Tag: Shipping

November 27, 2017

Perspective

NYT – The Typical American Lives Only 18 Miles From Mom – Quoctrung Bui and Claire Cain Miller 12/23/15

Worthy Insights / Opinion Pieces / Advice

NYT – Saudi Arabia’s Arab Spring, at Last – Thomas Friedman 11/23

NYT – Where Brexit Hurts: The Nurses and Doctors Leaving London – Katrin Bennhold 11/21

Vanity Fair – The End of the Social Era Can’t Come Soon Enough – Nick Bilton 11/23

Real Estate

Investment News – Nontraded REITs to post worst sales since 2002 – Bruce Kelly 11/21

  • “Sales of nontraded real estate investment trusts are headed for their worst year since 2002, with the industry on track to raise just $4.4 billion in equity in 2017, about $100,000 less than a year earlier, according to data from Robert A. Stanger & Co.”
  • “Making matters worse for the industry is that one newcomer to selling nontraded REITs, The Blackstone Group, has the highest sales for the year to date through September. Blackstone had almost $1.4 billion in sales with its new REIT, the Blackstone Real Estate Income Trust, over the first nine months of the year, according to Stanger.”
  • “That means traditional nontraded REIT managers – including Griffin Capital Co., Carter/Validus Advisors, Cole Capital and others – will likely raise about $3 billion this year, about one third less than the 2016 total. And independent broker-dealers are struggling without the lucrative commissions formerly generated by product sales.”
  • “In 2002, $3.8 billion worth of nontraded REITs were sold. Nontraded REIT sales were $11.5 billion in 2007, according to Stanger, just as the real estate crash was beginning. Sales of nontraded REITs hit their peak in 2013, when independent broker-dealers sold $19.6 billion of the products.”
  • In addition to an accounting scandal at industry behemoth, American Realty Capital (ARC), new securities rules have hurt sales.
  • “New securities industry rules and regulations, including the Department of Labor’s fiduciary rule, have hurt sales of high commission products like nontraded REITs. The fiduciary rule has flattened the levels of commissions that brokers charge clients for products such as mutual funds.”
  • “The Financial Industry Regulatory Authority also recently put into place a new rule, known as 15-02, that makes pricing of illiquid securities like nontraded REITs more transparent to investors. In the past, client account statements showed illiquid securities like REITs at the value they were bought by the client and did not subtract commissions, which were high.”
  • “With the DOL fiduciary rule flattening commissions, many REIT managers began selling T shares, which cut the upfront load by more than half. After initially paying a 3% commission, the broker is then paid up to 7% over several years. An annual commission of 80 basis points is paid from the return generated by the REIT manager.”

Finance

Investment News – Nontraded BDC (Business Development Companies) sales in worst year since 2010 – Bruce Kelly 11/22

  • “The illiquid product’s three-year decline is partially due to new regulations and poor performance.”

WSJ – A Decade After the Crisis, King Dollar Is the World’s Tyrant – Jon Sindreu and Mike Bird 11/26

  • “Many economists have long predicted an end to the dollar reign that was established after World War II, especially after President Richard Nixon unpegged the greenback from gold in 1971. The creation of the euro in 1999 and the breakneck growth of the Chinese economy led many analysts to say the dollar would need to share the limelight.”
  • “But the euro became politically unpopular during the European debt crisis, and Chinese capital controls to peg the yuan are anathema to global investors. Meanwhile, the share of official reserves held in dollars recently stopped its multiyear decline, and in the second quarter of 2017, foreign-country dollar-denominated debt rose to an all-time high of $8.6 trillion, according to the BIS.
  • “’The dollar’s downward trend of the last 40 years is over,’ said Paresh Upadhyaya, fund manager at Amundi Pioneer, Europe’s largest asset manager.”
  • “A one-currency dominance challenges economic models that see global financial markets as a flat surface where, on average, investors shouldn’t be better or worse off depending on which currency they trade.”
  • “Reality tends to show something else.”

