Tag: Share Buybacks

May 14, 2018

If you were only to read one thing…

FT – China buys up flying schools as pilot demand rises – Jamie Smyth and Ben Bland 5/10

  • “Chinese airlines are buying foreign flying schools and poaching pilots, amplifying a talent shortage that has affected airlines in other regions.”
  • “’The growth in Chinese aviation is unprecedented in our lifetimes and probably in history,’ said Paul Jebely, a Hong-Kong-based lawyer specializing in aviation. ‘There have been more aircraft ordered than there are pilots to fly them’.”
  • “The squeeze on flying talent has triggered flight cancellations, dented profits and threatened the industry’s ambitious growth targets around the world.”
  • “China is on course to overtake the US as the world’s largest air travel market by 2022, according to the International Air Transport Association.”
  • “US aircraft maker Boeing predicts China will need 110,000 new pilots in the years through to 2035, and its airlines are expected to purchase 7,000 commercial aircraft over the next two decades.”
  • “China’s aviation market grew by 13% last year, with 549m passengers taking to the skies, double the number who flew in 2010. Growth is being driven by the rising middle class, an expansion of routes by Chinese airlines and the easing of visa restrictions by foreign governments keen to attract Chinese tourists.”
  • “The number of pilots and co-pilots working in China almost doubled between 2011 and 2017. Over recent months China’s main airlines — China Eastern, Air China, China Southern and Hainan Airlines — have stepped up recruitment and are expanding their offshore training.”
  • “The starting salary offered to foreign pilots in China has jumped over the past 10 years from $10,000 per month to $26,000 per month, tax free, and was still rising, he said.”
  • “’Some Chinese airlines are offering tax-free salary packages, which can be up to twice what western airlines offer,’ said Murray Butt, president of the Australian and International Pilots Association.”
  • “India’s surging air travel — where passenger numbers have been growing by an average of about 16% a year since the beginning of the millennium — adds more pressure to the global pilot shortage.”
  • “Having seen rapid growth in passenger numbers over the past few years, Indian airlines have been recruiting from the military, from abroad and from their competitors by offering increasingly lucrative contracts. They have also made it more difficult for pilots to leave, forcing commanding officers to give a year’s notice if they wish to leave.”
  • “Chinese airlines pay the tuition of cadet pilots and are intensifying efforts to develop more local talent. But there are only 22 pilot schools in China and restrictions on the use of domestic airspace mean they are increasingly looking overseas to partner with foreign flights schools.”
  • “Almost half of China’s 5,053 trainee pilots last year were trained abroad, creating a flourishing business for flight schools and their owners in the US, Canada and Australia.”

Perspective

WP – For six decades, ‘the man with the golden arm’ donated blood – and saved 2.4 million babies – Amy Wang 5/12

  • A great example of human kindness/exceptionalism.

Visual Capitalist – The United States of Beer – Nick Routley 5/12

Worthy Insights / Opinion Pieces / Advice

FT – Memo from Amazon: tell a good story – John Gapper 5/8

  • “Jeff Bezos and Winston Churchill both appreciated the value of skillful narrative.”

WSJ – Mercedes Wants to Borrow Money From You. Should You Bite? – Jason Zweig 5/11

Markets / Economy

WSJ – Record Buybacks Help Steady Wobbly Market – Ben Eisen and Akane Otani 5/10

Real Estate

CoStar – Already Down, Chinese Investment in U.S. Real Estate Evaporates in First Quarter – Mark Heschmeyer 5/10

WSJ – Daily Shot: PlanMaestro – Age of Housing Stock by US Zip Code 5/11

Entertainment

WSJ – Why Box Office Flops Really, Really Hurt – Justin Lahart 5/11

  • “It isn’t rare for a handful of big movies to do much better than anything else during the same year, but over the past few years the differences have become more acute. One way to see this is by applying a standard measure of inequality—the Gini coefficient—to the box office. A Gini of zero would mean all the movies did equally well and a Gini of one would mean one movie made all the money.”
  • “Based on the domestic receipts of the top 100 grossing movies, the box office Gini for last year’s releases was 0.49, versus 0.46 for 2016. Over the previous 10 years, the Gini averaged 0.4 so there has been a big change in an already skewed field. For comparison’s sake, the Gini coefficient for after-tax household income is 0.39 in the U.S. versus 0.46 in Mexico, according to the Organization for Economic Cooperation and Development.”

Environment / Science

FT – Apple looks to ‘green’ metal for use in iPhone and MacBook – Neil Hume and Henry Sanderson 5/10

  • “Apple has joined forces with two of the world’s biggest aluminum producers to develop a ‘carbon-free’ metal it plans to use in its iPhone and laptop computers.”
  • “The consumer electronics group is backing a joint venture between Rio Tinto and Alcoa that is seeking to commercialize a new technology to eliminate greenhouse gas emissions from aluminum smelting.”

