in order to raise funds when it found itself in a financial bind, the Chinese news media widely reported. The two companies did not respond to requests for comment.”
  • “As HNA has faced more questions about its operations by both the local and foreign media, the company has issued groupwide emails urging employees to not speak to reporters. In January, HNA’s human resources department told employees they would be required to take a test on how to deal with the news media, according to an internal document reviewed by The Times.”

Real Estate

Bloomberg – Rental Glut Makes NYC the Worst Performer for Equity Residential – Oshrat Carmiel 1/31

Energy

eia – U.S. monthly crude oil production exceeds 10 million barrels per day, highest since 1970 – Jack Perrin and Emily Geary 2/1

eia_US monthly crude oil production_2-1-18

eia_US monthly crude oil production by production method_2-1-18

eia_US monthly crude oil production by location_2-1-18

Reuters – Suncor to cut 400 jobs as it rolls out self-driving trucks – Julie Gordon 1/31

  • “Suncor Energy Inc said on Wednesday that it expected to cut some 400 heavy-equipment operator positions over the next six years as it rolls out a fleet of self-driving trucks at its Canadian oil sand mining operations.”

Finance

Bloomberg – Tesla Sells $546 Million of Bonds as Buyers Can’t Get Enough – Claire Boston 1/31

Cryptocurrency

WSJ – Daily Shot: Investing.com – Bitcoin 2/1

WSJ_Daily Shot_Investing.com - Bitcoin_2-1-18

WSJ – Bitcoin Is Falling Fast, Losing More Than Half Its Value in Six Weeks – Steven Russolillo and Kenan Machado 2/2

WSJ_Bitcoin sell-offs_2-1-18

Britain

FT – Chinese investments in UK fail to materialize – Andy Bounds and Tom Mitchell 2/1

  • “Even as Theresa May inks new deals in Beijing, English cities left waiting for cash.”

China

Bloomberg Businessweek – China Starts Experiment to Tame Its Wild Property Market – Emma Dong and Paul Panckhurst 1/24

Bloomberg_China housing price gains in comparison_1-24-18

WSJ – China’s Bad Banks Face a Case of Indigestion – Anjani Trivedi 2/2

India

Economist – Low-caste Indians are better off than ever-but that’s not saying much 1/25

Economist_Indian caste statistics_1-25-18

South America

FT – Bolivar rallies after Venezuela unifies exchange rates – Gideon Long 2/1

New Zealand

FT – British and US migrants flock to New Zealand – Jamie Smyth 2/1

  • “Immigration surges after Brexit vote and Trump election shocks.”

February 1, 2018

Perspective

Bloomberg – Marijuana Mapped: the Price of Weed Across the U.S. – Jen Skerritt 1/30

WSJ – Daily Shot: US Real Disposable Income and Consumer Spending 1/30

Pew – Remittances from abroad are major economic assets for some developing countries – Drew Desilver 1/29

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – What To Do When Your Stocks Are Soaring – Ben Carlson 1/30

Real Estate

WSJ – Daily Shot: FRED – US Homeownership Rate 1/30

WSJ – Daily Shot: FRED – Change in Owner Occupied Housing Units 1/30

WSJ – Daily Shot: FRED – California Homeownership Rate 1/30

Energy

eia – U.S. crude oil exports increased following hurricane – related refinery disruptions – Corina Ricker 1/29

Cryptocurrency

WSJ – Bitcoin Is Having Its Worst Month in Three Years – Steven Russolillo and Eun-Young Jeong 1/31

WSJ – Daily Shot: Investing.com – Bitcoin 1/29

Bloomberg Gadfly – Crypto Trading Needs a New Model – Tim Culpan 1/28

  • “Many don’t understand how these exchanges work, and that’s why hacking is such a problem.”
  • “When someone buys cryptocurrency from a centralized exchange — I’m going to stick with Bitcoin (BTC) as an example — they swap fiat money for the nominated BTC. But that coin doesn’t get sent to the customer. If it’s bought from a non-exchange seller, then it comes into the exchange’s own wallet, and gets held there. A ledger entry is made, and the customer gets an IOU. If the seller is on the same exchange platform, no BTC even needs to be shifted, the exchange simply changes its accounts to note one less BTC for the seller, one more for the buyer.”
  • “The customer only actually holds the BTC if they then go through the process of sending it from their exchange wallet to another wallet, for example on their smartphone, and that usually incurs fees. Given the large amount of BTC held by just a few wallets — likely owned by exchanges —  it’s clear many customers don’t bother to take possession of the BTC themselves.”
  • “That’s why hacking is such a problem. Centralized exchanges are acting as custodians for a commodity that can’t be copied or double-spent, in an environment where possession is nine-tenths of the law, and using infrastructure that offers a certain amount of anonymity.”
  • “One obvious solution is to boost security protocols. The use of a cold wallet — one not connected to the internet — is now a common tactic. But clearly not all exchanges are practicing good digital hygiene.”
  • “Instead, I see decentralized exchanges becoming more popular. As with equity trading, such a platform is merely the place for a buyer and a seller to meet, and for prices to be discovered. The exchange can play a certain settlement and custodian role, but with blockchain technology, this can be simplified to the point of virtual elimination — atomic transactions could come into play here.”

Africa

NYT – Dangerously Low on Water, Cape Town Now Faces ‘Day Zero’ – Norimitsu Onishi and Somini Sengupta 1/30

  • “…after a three-year drought, considered the worst in over a century, South African officials say Cape Town is now at serious risk of becoming one of the few major cities in the world to lose piped water to homes and most businesses.”

Britain

FT – Property sales in London fall 20% in four years – James Pickford 1/30

January 31, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Lex in Depth: the case against share buybacks – Dan McCrum 1/29