Fortune – Nearly 4 Million Bitcoins Lost Forever, New Study Says – Jeff John Roberts and Nicolas Rapp 11/25

NYT – Warning Signs About Another Giant Bitcoin Exchange – Nathaniel Popper 11/21

Shipping

Visual Capitalist: MarineTraffic – Visualizing Every Ship at Sea in Real-Time – Jeff Desjardins 11/23

Britain

FT – The UK’s hidden one-child-per-family university policy – Martin Lewis 11/23

  • “Supporting two children studying at university could cost much more than you think.”

China

The Guardian – Chinese bike share graveyard a monument to industry’s ‘arrogance’ – Benjamin Haas 11/24

South America

FT – Surge in cargo theft hits the bottom line in Rio de Janeiro – Andres Schipani and Joe Leahy 11/21

  • “The thefts — which occur on average more than once an hour and are often staged by scores of criminals carrying assault rifles — have reportedly forced the national postal service to stop street deliveries in some neighborhoods of Rio, while supermarkets have raised their prices by up to 20 per cent to pay for the losses.”
  • “Recession-induced budget crises across governments in Latin America’s largest economy have led to the spike in crime, analysts say. One state — Espírito Santo — recorded 128 murders during eight days of uncontrolled street crime in February when police went on strike after budget cuts.”
  • “Cargo theft in Rio de Janeiro, whose greater metropolitan area has a population of 12m people, has increased sharply from 5,890 incidents in 2014 at the start of the economic downturn to a record 9,862 last year, says the local industry association Firjan. The state is on track to top a similar number this year, with food, beverages, electronic appliances and cigarettes among the preferred targets.”
  • According to a 2017 report by the Inter-American Development Bank, crime and the efforts to combat it cost Brazil some $120bn a year, three times the toll on Mexico, which is ravaged by drug-cartel violence.
  • Is this what happens when a society becomes too unequal? Politicians play their hand at their ability to regulate with intent to collect personal payoffs – graft becomes endemic – the people go on a corruption hunt – political infrastructure suffers – basic services decline – theft and looting become common place. I would imagine that the walls around the wealthy compounds are getting higher with more armed guards.

October 12, 2017

Perspective

Business Insider – Trump’s net approval rating has dropped dramatically in every state – Allan Smith 10/10

Brookings – White, still: The American upper middle class – Richard Reeves and Nathan Joo 10/4

Economist – A new study details the wealth hidden in tax havens 10/7

  • “…A new study by Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman, three economists, (using Bank for International Settlements data) concludes that tax havens hoard wealth equivalent to about 10% of global GDP. This average masks big variations. Russian assets worth 50% of GDP are held offshore; countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60-70% range. Britain and continental Europe come in at 15%, but Scandinavia at only a few per cent.”
  • “One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.”
  • “Accounting for offshore holdings suggests wealth inequality is even greater than was thought. In Britain, France, and Spain the top 0.01% of households stash 30-40% of their wealth in tax havens. In Russia, most of it goes there. In America, the share of wealth held by the richest 0.01% is as high today as in early 20th-century Europe. Including offshore data increases the wealth share of the super-rich.”
  • “Yet plenty of data are still missing. A few big centers, including Panama and Singapore, still do not disclose these statistics. The BIS data also cover only bank deposits, not the securities in which most offshore wealth is held. Researchers made estimates to plug the gap, but their figures are likely to be conservative.”