Health / Medicine

Gallup – Uninsured Rate Rises in 17 States in 2017 – Dan Witters 5/9

  • “The uninsured rate rose by statistically significant margins in 17 states in 2017, the first time since the full implementation of the major mechanisms of the Affordable Care Act (ACA) in 2014 that any state had a rate increase. Also, for the first time since 2013, no states had a lower uninsured rate than the previous year.”

South America

Reuters – Conoco authorized to seize $636 million in Venezuela PDVSA assets – Mike Willemse, Brian Ellsworth, Alexandra Ulmer, and Tom Brown 5/12

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March 5, 2018

Worthy Insights / Opinion Pieces / Advice

naked capitalism – MIT Study: Median Uber and Lyft Profits Less Than Half Minimum Wage; 30% of Drivers Lose Money – Yves Smith 3/2

  • “A team from Stanford, Stephen M. Zoepf, Stella Chen, Paa Adu and Gonzalo Pozo, under the auspices of MIT’s Center for Energy and Environmental Policy Research obtained information from 1100 Uber and Lyft drivers using questionnaires and information about vehicle-specific operating costs, such as insurance, maintenance, repairs, fuel and depreciation.”
  • Their main finding:”
    • “Results show that per hour worked, median profit from driving is $3.37/hour before taxes, and 74% of drivers earn less than the minimum wage in their state. 30% of drivers are actually losing money once vehicle expenses are included. On a per-mile basis, median gross driver revenue is $0.59/mile but vehicle operating expenses reduce real driver profit to a median of $0.29/mile.”

Markets / Economy

Bloomberg Businessweek – Harvard Blew $1 Billion in Bet on Tomatoes, Sugar, and Eucalyptus – Michael McDonald and Tatiana Freitas 3/1

NYT – China’s Biggest Deal Maker Spent Billions. Now the Bill Comes Due. – David Barboza and Alexandra Stevenson 3/2

WSJ – Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts – Akane Otani, Richard Rubin, and Theo Francis 3/1

Environment / Science

NYT – Europe Was Colder Than the North Pole This Week. How Could That Be? – Kendra Pierre-Louis 3/1

China

FT – China’s super-rich lose political clout – Tom Mitchell 3/1

  • “Sharp drop in billionaires at parliamentary sessions as standing falls under Xi Jinping.”

Visual Capitalist – China’s Staggering Demand for Commodities – Jeff Desjardins 3/2

New Zealand

FT – ‘Billionaire bolt-holes’ under threat in New Zealand – Jamie Smyth 3/1

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).

February 24 – March 2, 2017

The insurance industry in China has been good business – too good. What is the magic number for China’s foreign exchange reserves? What gives – why haven’t the share buybacks by US corporates juiced returns (passive investing)?

Headlines

FT – Samsung heir Lee Jae-yong charged with bribery 2/28. Lee Jae-young is actually looking at jail time.

FT – China capital crackdown threatens wave of overseas buyouts 2/27. Dalian Wanda’s $1bn acquisition of Dick Clark Productions is in question even though the argument can be made that it is strategic to its cinema business (AMC, Carmike Cinemas, Odeon & UCI theatres, Legendary Entertainment) and even though it is being made by one of China’s most connected and richest individuals.

WSJ – London’s ‘Cheesegrater’ Sold to Chinese Firm for $1.4 Billion 3/1. Hong Kong property tycoon Cheung Chung Kiu’s CC Land Holdings just stumped £1.15bn up for the Leadenhall Building in London – recently appraised at £915m at the end of September. Well, the office yields in London at around 4.6% are near double the 2.6% in Hong Kong and the yuan is up 12% on sterling since the Brexit vote.

Special Reports / Opinion Pieces

Briefs

  • Robin Harding and Elaine Moore of the Financial Times covered that the Bank of Japan has telegraphed to the world that it plans to keep buying bonds to keep yields at 0%.
    • “The Bank of Japan published detailed schedules of planned asset purchases for the first time on Tuesday as it seeks to prove its commitment to a zero per cent cap on 10-year government bond yields.”
    • “Japan’s central bank said it will buy a minimum of ¥1.375tn and a maximum of ¥2.175tn of government bonds during March, giving a series of dates and estimated sizes for its planned bond auctions at different maturities.”
    • “The BoJ gave a strong hint that its announcement is meant to signal a minimum plan for purchases, rather than a maximum, saying it ‘may increase the frequency as needed.'”
    • “Japan’s 10-year yield is currently trading at 0.04%, having reached 0.11% at one point earlier this month before the BoJ stepped in and offered to buy in unlimited quantity to prevent it from rising any higher.”
    • Bottom line, the BoJ is all-in on maintaining 0% yields and the market can be assured of that.