  • “S&P 500 companies have spent $1.1tn on share repurchase programs over the past two years, as executives struggled to turn modest economic growth into higher earnings. Lacking opportunities to invest, or at least shareholder support to do so, companies have spent money buying their own stock, which provides a boost to the size of profits reported per share.”
  • “Fresh records for buybacks are likely to be set, with changes to the US tax regime expected to trigger a repatriation of profits that have been held offshore for years.”
  • “A string of companies, including Boeing and Honeywell, have announced close to $90bn worth of share buyback programs since the reforms were agreed in December. Bank of America Merrill Lynch estimates that of $1.2tn parked overseas, perhaps half of the post-tax total, or around $450bn, could be devoted to share buybacks.”
  • “Shareholders are going to be banging on doors saying we want some of that money,’ says Howard Silverblatt, senior index analyst at S&P Dow Jones. No matter that stock markets have set record highs of late, the expectation that spare cash must be returned to its rightful owners is putting managers under pressure.”
  • “They almost have to buy when the stock is high. Timing the market is not something most companies can do,’ adds Mr Silverblatt. But the new flood of dollars raises an old question about whose interest the practice serves.”
  • McCrum does an excellent job of outlining some of the motives and outcomes of the practice. Some highlights:
  • “The only year in the past 14 when big US companies spent less on buybacks than dividends was 2009, when the S&P 500 index hit rock bottom. ‘The best time to do [a buyback] is in a recession, but that’s when everyone is scared stupid,’ says Andrew Lapthorne, a quantitative strategist for Société Générale.”
  • “If a company has more cash than it needs, and nothing better to invest in, it should consider whether buying its own stock is a good investment. Yet the time when companies have plenty of spare cash tends to be when business is good and shares are overvalued.”
  • “Apple has admitted that a primary purpose of its buybacks is to neutralize the impact of stock compensation.”
  • “The company has spent $151bn on repurchasing stock in the past decade, about 17% of its almost $900bn market valuation. The number of shares has dropped by about the same amount — 17%. Yet when Apple started to buy in 2012, the shares could be bought for half today’s price. The difference has been handed to employees.”
  • “Some companies have managed to spend more on buybacks in recent years than the shares are worth today.”
  • “Since 1995 IBM, the consulting and supercomputer group, has spent $162bn to repurchase more than half of its outstanding shares. What is left, for those who did not sell, is a company now valued at $154bn, suggesting the money was spent in the wrong place.”
  • “Any company will wonder what its valuation might have been, were different decisions taken. Prof Lazonick (William Lazonick, professor of economics at the University of Massachusetts Lowell) points to the example of Cisco Systems, the world’s largest networking company. In two decades it has spent $75bn repurchasing stock, more than three times the total for capital investment in property or equipment. A serial acquirer of other businesses, it has long struggled to grow sales.”

Markets / Economy

WSJ – Daily Shot: Trading activity at retail-focused brokerages 1/29

  • “Retail investor trading activity has accelerated recently. It’s starting to look like the late 90s.”

Real Estate

Bloomberg – Singapore Overtakes China as Largest Asian Investor in U.S. Property – Pooja Thakur Mahrotri 1/28

Bloomberg – Wanda Selling $5.4 Billion Property Unit Stake, to Seek Listing ‘Soon’ – Jing Yang De Morel 1/29

  • More on the Tencent investment below. However, wanted to call attention to…
  • “Separately, Wanda put its last two overseas property developments up for sale, according to people familiar with the matter, in the latest unwinding of a decade-long overseas buying spree that drew scrutiny from Chinese regulators. The group is seeking buyers for a hotel, office and apartment complex in Chicago and a development in Beverly Hills, California, said the people, who asked not to be identified because discussions are private.”
  • Presumably the Beverly Hills site is the “One Beverly Hills,” aka Robinson May, site that was previously purchased by New Pacific Realty Corporation for $33.5m in 2004, sold to the Candy Brothers for $500M in 2007, bought out of foreclosure by Hong Kong based Joint Treasure International for $148M in 2010 and then sold to Dalian Wanda for $420M in 2014.

CNBC – America’s 10 most valuable malls are bringing in billions in sales. Here’s where they are – Lauren Thomas 1/29

NYT – New York’s Hidden Home Buyer Closing Costs: Luxury Boxes and Mint Mojitos – Shane Goldmacher 1/29

Health / Medicine

Economist – America’s opioid epidemic is driven by supply 1/29

  • “A new study shows that economic factors do not fully explain the rising number of drug deaths.”

WSJ – Schools Close as Flu Epidemic Spreads – Tawnell D. Hobbs and Sarah Toy 1/27

  • “Schools in at least 11 states have closed as the worst flu epidemic in nearly a

decade intensifies.”

China

WSJ – Why Tencent’s Latest Property Deal Makes Sense – Jacky Wong 1/30

  • Reminds me of when the Japanese Keiretsu’s were buying stakes in each other.
  • In this instance Dalian Wanda benefits from an association with Tencent and Tencent picks up some real estate equity on the cheap (maybe).

January 29, 2018

Perspective

BLS – TED: The Economics Daily – Union Membership Rates in each State, 2017 1/25

  • “New York continued to have the highest union membership rate (23.8%), while South Carolina continued to have the lowest (2.6%).”

statista – The Countries Most Optimistic About 2018 – Niall McCarthy 1/22

Visual Capitalist – Visualizing a Global Shift in Wealth Over 10 Years – Jeff Desjardins 1/26

WSJ – Daily Shot: US Upward Mobility 1/26

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Some Lessons For Living From Older Generations – Ben Carlson 1/25

Project Syndicate – Blockchain’s Broken Promises – Nouriel Roubini 1/26

WSJ – My 10-Year Odyssey Through America’s Housing Crisis – Ryan Dezember 1/26

Markets / Economy

Bloomberg – Worthless Auto Trade-Ins Signal Riskier Loans – Claire Boston 1/25

  • “A growing share of the trade-ins that U.S. auto dealers and lenders accept for car-purchase financing are worthless on paper, a sign that banks and finance companies are making riskier loans to keep up revenue as vehicle sales slow.”
  • “Almost a third of cars traded in last year were worth less than the loans that had been financing them, according to car-shopping website Edmunds. That’s up from about a quarter a decade earlier, said Edmunds, which looked at cars traded in as part of financing packages for new auto purchases in the U.S.”
  • “Underwater trade-ins are just one example of the greater risks that lenders are taking now. New vehicle sales fell 1.8% to 17.2 million in 2017, but lending volume for new and used car purchases was on track to be higher than ever, according to data from the Federal Reserve Bank of New York and consumer credit bureau Experian. The growth in the average amount financed for a new car outpaced median income growth between 2013 and 2016, Moody’s said, suggesting borrowers are getting more strained.”
  • “Any pain from car-loan trouble will likely be just a shadow of the housing bubble collapse, because the auto debt market is much smaller. There were around $9 trillion of mortgages outstanding at the end of the third quarter, compared with $1.2 trillion of auto debt, the New York Fed said. And so far, many of the bonds backed by subprime auto loans are performing well thanks to built-in protections for investors. Wells Fargo analysts said in a note Wednesday that bonds issued by two of the biggest subprime auto lenders — Santander Consumer USA Holdings Inc. and General Motors Co.’s finance arm — have room to reach prices not seen since before the financial crisis.”
  • “The higher percentage of underwater loans on trade-ins may be a sign that car owners are trading in their vehicles sooner than they had previously. A consumer is often the most underwater on his or her auto loan in the first few years of ownership, because the value of the vehicle drops fastest over that time.”
  • “For borrowers who do trade in their underwater cars, lenders are essentially giving them the money to pay down their loan. The dealer sells the used car, and whatever balance remains on the old loan is folded into the new loan. The borrower might get a longer-term loan than he or she had before to help keep monthly payments manageable.”