Worthy Insights / Opinion Pieces / Advice

NYT – How Israel Caught Russian Hackers Scouring the World for U.S. Secrets – Nicole Perlroth and Scott Shane 10/10

Economist – The bull market in everything – Leaders 10/7

Economist – A deathly silence: After the massacre in Las Vegas, nothing is set to change – Leaders 10/5

Economist – Politicians choosing voters: The Supreme Court ponders whether gerrymandering has gone too far 10/7

Economist – Chiang Kai-shek’s former homes are open to tourists 10/5

Markets / Economy

Economist – From Uber to kinder 10/7

Economist – American public pensions suffer from a gaping hole 10/5

  • “Schools in Pennsylvania ought to be celebrating. The state gave them a $125m budget increase for 2017-18—enough for plenty of extra books and equipment. But John Callahan of the Pennsylvania School Boards Association says all the increase and more will be eaten up by pension costs, which will rise by $164m this year. The same happened in each of the previous five years; cumulatively the shortfall adds up to $586m. The pupil-teacher ratio is higher than in 2010. Nearly 85% of the state’s school boards said pensions were their biggest source of budget pressure.”
  • “A similar squeeze is happening all over America. Sarah Anzia, at the University of California, Berkeley, examined 219 cities between 2005 and 2014 and found that the mean increase in their real pension costs was 69%; higher pension costs in those cities were associated with falls in public-sector employment and capital spending.”
  • “The problem is likely to get worse. Moody’s, a rating agency, puts the total shortfall of American public-sector pension plans at around $4trn. That gap does not have to be closed at once, but it does mean that contributions by employers (and hence taxpayers) will increase even more than they already have (see chart).”
  • “Higher costs are the result of improved longevity, poor investment returns and inadequate past contributions.”
  • As to making plans…
  • “Experts can differ, it seems. But small changes in assumptions can make a huge difference to the amount employers need to contribute. According to the National Association of State Retirement Administrators, cutting the return assumption by a quarter of a percentage point increases the required contribution rate (as a proportion of payroll) by two to three points.”
  • “In consequence, it is in no one’s interest to make more realistic assumptions about future returns. Workers (and their unions) fear it might generate calls for their benefits to be cut; states worry it would require them to raise taxes. Don Boyd, the director of fiscal studies at the Rockefeller Institute of Government, a think-tank, reckons that with a 5% assumed rate of return, states would have to stump up an extra $120bn a year just to tread water—i.e., to fund their pensions without making any progress on closing the deficit. So the game of ‘extend and pretend’ continues.”
  • “As years go by, voters and legislators across the country will have to make a trade-off. They can pay more taxes and cut services; or they can reduce the benefits they pay people who teach their children, police their streets and rescue them from fires. There will be no easy answers.”

Real Estate

WSJ – Daily Shot: John Burns RE Consulting – Home Refinancing 10/11

Health / Medicine

FT – Global childhood obesity rises 10-fold in 40 years – Clive Cookson 10/10

  • “The number of obese children and teenagers across the world has increased 10-fold over the past four decades and is about to overtake the number who are underweight, according to the most extensive analysis of body weight ever undertaken.”
  • “The study, led by Imperial College London and the World Health Organization, used data on 31.5m children and adolescents worldwide to estimate trends in body mass index (BMI) from 1975 to 2016. The results are published in the Lancet.” 
  • “Over this period the number of obese girls, aged 5 to 19, rose from 5m to 50m, while the total for boys increased from 6m to 74m.”
  • “The world’s highest childhood obesity levels are in the Pacific islands of Polynesia and Micronesia. Nauru has the highest prevalence for girls and the Cook Islands for boys: both above 33%.”
  • “Among wealthy countries, the US has the highest obesity rates for girls and boys of about 20%. Levels in most of western Europe are in the 7% to 10% range.” 
  • “A further 213m children are overweight but not sufficiently so to meet the WHO’s obesity criteria, which vary by age. Forty years ago, 0.8% of the world’s children were obese; now the prevalence is close to 7%.” 
  • “The study also looked at adult obesity, which increased from 100m people in 1975 to 671m in 2016. A further 1.3bn adults were overweight (with a BMI above 25) but below the threshold for obesity (BMI above 30).” 
  • “But the authors are most concerned about the findings about childhood obesity, because of their implications for public health many decades into the future.”

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

  • “Anecdotal evidence suggests that in some areas of the country, finding workers who can pass a drug test has been challenging.”

