Xi Jinping, the master politician. In the US oil and gas industry it’s about time for some more culling of the herd. Uber providing transportation solutions for US municipalities.

Headlines

• FT – China’s renminbi joins elite global reserve currency club 9/29. On October 1, the renminbi joined the IMF’s special drawing rights basket, previously only occupied by the dollar, euro, yen and pound.
• NYT – Duterte, Citing Hitler, Says He Wants to Kill 3 Million Addicts in Philippines 9/30. Yeah, he actually said it…
• FT – World debt hits $152tn record, says IMF 10/5. While not a harbinger of doom some countries ought to get their private debts under control.

Briefs

• Simeon Kerr of the Financial Times highlighted how Saudi Arabia has been cutting public sector bonuses in response to declining oil revenues.

• “Saudi Arabia has cut public sector bonuses and benefits for the first time since the collapse in oil prices, in a move that underlines the depth of the fiscal crisis facing the kingdom.”
• “The new rules, which come into force next month, apply to all public sector workers, both Saudis and expats, as well as the military (except soldiers serving in Yemen).”

• Rick Newman of Yahoo Finance illustrated how Older white workers without a college degree have really gotten torched (economically speaking) over the last 40 years.

• “If you were a white kid who went to work straight out of high school around 1975, you earned roughly $44,000 two decades later. BY 2014, on average, your pay had fallen to $32,000 a stunning 27% decline in real terms, after accounting for inflation.”
• “College grads are doing okay. Across all age groups, income in this group rose from $77,209 in 1996 to $94,601 in 2014, a 22.5% increase. A college-educated worker who was 28 in 1996 and 46 in 2014 enjoyed a whopping 132.8% spike in pay. The only losers among college grads were those were those 57 or older in 2014. Their pay fell from somewhere between 13% and 28.5% between 1996 and 2014, but still leveled out at $83,000 or higher in 2014, well above the national average.”
• 

• In a Financial Times guest correspondence piece, Steven Major (head of fixed-income research at HSBC) discussed why there is no game-changer that will end the bond bull market.
  • I’m going to keep this one real brief by just listing the major points.
  • “Backdrop favors a low real natural rate of interest”
  • “Deleveraging across public and private sectors has not started”
  • “Central banks continue to amass huge balance sheets”
  • “Connectivity between markets is increasing”
  • “We realize that all this makes pretty grim reading for those hoping for an improvement in the growth outlook and a return to ‘normal,’ whatever that is. But this is part of the problem. There is no shortage of hope that something will turn up and there is excessive vested interest in the higher yield view. Too much money is chasing too little return.”

• The Financial Times Confidential Research division produced a report on how underground loans in China are defeating attempts to cool the housing market.
  • “Analysis by FT Confidential Research suggests that underground lenders have become an important source of funding for Chinese consumers struggling to make down payments on home purchases as real estate prices surge. Such lending may hamper attempts to cool down overheating top-tier housing markets.”
  • 
  • “Despite concerns at the central level about housing bubbles, the property market’s rising tide is lifting other economic boats, FTCR data show. Our proprietary surveys found positive sentiment in the freight sector and construction labor market, the indices for both of which hit 2016 highs, while households have not been in such good cheer for nearly two years.”
  • 
  • “Consumers appear to be responding to the wealth effect generated by rising house prices. Our monthly measure of consumer sentiment rose to its highest level since October 2014. Survey respondents reported strong improvements in their household financial situations, discretionary spending and views on the economy. Furthermore, the forward-looking components of our suite of monthly data suggest momentum is set to carry through to the end of 2016.”

Special Reports / Opinion Pieces

• Bloomberg – Oaktree’s Howard Marks on His Approach to Investing (Video) 9/28
• FT – The return of Mao: a new threat to China’s politics – Jamil Anderlini 9/29
• LinkedIn – Remarks at the 40th Annual Central Banking Seminar – Ray Dalio 10/5
• Reuters – How the owners of Fidelity get richer at everyday investors’ expense – Tim McLaughlin 10/5

• WIRED – Shenzhen: The Silicon Valley of hardware (full length documentary) 7/5

Graphics

FT – Global economic growth ‘sliding back into the morass’ – Chris Giles 10/2

WSJ – A New Worry for Banks and the Economy – Aaron Back 10/3

Visual Capitalist – Black Swans: 9 Recent Events That Changed Finance Forever – Jeff Desjardins 10/5

WSJ – Some Big U.S. Cities See Apartment Rents Fall for First Time in Years – Laura Kusisto 10/4

FT – Perth’s slide highlights Australia commodity bust – Jamie Smyth 10/4

FT – World debt hits $152tn record, says IMF – Claire Jones 10/5

Featured

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

Xi Jinping May Delay Picking China’s Next Leader, Stoking Speculation. Chris Buckley. New York Times. 4 Oct. 2016.

“The Chinese president, Xi Jinping, appears prepared to defy the Communist Party’s established script for transferring power and delay the designation of his successor until after a party congress next year, unsettling the party elite and stirring speculation that he wants to prolong his tenure.”

“The delay would buy Mr. Xi more time to promote and test favored candidates and prevent his influence from ebbing away to a leader-in-waiting, experts and political insiders said. But the price could be years of friction while a pack of aspiring cadres vie for the top job, as well as unnerving uncertainty over whether Mr. Xi wants to stay in power beyond the usual two terms as party leader.”