Real Estate

Commercial Property Executive – REIT Gets SEC OK for St. Regis Aspen Resort IPO – Gail Kalinoski 1/26

  • “Aspen REIT Inc. has been given approval by the Securities and Exchange Commission for a $33.5 million initial public offering allowing investors to buy shares in the luxury St. Regis Aspen Resort in Colorado.”
  • “Upon closing of the IPO, Aspen REIT will be the first single-asset REIT to list on a national securities exchange in the U.S., according to the company.”
  • “Aspen REIT is offering 1,675,000 shares at $20 per share in the Regulation A+ IPO. The REIT applied to list its common stock on the NYSE American stock exchange under the ticker symbol AJAX. Aspen REIT intends to use substantially all of the net proceeds from the IPO, together with equity in Aspen REIT’s subsidiary operating partnership, to acquire the St. Regis Aspen Resort, a full-service, 179-key luxury hotel at the base of Aspen Mountain in the Rocky Mountains.”
  • Well that’s another way to ‘crowd source’ / syndicate funds.

Finance

Topdown Charts – ChartBrief 182 – Bond Yield Outlook – Callum Thomas 1/24

  • “There has been a lot of talk lately about trendlines, key levels and breakouts by some of the big names… Ray Dalio, Jeffrey Gundlach, Bill Gross.  But anyway, you don’t need to be a famous hedge fund manager to see the writing slowly showing up on the wall here across the major global sovereign bond markets.  The charts below show US and German 10-year bond yields have already broken out, and Japan/UK are getting close.”

WSJ – Daily Shot: US 3 Month LIBOR Rate 1/24

Cryptocurrency

Bloomberg – Coincheck Says It Lost Crypto Coins Valued at About $400 Million – Yuji Nakamura and Andrea Tan 1/26

Environment / Science

Yale News – 2018 Environmental Performance Index: Air quality top public health threat 1/23

Mexico

Reuters – Mexico’s drug cartels, now hooked on fuel, cripple the country’s refineries – Gabriel Stargardter 1/24

Puerto Rico

NYT – Hurricane-Torn Puerto Rico Says It Can’t Pay Any of Its Debts for 5 Years – Patricia Mazzei and Mary Williams Walsh 1/24

  • “The devastation wrought by Hurricane Maria has made Puerto Rico’s already dire financial situation even worse: The island’s leaders acknowledged late Wednesday that they will not be able to pay down any portion of their more than $70 billion debt for the next five years because of the damage.”
  • “Just before the hurricane, Puerto Rico had made plans to pay creditors a total of $3.6 billion through 2022. That was a fraction of the amount due, had the island, a United States territory, not gone into default.”
  • “Now, Puerto Rico expects its budget to be $3.4 billion in the red this year — a deficit that will take five years to close — because of the storm’s toll.”
  • “Nearly a third of customers remain without electricity, more than four months after the storm.”
  • “The government projects its population will shrink by 19.4% over the next five years, with a total exodus of over 600,000 people.”

 

January 25, 2018

Perspective

AZ Central – USA Today: Budweiser falls from top three U.S. beer favorites – Mike Snider 1/23

NYT – School Shooting in Kentucky Was Nation’s 11th of Year. It Was Jan. 23. – Alan Blinder and Daniel Victor 1/23

WSJ – Daily Shot: Vox – US Marijuana Laws 1/24

Worthy Insights / Opinion Pieces / Advice

The Mission – Why The Smallest Steps Towards Your Goals Become Giant Strides of Momentum – Tony Fahkry 1/23

Markets / Economy

WSJ – Price War Pressures Consumer-Goods Giants – Sharon Terlep 1/23

  • “Procter & Gamble said average prices fell for first time since 2011; rival Kimberly-Clark to slash jobs.”

Real Estate

WSJ – What’s a House Worth? Wall Street Turns to Drive-By ‘Appraisals’ – Ryan Dezember and Peter Rudegeair 1/22

WSJ – Big Landlords Pile Into Co-Working as WeWork’s Ascent Continues – Peter Grant 1/23

Cryptocurrency

Economist – Daily Chart: Crypto-currencies are in a tailspin 1/22

Bloomberg – Bitcoin May Split 50 Times in 2018 as Forking Craze Mounts – Olga Kharif 1/23

Construction

FT – US ‘constructech’ start-up raises $865m in SoftBank-led round – Richard Waters 1/24

  • “Katerra aims to transform homebuilding by applying precepts of electronics outsourcing.”
  • “The company, which operates from a factory in Arizona, already has $1.3bn of committed orders from developers and hopes to build another four or five facilities by the end of next year…”
  • “Katerra hopes to drive down costs by ordering materials for multiple developments at once, giving it negotiating leverage over suppliers, and by developing manufacturing techniques to lower overall construction costs.”
  • “In one sign of its ambition, Katerra recently broke ground on an $85m factory in the US state of Washington that it said would be the world’s biggest maker of cross-laminated timber, a more ecologically friendly building material that is increasingly being used instead of concrete and steel.”
  • “The investment, which lifts the total amount Katerra has raised to almost $1.2bn, values the company at more than $3bn, including the latest round…”

January 23, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg – This Rare Bear Who Called the Crash Warns Housing Is Too Hot Again – Prashant Gopal 1/22

FT – China’s VPN crackdown is about money as much as censorship – Lucy Hornby 1/21

  • “Curbs on internet access also serve to hand business to Chinese companies.”

Markets / Economy

NYT – Inside Amazon Go, a Store of the Future – Nick Wingfield 1/21

FT – IMF hails ‘broadest’ upsurge in global growth since 2010 – Chris Giles 1/22

  • “Forecasts upgraded for 2017, 2018, 2019, adding to positive mood ahead of Davos gathering.”

Real Estate

Bloomberg – WeWork Is Turning Its Offices Into Study Halls – Olivia Zaleski 1/22

  • “The co-working giant is teaming up with online education provider 2U to give online students places to study and collaborate.”

Energy

WSJ – Frackers Could Make More Money Than Ever in 2018, If They Don’t Blow It – Bradley Olson 1/22

  • “Oil companies, listening to investors, promise modest drilling as oil prices rise, but skeptics remain.”

Cryptocurrency

NYT – There Is Nothing Virtual About Bitcoin’s Energy Appetite – Nathaniel Popper 1/21

  • “In the virtual currency world this creation process is called ‘mining.’ There is no physical digging, since Bitcoins are purely digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.”
  • “The energy consumption of these systems has risen as the prices of virtual currencies have skyrocketed, leading to a vigorous debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.”
  • “All of the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a math algorithm. The algorithm is so complicated that the only way to find the desired answer is to make lots of different guesses. The more guesses a computer makes, the better its chances of winning. But each time the computers try new guesses, they use computational power and electricity.”
  • “The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer and unlock the new Bitcoins that are distributed every 10 minutes or so.”
  • “This process was defined by the original Bitcoin software, released in 2009. The goal was to distribute new coins to people on the Bitcoin network without a central institution handing out the money.”
  • “Early on, it was possible to win the contest with just a laptop computer. But the rules of the network dictate that as more computers join in the race, the algorithm automatically adjusts to get harder, requiring anyone who wants to compete to use more computers and more electricity.”
  • “These days, the 12.5 Bitcoins that are handed out every 10 minutes or so are worth about $145,000, so people have been willing to invest astronomical sums to participate in this race, which has in turn made the race harder. This explains why there are now enormous server farms around the world dedicated to mining Bitcoin.”
  • “The rules have kept attackers at bay in the nine years since the network got going. Without this process, most computer scientists agree, Bitcoin would not work.”
  • “But there is disagreement over the real value of Bitcoin and the network that supports it.”
  • “Mr. de Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction currently required 80,000 times more electricity to process than each Visa credit card transaction, for example.”
  • “The figures published by Mr. de Vries have been criticized by Mr. Bevand (Marc Devand, a miner and analyst) and other Bitcoin fans, who say they overstate the energy costs by a factor of about three. Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.”