Graphics

WSJ – Daily Shot: US Total Oil Exports 2/23

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WSJ – Daily Shot: China – WMP Product Investment Categories 2/23

  • “…Pressure on corporate bonds poses risks to Wealth Management Products (WMPs). One could argue that these offerings are a form of Ponzi scheme because when investors redeem their holdings, managers rely on other money to come into the product. If more people redeem than invest, the managers will be forced to liquidate and it’s not clear there will be enough to repay the last guys out.”

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WSJ – Daily Shot: Chinese Bank WMP Deposit Percentage 2/23

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WSJ – Daily Shot: FRED – US Home Price Index v Avg. Hourly Earnings 2/23

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Economist – Longevity in rich countries – The Data Team 2/23

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Visual Capitalist – Millionaire Migrants: Countries That Rich People Are Flocking To – Jeff Desjardins 2/24

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WSJ – Daily Shot: Snap Value Progression 3/1

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WSJ – Daily Shot: Maptitude – Largest coffee chains by US County 3/1

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Featured

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

China bans fourth richest man from insurance sector for 10 years. Gabriel Wildau. Financial Times. 24 Feb. 2017.

“China’s fourth richest man [Yao Zhenhua, chairman of Baoneng Group] has been banned from the country’s insurance industry for 10 years, in the most aggressive move yet by regulators to tame borrowing and hostile corporate takeovers by insurers.”

“Much of the funding for Baoneng’s…investments came from investments gathered by its life insurance unit, Foresea Life Insurance, which Mr Yao also chairs.”

“Foresea quickly scaled the premium rankings of China’s life insurance industry by selling so-called ‘universal insurance’ products, which are essentially wealth management vehicles with a small protection component.”

“Insurers are able to offer higher yields than those available on comparable vehicles from banks and other fund managers because they have the freedom to invest in a wider range of assets. Anbang Insurance Group has also relied on sales of universal insurance products to fund a high-profile global shopping spree.”

“But analysts have warned against the strategy. Such products essentially force insurers to seek out risky, high-yielding assets in order to meet future payouts. Analysts are also concerned by a liquidity risk when short-duration products are matched to long-term illiquid assets such as real estate or large equity stakes.”

“Rarely seen in public, Mr Yao was China’s fourth richest man in 2016 with a fortune of $17bn, up more than ninefold from a year earlier, according to the Hurun Report. Local media say he started as a vegetable seller before making his first fortune as a property developer in the freewheeling city of Shenzhen in the 1990s.”

Previously, the China Insurance Regulatory Commission chairman Xiang Junbo had “warned that insurers cannot be ‘ATM machines’ for corporate raiders.”

“Mr Xiang also promised on Wednesday to curb ‘aggressive’ pricing and ‘unreasonably’ high returns on some insurance products. He said insurers should not interfere with the management of listed companies. Instead, the industry should focus on its core function of providing risk protection.”

China curbs capital outflows to keep renminbi stable. James Kynge. Financial Times. 28 Feb. 2017.

“China successfully curbed the flow of money cascading out of the country in January following the imposition of administrative controls, raising the potential for Beijing to prevail in its efforts to keep the renminbi stable against the US dollar this year, analyst said.”

“In January, capital outflows fell to $30bn from $55bn in December, according to estimates by Goldman Sachs, an investment bank.”

“This represented a considerable reduction on the monthly average in a country that has experienced a leakage of $1.2tn between August 2015 and January this year, yielding a monthly average of $71bn.”

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“‘Given the still-large size of China’s reserves, this pace of outflows in unlikely to stop the central bank from pursuing its current exchange-rate policy, which can be sustained for another couple of years,’ said Long Chen, analyst at Gavekal Dragonomics, a research company.”

The reasons for the slow down are varied; however, where there is disagreement is on what would be considered a sufficient amount of foreign exchange reserves.

“China’s foreign exchange reserves fell $12bn in January to below the psychologically important $3tn level to $2.99tn, representing almost a $1tn reduction from its level of July 2014.”

“The issue of China’s reserves adequacy has arisen from applying the International Monetary Fund’s new reserve metric to the country.”

“Under this calculation, the proposed minimum reserves for China is $2.7tn…”

“But Brad Setser, senior fellow at the Council on Foreign Relations (CFR), a New York-based think-tank, said that China had ample room to defend its currency.”

“‘The world would be in a better place if there was a broad recognition that China can burn through another $1tn in reserves and, with $2tn still in reserves, be above nearly all metrics of reserve adequacy,’ Mr. Setser wrote in a CFR blog.”