“The drama will probably begin in earnest this month, when the Central Committee, about 200 senior officials who sign off on major decisions, meets in Beijing. That meeting is likely to set in motion plans for the congress, which will meet in late 2017 to endorse a new top lineup.”

“While it is a given that the congress will back Mr. Xi for another five-year term as party leader, nearly everything else is up for grabs, giving Mr. Xi great sway to shape the new leadership.”

“Five of the seven members of the powerful Politburo Standing Committee must step down because of age, assuming the informal retirement age of 68 holds. That leaves only Mr. Xi, 63, and Mr. Li, 61, to return.”

US oil and gas pipeline industry ripe for consolidation. Ed Crooks. Financial Times. 4 Oct. 2016.

“Tim Schneider, analyst at Evercore ISI, argues that the North American pipeline industry is on the verge of a wave of consolidation like the one that swept through the large integrated oil companies in the late 1990s and early 2000s.”

“The US has about 140 Master Limited Partnerships: a tax-advantaged structure available to energy infrastructure businesses that is typically used by midstream operators. Mr. Schneider argues that only about half of those have a ‘right’ to exists. Many will have to sell themselves, dispose of assets to stay alive, or ‘simply disappear’, he says.”

“In 2014, there were 9,679 miles of crude oil pipeline completed in the US, according to IHS Markit, the research group. In 2017, it expects 4,175 miles of large projects to be completed, assuming Dakota Access (the contested 1,172 mile pipeline from the shale oilfields of North Dakota to Patoka, Illinois) goes ahead.”

“Many MLPs, and some of the pipeline companies that are structured as regular corporations, have business models that depend on perpetual growth justifying continuing cash inflows.”

“Energy Transfer Partners, for example, in the first half of this year distributed $1.8bn to investors and spent $3.5bn on capital investment, but generated cash from operations of just $1.4bn. The numbers were made to add up by selling the Sunoco retail business to its affiliate Sunoco LP for $2.2bn, and by issuing units worth $1.1bn.”

In regard to the MLP industry, Tim Schneider put it this way “they are like cattle feeding at a trough. The weaker ones are going to get shoved aside.”

Uber offers subsidized rides in drive to solve US parking crisis. Leslie Hook. Financial Times. 5 Oct. 2016.

“In a first-of-its-kind of deal for Uber, Summit (New Jersey) has hired the company to provide free rides for commuters to and from its train station, starting this week. For the local authority, the six-month pilot helps solve its downtown parking crisis; for Uber, the deal is one it hopes to replicate across the country.”

“These transit deals could potentially give Uber access to a new revenue source, from transportation authorities, and access to new passengers. Just as importantly, Uber sees them as a means towards its ultimate goal: a world where shared autonomous cars are a primary mode of transportation and private vehicle ownership is no longer necessary.”

“The Summit deal focuses on what is known as the ‘last mile’ problem of getting commuters to and from rail stations, which researchers consider to be an ideal use case for ride-sharing.”

“Facing budget pressures, US cities are increasingly experimenting to see whether hiring Uber, or its smaller rival Lyft, can be a cheaper alternative to building parking garages or adding bus routes.”

“Last month, Boston announced a test program that subsidizes Uber and Lyft rides for disabled passengers, a faster option compared with the city’s door-to-door van service. Earlier this year, a county in Florida started providing free Uber rides at night for low-income passengers – a cheaper alternative to a night bus. Another city in Florida pays for all its residents to have discounted Uber rides, and Washington DC is even considering using Uber to help respond to non-emergency 911 calls.”

“In Summitt, Mayor Nora Radest said the city contacted Uber a year ago to talk about a deal because it was looking for an economical way to address its downtown parking shortage. Hiring Ubers for its commuters will cost about $167,000 a year, the city estimates, while building a parking garage would have cost more than $15m.”

“We are looking at this not as a transportation solution but as a parking solution. The goal is to get those 100 cars that sit in the commuter station all day, and get them out of there.” – Mayor Radest

Other Interesting Articles

Bloomberg Businessweek

• Hugo Chavez’s Dream Is Dead but His Fanatics Refuse to Fade Away
• House-Flippers Turn to the Crowd for Quick Cash. What Could Go Wrong?
  • “Whenever you see a big difference between the terms on which you can raise money in one market vs. another market, something is wrong in at least one of those markets. It usually is the market with the least experienced players, and they usually end up wishing they hadn’t played.”

The Economist

• Psychometrics – Tests of character: How personality testing could help financial inclusion

A Wealth of Common Sense – How Things Have Changed on Wall Street in the Last 50 Years 10/5

FT – Traditional banking is on borrowed time – so why invest? 9/29

FT – Yet more low but stable global economic growth is unsustainable (Mohamed El-Erain) 9/29

FT – China entertainment: Wanda-lust 9/30

FT – Mongolia request IMF loan 9/30

FT – Deutsche reawakens systemic fears amid talk of ‘Lehman moment’ 10/3

FT – IMF lowers growth forecast for US and other advanced economies 10/4

FT – Markets eye the taper but fear the tantrum 10/5

FT – Swiss suspect Ponzi scheme used to conceal 1MDB losses 10/5

FT – US banks roll out callable bonds to meet Fed debt rules 10/5

NYT – Developer That “Cracked the Code’ on Modular Building Exits the Business 10/5

NYT – Oil Glut? Here Comes Some More! 10/5