China

Axios – China’s “Belt and Road” infrastructure projects – Lazaro Gamio and Erica Pandey 1/19

By the numbers

  • “$1 trillion or more is the expected price tag, the New Yorker’s Evan Osnos reports. That’s seven times as costly as the Marshall Plan, on which the U.S. spent $130 billion to rebuild Europe after World War II.”
  • “70 countries will be involved in the initiative, Chinese news outlet Xinhua reports.”
  • “At least 36 planned or existing ports outside of China are involved.”
  • “$786 billion in trade took place between China and Belt and Road partners in the first three quarters of 2017, a 15% increase from 2016.”
  • “In Pakistan: China is partnering with Pakistan to build $60 billion worth of infrastructure as part of the initiative, CNBC reports.”
  • “In Thailand: The Chinese partnership with Thailand is expected to yield a 542-mile railroad, carrying high-speed trains that’ll move at up to 150 miles per hour, per CNBC.”
  • “In Malaysia: One Belt, One Road will spend about $40 billion on four railroad projects, per Xinhua.”
  • “The rise: The U.S. controls 24% of the global economy and China 15%, compared to 31% and 4% respectively in 2000.”

FT – Dalian Wanda pledges to clear overseas debt as revenues drop – Emily Feng and Lucy Hornby 1/21

  • “Chinese group’s turnover falls 11% on asset sales and credit squeeze.”

January 22, 2018

Perspective

Visual Capitalist – What Assets Make Up Wealth? – Jeff Desjardins 1/19

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – These Are Like, Really Bad Funds – Anthony Isola 1/18

Bloomberg View – No One Wants Your Used Clothes Anymore – Adam Minter 1/15

  • “A once-virtuous cycle is breaking down. What now?”

FT – Fixation on timing of peak oil is ‘misguided’ – Anjli Raval 1/17

Pragmatic Capitalism – 2 Annoying Myths About Low Rates – Cullen Roche 1/19

  • “There’s usually two forms of ideological rhetoric that accompany low interest rates. The first is that the Fed has ‘manipulated’ interest rates lower. And the second is that the Fed is ‘punishing savers’. These myths have scared people away from stocks and bonds and left them frozen in cash or worse, chasing commodities and gold. So let’s take a look at each of these ideas because some clarity might help put things in a more practical perspective.”

Wolf Street – What Will Rising Mortgage Rates Do to Housing Bubble 2? – Wolf Richter 1/20

  • “The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.”
  • “In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.”
  • “The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.”
  • “This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.”
  • “At 2.66%, the 10-year yield has reached its highest level since April 2014, when the ‘Taper Tantrum’ was winding down. That Taper Tantrum was the bond market’s way of saying ‘we’re shocked and appalled,’ when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called ‘QE Infinity’.”
  • “The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):”
  • “Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.”
  • “But it has impacted the mortgage market. On Friday, the average 30-year fixed-rate mortgage with conforming loan balances ($417,000 or less) for top-tier borrowers, according to Mortgage News Daily, ended at 4.23%, the highest in nine months.”
  • “But historically, 4.25% is still very low. And likely just the beginning of a long, uneven climb higher.”
  • “And the impact on mortgage payments can be sizable. When rates rise for example from 3.5% to 4.5%, the payment for a $250,000 mortgage jumps by $144 to $1,267 a month (a 13% increase).”
  • “A one-percentage-point increase takes on larger proportions in a place like San Francisco, where it might take a mortgage of $1.25 million to buy a median home. At 3.5%, the monthly payment is $5,613. At 4.5%, it jumps to 6,334, an increase of $721 a month and an increase of $8,652 a year.”
  • “A mortgage rate of 4.5% is still very low! And it is likely headed higher.”
  • “Since the Financial Crisis, the ultra-low mortgage rates were among the factors that have caused home prices to soar. But as rates are heading higher, the housing market is in for a big rethink. These higher rates are going to be applied to the now prevailing sky-high home prices.”
  • “There’s another aspect to this equation: Homebuyers who are willing and able to stretch to cough up those higher mortgage payments can’t spend this money on other things. Falling mortgage rates gave a huge boost to home prices and to the entire economy in numerous ways. But that process will go into reverse.”

WSJ – Can We Be Brutally Honest About Investment Returns – Jason Zweig 1/19

  • “Pension funds have fantastical expectations of the market.”

Markets / Economy

Economist – Return of the Mac – Daily Chart 1/18

WSJ – IBM Revenue Grows for the First Time Since 2012 – Ted Greenwald 1/18

  • First time in 23 quarters.

Bloomberg – Inflation Isn’t Missing Fed’s 2% Target in West’s Booming Cities – Steve Matthews 1/17

Real Estate

Bloomberg – The Value of New York Real Estate Jumps More Than 9% – Martin Z Braun 1/17

  • “The city set a value of $1.26 trillion for its more than one million properties for the fiscal year beginning in July, an increase of 9.4% over the previous period that promises to boost the government’s tax collections.”
  • “Residential and commercial property value in Brooklyn rose 12%, the most of New York’s five boroughs, to $335.5 billion, according to the city’s finance department. Manhattan property rose 7.3% to $483.6 billion, the slowest growth.”
  • We’ll see if the values hold up in Brooklyn as rents – hence revenues – soften; see below.

WSJ – Brooklyn Landlords Slash Rents to Attract Tenants – Josh Barbanel 1/17

  • “The median rent across the borough has declined by more than 9% since the peak in 2014, forcing landlords to offer more concessions.”

NYT – Tax Overhaul Is a Blow to Affordable Housing Efforts – Conor Dougherty 1/18

  • “’It’s the greatest shock to the affordable-housing system since the Great Recession,’ said Michael Novogradac, managing partner of Novogradac & Company, a national accounting firm based in San Francisco.”
  • “According to an analysis by his firm, the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding an existing shortage.”