WSJ – Daily Shot: John Burns RE Consulting – Builder Labor Shortages 10/11

  • “Skilled (and drug-free) worker shortages in construction are especially acute.”

  • This will only get tighter in the continental U.S. as natural disasters continue to rack up, resulting in acute demand for labor in the affected areas. Harvey, Irma, Maria, Nate, and now wildfires in Northern California. Of course, this will have effects on the neighboring regional labor pools.

Shipping

Economist – How protectionism sank America’s entire merchant fleet 10/5

  • “In April 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.”
  • “Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fueled calls to repeal the law completely.”
  • Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport. Building a cargo ship in America can cost five times as much as in China or Korea, says Basil Karatzas, a shipping consultant. And the cost of operating an American-flagged and -crewed vessel is double that of foreign ones, reckons America’s Department of Transportation.”
  • “Inflated sea-freight rates push most cargo onto lorries, trains and aircraft, even though these are pricier and produce up to 145 times as many carbon emissions. So whereas 40% of Europe’s domestic freight goes by sea, just 2% does in America. Lacking overland routes, Alaska, Guam, Hawaii and Puerto Rico are hardest hit. Hawaiian cattle ranchers, for instance, regularly fly their animals to mainland America. A recent report by the Government Development Bank for Puerto Rico found that the Jones Act inflated transport costs for imports to twice the level of nearby islands.”
  • “Jones-Act shipowners retort that the rules are to help producers, not consumers. Rail firms lobbied for the 1920 law, out of fear that an excess of foreign ships from the first world war was flooding the market. National security was also cited. German submarine warfare, it was argued, showed the need for a merchant fleet built and crewed by Americans. But the law has virtually wiped out American shipping. Between 2000 and 2016 the fleet of private-sector Jones-Act ships fell from 193 to 91. Britain binned its Jones-Act equivalent in 1849. Its fleet today has over three times the tonnage of America’s. Marc Levinson, an economic historian (and former journalist at The Economist ) notes that the laws also made American container lines less able to compete on international routes. Drawn by profits at home they underinvested in their foreign operations, and fell behind their foreign rivals because they lacked the same scale.”
  • “Recognizing the harm to their domestic fleets, countries from Australia to China are loosening the rules protecting their fleets. Not America.”

Africa

Economist – The birthplaces of African leaders receive an awful lot of aid 10/7

  • “Scholars have long had a hunch that Chinese aid could be more easily manipulated than the Western sort, which often comes with strings attached. A Chinese white paper in 2014 stated that the government would not impose any ‘political conditions’ on countries asking for help. The commerce ministry, China’s lead aid agency, says most projects are initiated by recipient states. This approach makes aid more vulnerable to misuse by local leaders, say critics.”
  • “In a working paper, the pundits show that China’s official transfers to a leader’s birth region nearly triple after he or she assumes power. Even when using a stricter definition of aid provided by the OECD, a club of mostly rich countries, an increase of 75% was found. They got similar results when looking at the birthplaces of presidential spouses. Crucially, they found no such effect with aid doled out by the World Bank, their benchmark for Western assistance. ‘We believe Chinese aid is special,’ says Andreas Fuchs, a co-author of the study.”
  • “China’s approach to aid has other side-effects. In a paper released earlier this year, Diego Hernandez, an economist, showed that China’s rise as a development financier has increased competition between donors. This, in turn, has strengthened recipients’ bargaining power, says Mr Hernandez. Traditional donors have responded by lowering conditionality, or the number of strings attached to aid. Using data from 1980 to 2013, he finds that African countries have received 15% fewer conditions from the World Bank for every 1% increase in Chinese aid.”

September 19, 2017

Worthy Insights / Opinion Pieces / Advice

FT – Big Tech makes vast gains at our expense – Rana Foroohar 9/17

  • “Data-driven companies have a license to print money, with few restrictions.”