“Jeremy Stevens, Asia economist at Standard Bank, holds a similar view. ‘It seems fair to argue that in terms of foreign exchange reserves, somewhere between $1.56tn and $2.2tn would be adequate for China’s working capital,’ he said.”

It is to be seen what China itself considers the ‘right’ amount of reserves. Regardless, part of the capital curbs have been aimed at encouraging more discretion by Chinese investors and companies in their foreign acquisitions.

“Pan Gongsheng, head of SAFE [State Administration of Foreign Exchange], was quoted as telling a Chinese newspaper this month that some overseas acquisitions by Chinese companies had been carried out with a ‘strong element of blindness.'”

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US share buybacks punch below their weight. Robin Wigglesworth. Financial Times. 1 Mar. 2017.

In questioning whether corporate share buybacks have been on the whole a net positive, there has been a host of views presented. The concerns being that buybacks are short-sighted, returning cash to shareholders rather than pursuing growth initiatives. The implication being that these companies don’t have sufficient growth opportunities. However, in some cases companies simply have too much cash and recognize that they would do their owners a disservice by holding on to all of it.

“But perhaps the most notable thing about the buyback spree – more than $2tn of shares have been purchased in the past five years – is how it has arguably provided only a modest boost to equity prices, at least compared to the scale of the purchases.”

“Indeed, the share price performance of the most generous and consistent buyback companies paint a surprisingly muddied picture.”

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“The S&P 500 Buybacks Index has rallied 96% over the past five years, outpacing the broader market’s 73% gain since. This is an outperformance of 2.8% annually. However, next to the sheer scale of the buybacks – the estimated $2tn spent is equal to a tenth of the S&P 500’s current value – it has underwhelmed.”

“Worse, the Nasdaq Buybacks index has even underperformed the broader Nasdaq Composite gauge over the past five years, with the former rising 86.3% and the latter by 90.3% – an annualized undershooting of 1.3%.”

“Goldman Sachs’s chief US equity strategist David Kostin has calculated that buybacks have been the single biggest source of demand for US stocks since the financial crisis, providing a vital pillar of demand at a time when domestic pension funds and foreign investors have largely been selling.”

“For example, last year overseas investors and US pension funds respectively offloaded $148bn and $127bn of American stocks. But US companies snapped up a record $644bn of their own shares, Goldman estimates.”

Further, “Goldman Sachs earlier this year [2017] lifted its forecast for S&P 500 share repurchases from an already lofty $780bn to $800bn.”

So why the muddied outcome… Charles Cara, head of quantitative strategy at Absolute Strategy Research has an “…intriguing reason for what he calls the ‘buyback anomaly’ of share repurchases not proving as big an uplift as the sheer volume would suggest: the rise of passive investing.”

“Passive investment vehicles do not react to share price moves. As equity prices move so do their index weights by an equal amount, provided that the share count remains constant. In other words, if Apple’s shares rise by $10, then an exchange-traded fund need do nothing, as its existing holdings of Apple stock obviously rises by the same amount.”

“Buybacks reduce the numbers of outstanding shares. If those shares rise as a result of the buyback, then an ETF or index-tracking fund – which do not sell to companies buying back their stocks – will find itself overweight compared to its benchmark, and will be forced to sell some of the shares and buy the rest of the stock market to rebalance.”

As Mr. Cara puts it, “buybacks are a prop to the whole stock market, but have a subdued impact on individual stocks because there is a countervailing force from passive investors.”

Other Interesting Articles

The Economist

 

FT – Chinese manufacturing jobs vanish as robots take over 2/23

FT – China seeks baby boom to counter sluggish birth rates 2/24

FT – Private equity losing out to cash-rich buyers on the big deals 2/26

FT – China economic strength allows shift from stimulus 3/1

FT – SF Express chief shakes up China’s rich list as shares soar 3/1

FT – The private equity party is overcrowded 3/1

Guardian – Scraping by on six figures? Tech workers feel poor in Silicon Valley’s wealth bubble 2/27

NewsMax – Yale’s Robert Shiller: Pull Back Now From Overpriced Bull Stock Market 2/24

NYT – Snapchat Founders’ Grip Tightened After a Spat With an Early Investor 2/23

NYT – What Booming Markets Are Telling Us About the Global Economy 3/1

WSJ – Why Chinese Men Are Dying 2/24

WSJ – How Dangerous Is a Stock Market of Mindless Robots? 2/24

WSJ – Trumpflation vs Negative Rates: The Battle Endures 2/28

WSJ – World’s Most Indebted Developer Keeps Piling It On 2/28

WSJ – The Urban Condo Boom Has Reached Its Final Frontier: Detroit 3/1

WSJ – How Chinese Companies Finance Their Ambitions Abroad 3/2