Reuters – German discounter Lidl slows U.S. expansion – Douglas Busvine 1/17

WSJ – It’s Time for China’s Property Developers to Quit Gambling – Jacky Wong 1/19

  • “Chinese house prices have been booming for two years and shares of the country’s home builders—which have made big leveraged bets on the market—have likewise been on a tear. The question now, as the market shows signs of cooling, is: Should they hold or fold?”
  • “Some of the sector’s best performers are also the most indebted. Shares in China Evergrande, which sits on net debt of $63 billion, have surged nearly six times in value since the beginning of 2017 (this has led to the company’s chairman – Hui Ka Yan – becoming the wealthiest person in China). Likewise, Sunac China’s shares have risen more than five times in the same period. Its net debt is equivalent to four times its equity, while the ratio is 240% for Evergrande. The average for U.S. real-estate firms, by contrast, is 96%, according to S&P Global Market Intelligence.”
  • “There have been signs of developers deleveraging. Evergrande raised a total of $20 billion last year by selling about a third of its property business in three rounds—the latest in November. Sunac raised $1 billion from issuing new shares last month.”
  • “More remedial action will be needed if the cooling of China’s housing market continues. Data this week showed housing prices in China ticked up slightly in December; but growth is much slower now than a year ago, and prices are heading down in major markets such as Beijing. Lower revenues mean developers will have to reduce their already sky-high debt-servicing costs: Evergrande’s interest bill in the first half of last year was equal to about half its operating profit, for example. The company has reported negative operating cash flow ever since it was listed in 2009.”

Finance

Visual Capitalist – The Periodic Table of Commodity Returns – Jeff Desjardins 1/18

Cryptocurrency

Bloomberg – Hackers Have Walked Off With About 14% of Big Digital Currencies – Olga Kharif 1/18

  • “Digital currencies and the software developed to track them have become attractive targets for cybercriminals while also creating a lucrative new market for computer-security firms.”
  • “In less than a decade, hackers have stolen $1.2 billion worth of Bitcoin and rival currency Ether, according to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP. Given the currencies’ explosive surge at the end of 2017, the cost in today’s money is much higher.”
  • “Blockchain records are shared, making them hard to alter, so some users see them as super-secure. But in many ways they are no safer than any other software, Matt Suiche, who runs the blockchain security company Comae Technologies, said in a phone interview.”
  • “And since the market is immature, blockchains may even be more vulnerable than other software. There are thousands of them, each with its own bugs. Until the field is winnowed to a few favorites, as happened with web browsers, securing them all will be a challenge.”
  • “Many blockchains started as forks that diverged from existing crypto ledgers, and as Taiwanese security researchers have pointed out, every fork gives hackers a new way to try to falsify data.”
  • “In a Dec. 25 paper, researchers at the Institute of Electrical and Electronics Engineers outlined ways hackers can spend the same Bitcoins twice, the very thing blockchains are meant to prevent. In a Balance Attack, for instance, hackers delay network communications between subgroups of miners, whose computers verify blockchain transactions, to allow for double spending.”

Business Insider – Some cryptocurrency traders in South Korea took the bitcoin ‘bloodbath’ to a whole new level – David Choi 1/18

  • Check out the photos / comments.

Cointelegraph – Bitconnect Ponzi Scheme – No Sympathy From Crypto Community – Gareth Jenkinson 1/19

NYT – When Trading in Bitcoin, Keep the Tax Man in Mind – Tara Siegel Bernard 1/18

Tech

Statista – Global PC Market Shrinks to Decade Low – Felix Richter 1/17

Environment / Science

FT – Home fuel blamed for 25% of India’s air pollution deaths – Kiran Stacey 1/11

  • “Main cause of 1.1m annual toll is domestic burning of wood, coal or even cow dung.”

NYT – Warming, Water Crisis, Then Unrest: How Iran Fits an Alarming Pattern – Somini Sengupta 1/18

  • “In short, a water crisis — whether caused by nature, human mismanagement, or both — can be an early warning signal of trouble ahead. A panel of retired United States military officials warned in December that water stress, which they defined as a shortage of fresh water, would emerge as ‘a growing factor in the world’s hot spots and conflict areas’.”
  • “’With escalating global population and the impact of a changing climate, we see the challenges of water stress rising with time,’ the retired officials concluded in the report by CNA, a research organization based in Arlington, Virginia.”

China

FT – China births fall despite relaxation of one-child policy – Tom Hancock 1/18

Reuters – China’s Dalian Wanda Group says 2017 revenue down 10.8% – Clare Jim and Julie Zhu 1/20

South America

WSJ – Venezuela’s Oil Production Is Collapsing – Anatoly Kurmanaev and Kejal Vyas 1/18

  • “Crude oil production fell 12% in December from the month before, according to government figures released Thursday. Over all of 2017, output was down 29%, among the steepest national declines in recent history, driven by mismanagement and under investment at the state oil company, say industry observers and oilmen.”
  • “The drop is deeper than that experienced by Iraq after the 2003 war there—when the amount of crude pumped fell 23%—or by Russia during the collapse of the Soviet Union, according to data from the Organization of the Petroleum Exporting Countries.”
  • “’In Venezuela, there is no war, nor strike,’ said Evanán Romero, a former director of government-run Petróleos de Venezuela SA. ‘What’s left of the oil industry is crumbling on its own’.”

January 19, 2018

Perspective

Freedom House – Freedom in the World 2018 – Democracy in Crisis 1/17

WSJ – Daily Shot: Maps on the Web – Global Fertility Rates 1/17

Worthy Insights / Opinion Pieces / Advice

The Atlantic – Raising a Social-Media Star – Taylor Lorenz 1/17

  • “The parents of teen internet celebrities get a crash course in a new kind of fame while trying to maintain boundaries for their newly rich and powerful children.”

Washington Monthly – How to Fix Facebook – Before It Fixes Us – Roger McNamee 1/7

  • “An early investor explains why the social media platform’s business model is such a threat – and what to do about it.”

WP – In Venezuela, money has stopped working – Francisco Toro 1/17

  • “Hyperinflation is disorienting. Five or six years ago, the 500 bolivars on the floor would’ve bought you a meal for two with wine at the best restaurant in Caracas. As late as early last year, they would’ve bought you at least a cup of coffee. At the end of 2016, they still bought you a cup of café con leche, at least. Today, they buy you essentially nothing … well, except for 132 gallons of the world’s most extravagantly subsidized gasoline.”
  • “Prices are now rising more than 80 percent per month, according to the opposition-led National Assembly’s Finance Committee. (The government itself stopped publishing official inflation data long ago.) At that rate, prices double every 34 days or so. Salaries lag far behind, leaving more and more of the country to face outright hunger. Thus, the looting.”
  • “Rule No. 1 of surviving hyperinflation is simple: Get rid of your money. Given the speed with which money is shedding its value, holding on to it means you’re losing out. The second you’re paid you run out as fast as you can to buy something – anything – while you can still afford it. It’s better to hold almost any asset than money, because assets hold their value and money doesn’t.”
  • “I think this is what’s so hard to wrap your mind around if you’ve never experienced hyperinflation. It sounds like it’s about prices rising fast, but it really isn’t. It’s about money breaking down. Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. It stops being something you want to have and turns into something you’ll do anything to avoid having: something so worthless you won’t even bend down and scoop it up off the floor while you’re looting.”