Bloomberg – The Way Humans Get Electricity Is About to Change Forever – 9/13

Markets / Economy

WSJ – New Data Shows Retirees Are on the Move, But Young Folks Are a Different Story  – Andrew Van Dam and Paul Overberg 9/15

Health / Medicine

BuzzFeed – Harvey Damaged 13 Toxic Waste Sites. It Could Take Years to Know The True Health Risks. – Nidhi Subbaraman and Peter Aldhous 9/3

Shipping

FT – Container shipping: surf’s up – Lex 9/17

  • “If only investors in shipping had the equivalent of a mariner’s tide tables. They can see where the low water mark in share prices lies, but must divine for themselves how high the waters might now rise.”
  • “In this particular cycle, the ebb lasted a long time after container lines ordered too many ships and then struggled to fill them. The low point was probably last autumn, when Korean line Hanjin filed for bankruptcy.”
  • “The market has improved markedly since then. Industry volume growth is expected to hit 5% this year, from 3.8% last year. Scrapping rates have picked up, while new capacity on order is finally falling. Such newfound discipline might last longer than in previous cycles because consolidation has increased the market share of the top six operators to almost two-thirds, from two-fifths in 2013. Four alliances have become three. In other industries — airlines, for instance — concentration of this sort led to greater self-control.”
  • “Such developments have not gone unnoticed. Antitrust regulators have raised concerns about the shrinking number of alliances and their control over certain routes. And the Dax global shipping index has risen 15% (in dollar terms) since January.”

September 14, 2017

Perspective

WSJ – Daily Shot: US Census Bureau, Piper Jaffray – Construction & GDP Correlation 9/13

WSJ – Daily Shot: Moody’s – Impact of Irma on Southwest US 9/13

FT – Chart of the day, offshore tax haven market-share edition – Cardiff Garcia 9/11

  • “In all the micro-data we have access to, offshore wealth turns out to be extremely concentrated: the top 0.1% richest households own about 80% of it, and the top 0.01% about 50%.” – Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman

Worthy Insights / Opinion Pieces / Advice

WSJ – There’s a Speeding Mass of Space Junk Orbiting Earth, Smashing Into Things – Robert Lee Hotz 9/12

Economist – The lessons of fidget spinners 9/9

  • “Sales might have peaked, but they have changed toys.”

Economist – Mobile technology is revamping loyalty schemes 9/7

  • “If you want loyalty, get big data.”
  • “When Caesars Entertainment, a casino group, went bankrupt in 2015, auditors valued its loyalty database at $1bn, more even than its property on the Las Vegas strip.”

Markets / Economy

WSJ – Daily Shot: US Real Household Median Income (2016) 9/13

WSJ – Daily Shot: US Real Household Income by selected income percentiles 9/13

WSJ – Daily Shot: US Real Household Income by ethnicity 9/13

WSJ – Daily Shot: BMO Wealth Management – Bloomberg – Declining Corporate R&D 9/13

Energy

WSJ – Daily Shot: Bloomberg – Retail Gasoline Price Spike 9/13

  • Never waste a good crisis…

FT – Nigeria to resist cuts to its oil output, minister says – Anjli Raval 9/12

Finance

VC – Comparing Bitcoin, Ethereum, and Other Cryptos – Jeff Desjardins 9/11

Shipping

WSJ – Daily Shot: Baltic Dry Index 9/11

  • “The Baltic Dry shipping index hit the highest level in a couple of years amid better demand for iron ore.”