Markets / Economy

Bloomberg – Beware the $500 Billion Bond Exodus – Liz McCormick and Molly Smith 1/17

  • “For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.”
  • “The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.”
  • “It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.”
  • “The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.”
  • “Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come — an expense that taxpayers would ultimately have to bear.”
  • “And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595% this month.”
  • “Of course, it’s important to understand that for most multinationals, offshore cash is really only ‘offshore’ for accounting purposes. Under the old tax system, earnings attributed to foreign subsidiaries, often based in jurisdictions with low taxes or lax regulations like Ireland or Luxembourg, could be repatriated and remain earmarked as ‘held overseas’ — so long as it was stashed in U.S. securities. Apple, for example, manages its hoard from Reno, Nevada, where its internal investment firm, Braeburn Capital, is located.”
  • “’The term overseas cash can be a bit of a misnomer, as it doesn’t have to be overseas and in fact a lot of it isn’t,’ said Michael Cahill, a strategist at Goldman Sachs Group Inc. That should limit any appreciation in the dollar related to repatriation over the longer term.”
  • “Big multinationals have good reason to bide their time, according to Richard Lane, a senior analyst at Moody’s Investors Service. Because their debt investments are so extensive, companies could end up inflicting losses on themselves with any large-scale selling.”
  • “’I don’t think there will be a rush to the door by these companies to sell this debt and causing increasing yields and lower pricing,’ said Lane.”

WSJ – Apple Plans to Pay $38 Billion in Repatriation Taxes – Imani Moise 1/17

  • “It also said Wednesday it would spend more than $30 billion to create 20,000 jobs and open a new campus at a U.S. location to be announced later this year.”

Real Estate

WSJ – A Slowdown Is in Store for the Self-Storage Business – Peter Grant 1/16

  • “A flood of new supply is crimping growth in the self-storage sector.”

Finance

Bloomberg Gadfly – Discount Brokers Act Like Wall Street on Fee Conflicts – Nir Kalssar 1/16

  • “One sign of a frenzied stock market rally is a sharp outperformance of retail brokers.” – WSJ Daily Shot 1/18

Bloomberg – Venture Capital Investing Hits Highest Since Dot-Com Boom – Julie Verhage 1/8

Insurance

Economist – Natural disasters made 2017 a year of record insurance losses 1/11

  • “According to figures released on January 4th by Munich Re, a reinsurer, global, inflation-adjusted insured catastrophe losses reached an all-time high of $135bn in 2017. Total losses (including uninsured ones) reached $330bn, second only to losses of $354bn in 2011.”
  • “A large portion of the losses in 2011 was caused by one catastrophe: the earthquake and tsunami in Japan. Losses in 2017 were largely traceable to extreme weather. Fully 97% were weather-related, well above the average since 1980 of 85%.”
  • “Last year’s disasters were particularly concentrated in North America (including the Caribbean), with 83% of global losses; half of those were in America alone, hitting that country’s insurers particularly hard. Fitch, a ratings agency, expects the ‘combined ratio’ for American property-and-casualty insurers to rise from 100.7% in 2016, meaning costs and claim payouts just exceeded premium revenue, to 104.4% in 2017. That implies a substantial underwriting loss for the industry. Even Warren Buffett’s Berkshire Hathaway looks poised for its first full-year underwriting loss in 15 years. It took a $3bn hit from the three hurricanes and an earthquake in Mexico.”
  • “For all the gloom, the 2017 losses were also proof of the resilience of the reinsurance industry. Insurers have long spread catastrophe risk by taking out reinsurance policies. This time, reinsurers had such ample capital buffers that they are expected to suffer only a small dent, of around 5-7% of capital.”

WSJ – Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice – Leslie Scism 1/17

  • “Battered by losses, long-term-care insurers hit policyholders with steep rate increases that many never saw coming.”
  • “Only a dozen or so insurers still sell the coverage, down from more than 100. General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI.”
  • “When sales of long-term-care insurance were ramping up in the 1980s and 1990s, companies thought they had found the perfect product for middle-class families—and that’s how they pitched it.”
  • “The annual premium was designed to hold steady until a claim was filed and premiums then halted, though the rates weren’t guaranteed. Many policies paid out benefits for life.”
  • “Families flocked to what seemed like affordable peace of mind that would save them from draining their lifetime savings, leaning on children or enrolling in the federal-state Medicaid program for the poor.”
  • “Long-term care often costs more than $100,000 a year a person, financial advisers say. The nationwide total exceeds $200 billion, according to analysts at LTCG, a third-party administrator of long-term-care policies.”
  • “Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected.”
  • “After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.”

Cryptocurrency

Economist – Bitcoin is no longer the only game in crypto-currency town 1/13

  • “A new crypto-currency is born almost daily, often through an ‘initial coin offering’ (ICO), a form of online crowdfunding. CoinMarketCap, a website, lists about 1,400 digital coins or tokens, including PutinCoin, Sexcoin and InsaneCoin (worth $7m). Most are no more than curiosities, but by January 10th, around 40 had a market capitalization of more than $1bn.”
  • “Might any of these one day replace bitcoin as crypto-land reserve currency, something insiders call the ‘flippening‘? Given bitcoin’s governance problems (another ‘fork’, or split, may be in the offing) and limited capacity (a transaction now costs nearly $30, on average, in fees), this cannot be excluded. But the others have problems, too. Ethereum’s user fees have soared and the system has again hit technical snags. As for Ripple, some question the extent to which XRPs are actually used.”

WSJ – Daily Shot: Ripple 1/17

WSJ – Daily Shot: Capital Economics – Transactions Per Second 1/17

Tech

Forbes – Which Online Platforms Do Americans Want Killed Off? – Niall McCarthy 1/10

China

Economist – How China won the battle of the yuan 1/11

Japan

Economist – A small Japanese city shrinks with dignity 1/11

  • Authorities in the Japanese city of Toyama are encouraging migration to its city center through incentives. The goal being to reduce the cost of maintaining lightly-used infrastructure as its population declines.
  • “About 30% of Toyama’s 418,000 residents are 65 or older, an even higher proportion than in Japan as a whole, where it is 27%. By 2025, the proportion in Toyama is projected to be 32%. In addition to greying, the population is also declining. The city had 421,000 people in 2005; by 2025, it will have 390,000.”
  • “As the population ages and shrinks, the services residents need have changed. The Kadokawa Centre, for example, is built on the site of a primary school that closed in 2004. But overhauling public services is costly, and the declining number of people of working age means there is ever less tax revenue to help pay for the shift. To remain solvent, the city has decided to shrink not just in population, but in size, concentrating residents and services in the center.”
  • “Most of Japan is in a similar quandary. About 400 schools shut every year; some are being converted into retirement homes. In 2016 there were 300,000 more deaths than births. If Japan continues on its present course, it will have shed nearly a third of its population (and four out of every ten workers) by … 2065.”

Economist – Why modern Japan’s founding moment still divides a nation – Banyan 1/11

  • “The Meiji restoration initiated not just modernization, but also militarism.”

South America

CNN Money – You can’t get $1 out of the bank in Venezuela. I tried. – Stefano Pozzebon 1/17

Reuters – Wave of looting shutters stores, spreads fear in Venezuela – Alexandra Ulmer and Anggy Polanco 1/17

January 17, 2018

Perspective

A Wealth of Common Sense – Updating My Favorite Performance Chart For 2017 – Ben Carlson 1/14

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – The Power of Fee Shaming – Anthony Isola 1/15

Yahoo Finance – Business Insider: China is heading toward a debt crisis that will throw into question everything we think we know about its economy – Pedro Nicolaci da Costa 1/15

Markets / Economy

Bloomberg – The Stock Market Never Goes Down Anymore – Elena Popina 1/12

  • “Up eight times in the first nine days of 2018, the S&P 500 has broken away from a trend line, its 200-day moving average, with a velocity unseen since 2013, the best year for equities in a generation. The benchmark now sits more than 11% above the level, putting it in the 92nd percentile of momentum, data going back 20 years show.”
  • “Something has changed in equities. If 2017 was a slow but steady slog, 2018 has been off to the races, with shares rising at four times last year’s daily rate on the back of Donald Trump’s tax package and gathering signs of economic strength. Forty seven companies in the S&P 500 are already up at least 10% this year, compared with just two down as much.”
  • “Fear of missing out is rampant not just on Wall Street but worldwide. Globally, stock funds saw a $24 billion inflow in the five days through Thursday, the sixth largest weekly total ever.”
  • “The average of 23 strategists predictions is for the S&P 500 to reach 2,914 at year-end. If stocks were to maintain the same upward trajectory they’ve exhibited in the last nine days, it would take roughly two more weeks to reach the strategists’ target.”
  • “At 3.4 times its book value, the S&P 500 trades at the most expensive level since 2002, while its 14-day relative strength index reached a level unseen since 1996. The S&P 500 rose 1.6% to 2,786 this week, pushing the spread between the gauge and its 200-day moving average to 11.5%, the widest in five years.”
  • “To Walter Todd, Greenwood Capital chief investment officer, the optimism over earnings growth could continue to propel the stocks even higher.”
  • “’The fundamentals for the rally are strong, though the higher it goes, the higher the risk of a correction, and the higher the risk that the correction will be steep,’ Todd said by phone. ‘For now, fear of missing out is prompting investors who’ve stayed on the sidelines to jump in, as people say, ‘we missed the rally last year, we’re not going to miss on it again’’.”

NYT – BlackRock’s Message: Contribute to Society, or Risk Losing Our Support – Andrew Ross Sorkin 1/15

  • “Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.”
  • “Mr. Fink has the clout to make this kind of demand: His firm manages more than $6 trillion in investments through 401(k) plans, exchange-traded funds and mutual funds, making it the largest investor in the world, and he has an outsize influence on whether directors are voted on and off boards.”

Real Estate

WSJ – Daily Shot: Vanguard REIT ETF 1/12

  • “REITs broke out to the downside on higher bond yields.”

Energy

FT – Gas and oil producers among hardest hit by US tax reforms – Ed Crooks 1/15

  • “US oil and gas producers are among companies hit hardest by new restrictions on tax relief for interest payments, an analysis of the impact of the reforms has shown.”
  • “The sweeping overhaul of the US tax system signed into law by President Donald Trump just before Christmas cut the main rate for corporations sharply, but will still mean higher bills for some businesses because it sets limits on deductions for interest payments.”
  • “The new law will put pressure on heavily indebted companies to reduce their borrowings, and could push over-burdened companies into steeper decline if their earnings fall.”
  • “Companies in industries including oil and gas, coal mining, casinos and trucking are among those likely to be most affected, according to Greensill Capital, a trade finance firm.”

WSJ – Daily Shot: Brent Crude 1/15

Finance

WSJ – Trouble Ahead for the Treasury Market – Justin Lahart 1/15

  • “Inflation, less central bank bond buying, an increase in supply – there are plenty of reasons for Treasury yields to go a lot higher this year.”

Cryptocurrency

Bloomberg Gadfly – Can Hedge Funds Handle a Bitcoin Bust? – Lionel Laurent 1/16

MarketWatch – Bitcoin tumbles to 6-week low as top cryptocurrencies all sell off – Victor Reklaitis 1/16

TechCrunch – Researchers find that one person likely drove Bitcoin from $150 to $1,000 – John Biggs 1/15

  • “Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled ‘Price Manipulation in the Bitcoin Ecosystem’ and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.”
  • “The manipulation happened primarily via two bots, Markus and Willy, that seemed to be performing valid trades but did not actually own the bitcoin they were using. During the Mt. Gox hack a number of these bots were able to create fake trades and make off with millions while manipulating the price of BTC.”
  • “’As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalizing bitcoin as a payment system (as Japan did in April 2017), it is important to understand how susceptible cryptocurrency markets are to manipulation. Our study provides a first examination,’ write the researchers.”

Environment / Science

South China Morning Post – China builds ‘world’s biggest air purifier’ (and it seems to be working) – Stephen Chen 1/16

  • “A 100-meter (328-foot) high air purification tower in Xian in Shaanxi province has helped reduce smog levels in the city, preliminary results suggest.”
  • “The head of the research, Cao Junji, said improvements in air quality had been observed over an area of 10 square kilometers (3.86 square miles) in the city over the past few months and the tower has managed to produce more than 10 million cubic meters (353 million cubic feet) of clean air a day since its launch. Cao added that on severely polluted days the tower was able to reduce smog close to moderate levels.”
  • “The experimental facility in Xian is a scaled-down version of a much bigger smog tower that Cao and his colleagues hope to build in other cities in China in the future.”
  • “A full-sized tower would reach 500 meters (1,640 feet) high with a diameter of 200 meters (656 feet), according to a patent application they filed in 2014.”
  • “The size of the greenhouses could cover nearly 30 square kilometers (11.6 square miles) and the plant would be powerful enough to purify the air for a small sized city.”

China

FT – China disrupts global companies’ web access as censorship bites – Yuan Yang and Lucy Hornby 1/16

  • “China is plugging the last holes in its ‘Great Firewall’ internet censorship apparatus, hampering global groups’ ability to operate in the country.”
  • “China aggressively censors the internet, cutting off locals’ access to Facebook, Google, YouTube and much more, to control what news and facts reach its population. A study by Freedom House, a US state-funded non-profit organization, in November ranked China last in the world for internet freedoms, for the third year in a row.”
  • “Multinationals have historically used software known as virtual private networks (VPNs) to bypass censorship and protect their communications from hacking and government surveillance. But in recent months, the companies said, they have had difficulty using their custom-built VPNs.”
  • “At the same time, regulators have been pushing multinationals to buy and use state-approved VPNs. The state-approved versions can cost tens of thousands of dollars a month and expose users’ communications to Beijing’s scrutiny.” 
  • “’This is a significant ramp-up from previous measures,’ said Carly Ramsey, associate director of consultancy Control Risks in Shanghai. ‘The Xi administration has prioritized control over all information flows within China, and in and out of its borders’.”
  • “’This is not just about tightening access, but also giving the government more visibility and control over cross-border connections. The government now has many new tools to make cyber space ‘secure and controllable’ on their terms,’ said Samm Sacks, senior fellow at the Center for Strategic and International Studies, a think-tank.”
  • “’In a society where the government wants to control the flow of communications and information, secure communications and encryption are certainly an ‘enemy’,’ said Sunday Yokubaitis, chief executive of VPN provider Golden Frog.”