China

FT – Life sentences, $290m fine for Ponzi scheme in China – Edward White 9/11

  • “The two men who led a massive Chinese lending scam were sentenced to life behind bars by a Beijing court on Tuesday.”
  • “Ding Ning, the 35-year-old founder of Ezubao, was sentenced to life imprisonment after being charged with fraud, smuggling precious metals, illegal procession of firearms and illegally crossing China’s border. The company’s former chairman Ding Dian was also sentenced to life.”
  • “Ezubao was established in 2014 and became one of China’s highest-profile peer-to-peer lending sites, promising investors annual returns of up to 15%, write Edward White and Xinning Liu. According to the official Xinhua news agency, the Ponzi scheme raised more than Rmb50bn ($7.6bn) from 900,000 investors before arrests were made in early 2016.”
  • “The Beijing Intermediate Court issued fines of Rmb1.9bn (US$290m), which one Chinese lawyer said could mark a new precedent for fraud cases in China. Another 24 people linked to the scam, were handed sentences ranging from three to 15 years.”
  • “Ezubao’s risk controller was quoted by Xinhua in 2016 as saying ‘95% of [our] projects are fake’.”

India

Economist – Panipat, the global center for recycling textiles, is fading 9/7

  • A lesson of what happens when companies fade away when they don’t innovate, invest in R&D, and squeeze their capital and labor.

August 22, 2017

Perspective

WSJ – Daily Shot: Business Insider – Most Popular Food Restaurants by State 8/21

Bloomberg – How Far Does $1 Million Go in Retirement – Suzanne Woolley 8/21

Bloomberg View – Trump-Friendly Idaho Doesn’t Put America First – Matthew Winkler 8/18

Worthy Insights / Opinion Pieces / Advice

The Registry – McNellis: Hollowing out the Museum – John McNellis 8/21

  • “(Housing) Density is like heaven: everyone wants to go to heaven, but no one wants to die.”

FT – Will China buy Saudi Aramco – Nick Butler 8/20

Markets / Economy

FT – More companies sell bonds to fund pension obligations – Eric Platt 8/20

  • “This is a Goldilocks moment for companies who want to fund their pensions given the hunger for yield and attractive returns today.” – Owais Rana, Conning (an investment management company)

Real Estate

Bloomberg – Manhattan Gets $20,000-a-Month Homes for New Breed of Seniors – Oshrat Carmiel 8/21

Shipping

WSJ – Daily Shot: Baltic Dry Index 8/18

  • Enough consolidation has occurred to the point that shipping costs are back up.

August 17, 2017

Perspective

FT – Nothing like this has happened in 323 years – Martin Wolf 8/15

  • “Prior to January 2009, the Bank (of England) had never lowered its lending rate below 2%. But it was then lowered to 1.5%, on its way to 0.5% in March 2009 and 0.25% in August 2016. This ultra-easy policy was further buttressed by a huge expansion of the Bank’s balance sheet, which now contains £435bn in UK government ‘gilt-edged’ securities and £10bn in corporate bonds.”
  • “Throughout this prolonged recent period of ultra-easy monetary policy, the concern has never been one of runaway inflation, but rather of the opposite. This time really has been different. What does it mean for the future? Nobody knows.”

WSJ – Household Debt Hits Record as Auto Loans and Credit Cards Climb – Josh Zumbrun 8/15

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – The Peculiar Parable of the Lyft (parking) Lot – Joshua Brustein and Dorothy Gambrell 8/9

  • Free parking obscures the true costs of driving to work… charge for parking and smarter behaviors prevail…

Economist – The Philippine president’s zany ideas have not hurt the economy 8/16

  • “When it comes to jobs and investment, Rodrigo Duterte is more reformer than wrecker.”

Markets / Economy

WSJ – Consumers Keep Spending, but Not in Stores – Justin Lahart 8/15

WSJ – Daily Shot: SPDR S&P Retail ETF – S&P 500 Relative Performance 8/15

WSJ – Daily Shot: Coach Stock Performance 8/15

WSJ – Daily Shot: Dick’s Sporting Goods Stock Performance 8/15

WSJ – Daily Shot: Bed Bath & Beyond Stock Performance 8/15

WSJ – Daily Shot: Bloomberg REIT Regional Mall Index 8/15

WSJ – Daily Shot: SPDR Technology Select ETF – S&P 500 Relative Performance 8/15

WSJ – Daily Shot: Nasdaq 100 Equal Weight Cap-Weight Ratio 8/16

  • Thank goodness for the FAANG stocks

Energy

Bloomberg Businessweek – As Venezuela Spirals, U.S. Oil Confronts a $10 Billion Threat – Alex Nussbaum and Sheela Tobben 8/3