FT – China reprimands companies calling Tibet and Taiwan independent – Emily Feng and Edward White 1/15

  • “Chinese regulators have publicly reprimanded a string of foreign corporations, including Qantas, Zara and Marriott, for labelling Tibet and Taiwan as independent countries, in online drop-down menus.” 
  • “’We welcome foreign corporations’ investment and operation in China,’ said Lu Kang, a spokesperson for the ministry of foreign affairs, at a regular press briefing last week. ‘Meanwhile, they should respect China’s sovereignty and territorial integrity, abide by China’s laws and respect Chinese people’s national feelings.’ Officials in Taipei said that China’s actions did not help Beijing earn the trust of Taiwanese people.”
  • “’Taiwan is undoubtedly a country,’ a spokesperson for President Tsai Ing-wen told the Financial Times. ‘Wiping out the name of Taiwan off the internet will not wipe out our existence in the world.’”

WSJ – China’s Hot Housing Market Begins to Cool – Dominique Fong 1/16

  • “While China has seen brief property downturns before, the high debt levels that fueled the boom makes this slump a particular risk for China’s economy and the policy makers trying to manage it.”
  • “Home prices fell 0.3% in November from a year earlier In Beijing and Shanghai, the most recent official data show. It was a small drop but a striking reversal from double-digit price surges that lasted more than a year.”
  • “Prices of advertised new Shanghai homes decreased 8% from October through mid-December, according to Brandon Emmerich at Granite Peak Advisory, a New York research firm that analyzed over 20,000 daily listings from Anjuke, a Chinese property-listing platform.”
  • “Though China’s Housing Ministry has said that property controls won’t be relaxed, the dangers of the downturn are lessened by the government’s ability to reboot demand by lifting restrictions—and Beijing has held off on introducing an anticipated property tax that could curb speculation but damp prices.”

 

January 16, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Why are so many Americans crowdfunding their healthcare? – Barney Jopson 1/10

FT – A power shift in the Middle East – Nick Butler 1/14

  • “The opening of the Zohr gasfield is a big opportunity for Egypt’s energy ambitions.”

NYT – Is the Answer to Phone Addiction a Worse Phone? – Nellie Bowles 1/12

The New Yorker – The Psychology of Inequality – Elizabeth Kolbert 1/15

  • “Researchers find that much of the damage done by being poor comes from feeling poor.”

Markets / Economy

FT – Bond markets: Is the bull run over? – Robin Wigglesworth 1/12

  • “This year will probably mark the first since the financial crisis where major central banks start shrinking their market footprint, reawakening concerns over the $50tn global bond market where governments, companies and banks raise vital funding.”
  • “The end of the bond bull market has been called before. Last year, many analysts predicted a gloomy outlook. Instead, global fixed income enjoyed its best year in a decade, returning 7.4% to investors in the Bloomberg Barclays Global Aggregate bond index. Few believe bonds will replicate those gains in 2018. But many investors say it is far too early to read the market’s last rites, given some of the long-term global forces — such as the inflation-subduing forces of demographics and technology — that keep yields suppressed.”
  • “But investors now face a shift in central bank policy.”
  • “The Fed started cautiously shrinking its balance sheet last year. This month the ECB’s bond-buying fell by half to €30bn a month, and analysts expect the program to end this year. For the first time in a decade, central banks will probably be withdrawing money from markets by the end of 2018.”
  • “The primary cause for this week’s bond ructions — which saw the 10-year Treasury yield rise to a nine-month high of nearly 2.6% — was data that showed the BoJ’s purchases of long-dated bonds had slowed, with the sell-off then exacerbated by reports, later denied, that China was considering reducing its Treasury purchases.”
  • “While the Japanese central bank will still buy as many bonds as needed to keep the 10-year government yield pinned at zero, the deceleration was enough to cause the global debt market to shiver. ‘The market reaction shows just how sensitive it is to any whiff of the central banks being less aggressive,’ Mr Peters (Gregory Peters, a senior portfolio manager at PGIM Fixed Income) says.”
  • “At the same time, supply of freshly-issued government debt is expected to rise. In 2017, the central banks of the US, Europe, Japan and the UK bought about $170bn more government bonds than were issued, meaning the net supply actually contracted. But BNP Paribas estimates that markets will have to absorb $600bn of debt in 2018.”
  • “Another potential risk for investors is whether 2018 is the year when inflation finally emerges from its slumber.”
  • “Ageing demographics is pushing a global savings glut into safer fixed income and helping keep inflationary forces at bay, aided by technology that is proving to be a deflationary force across a range of global industries. Jim Reid, a Deutsche Bank strategist, says that bond market squalls might become more frequent as central banks tighten their monetary spigot, but argues that it would take accelerating inflation ‘to really turbo charge any bond sell-off’.”
  • “Derivatives contracts indicate that investors believe the 10-year Treasury yield will be below the 3% mark in two, five and even 10 years’ time. Equivalent German and Japanese bond futures show that investors think their benchmark bond yields will stay below 2% and 1% respectively over the same timeframes.”
  • “Highlighting the ravenous demand for safe fixed income returns, droves of buyers were attracted this week to the auctions of 10 and 30-year US government debt, helping quell the turbulence.”

Real Estate

AZ Republic – Home buyers with popular millennial names buying more Arizona homes, analysis says – Catherine Reagor 1/14

FT – Chill winds in Swedish housing market – Katie Martin 1/15

Finance

NYT – What’s $27 Billion to Wall Street? An Alarming Drop in Revenue – Emily Flitter and Kate Kelly 1/11

  • “For more than a decade, the world’s top investment banks practically minted money from the buying and selling of bonds, currencies and other complex securities. For many banks, the business became their lifeblood.”
  • “Now, a combination of tough regulations, new technologies, calm markets and changing customer behavior has left that type of trading a shadow of its former self — and much of Wall Street trying to redefine itself.”
  • “Five years ago, fixed-income trading — so called because its keystone product, bonds, typically provides a fixed payout — generated nearly $103 billion in income for the top 12 investment banks, according to Coalition, a London research firm.”
  • “By 2016, that had fallen to less than $76 billion — down $27 billion from the peak.”

FT – Bitcoin investors struggle to cash out new fortunes – Kate Beioley and James Pickford 1/12

  • “UK mortgage lenders refuse to accept deposits because of money laundering fears.”