  • “While companies have been trimming Venezuelan imports for months, the nation is still a key supplier for some of America’s biggest refineries. Last month, the country accounted for a more than a quarter of capacity at Valero’s Port Arthur complex in Texas, according to U.S. Customs data compiled by Bloomberg. It was 43% at Chevron’s facility in Pascagoula…”
  • The conspiracy theorist in me wonders (although it is highly unlikely) if OPEC members are issuing shadow loans to the Maduro regime to keep this chaos going. The intent being to limit production efficiencies from Venezuela (the country with largest known oil reserves) – which of course, helps ease the production cut burdens on the more stable OPEC members and Russia.

Shipping

Bloomberg Quint – Global Shipping Industry Bounces Back From Its Lehman Moment – Kyunghee Park 8/15

  • “A massive consolidation is underway in the $500 billion global industry and the survivors now enjoy big economies of scale and increased demand, one year after excess capacity caused the sector’s worst-ever crisis — the bankruptcy of South Korea’s Hanjin Shipping Co.”
  • “The five biggest container lines control about 60% of the global market, according to data provider Alphaliner. Shipping rates are climbing, and an index tracking cargo rates on major routes from Asia is about 22% higher than it was a year earlier.”
  • “’Container shipping is now a game only for big boys with deep pockets,’ said Corrine Png, chief executive officer at Crucial Perspective, a Singapore-based transportation research firm. The rising market concentration will ‘give the liners greater pricing and bargaining power,’ she predicts.”
  • “Hanjin’s collapse, in August last year, upended the industry in much the same way that the bankruptcy of Lehman Brothers roiled the financial sector during the 2008 crisis. One of the world’s largest shipping firms at the time, Hanjin faced a cash crunch as supply outstripped demand in the industry, weakening pricing power and profits for carriers.”
  • “’Since the demise of Hanjin Shipping, flight to quality has become more noticeable in the container shipping business,’ said Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul. ‘That’s why the market is becoming more and more dominated by top players with big ships and those that don’t have could become more and more obsolete.’”
  • “The growing use of mammoth ships is key to the turnaround. Companies who own them are able to deploy fewer vessels and move more cargo on a single journey to benefit from higher rates, said Um.”
  • “By her estimates, there are now about 58 of these huge carriers worldwide that can transport more than 18,000 containers, and the number is expected to double in two years. About half the new vessels will be added by the biggest firms.”
  • “The excess supply that derailed growth last year hasn’t completely disappeared as new entrants expand and as older vessels still remain. Capacity in the container shipping industry is expected to grow 3.4% this year and 3.6% in 2018, according to Crucial Perspective.”
  • “Still, recovery in demand seems to be on track. After posting losses in 2016, companies are seeing signs of business picking up.”
  • “Earlier this year, Maersk, South Korea’s Hyundai Merchant Marine Co. and other shipping lines reached agreements with their customers to raise annual rates from May for cargo headed from Asia to U.S. stores like Wal-Mart and Target. Retailers in the U.S. usually increase inventory during the third quarter, ahead of the year-end holidays, and Lee said freight rates are expected to rise further as the peak season for the container shipping industry kicks off.”
  • “For retailers, ‘if container costs go higher, obviously it’s a headwind,’ said Brian Yarbrough, an analyst at Edward Jones. ‘Retailers have three choices: They can pass that through to the customer or find efficiencies to offset that within the organization, or they come out and say gross margins will be pressured due to higher freight costs.’
  • “BIG SHIPPING DEALS:”
    • “In 2015, Cosco Group and China Shipping Group announced a merger to create Asia’s biggest container line, Cosco Shipping Holdings Co.”
    • “In 2016, CMA CGM SA bought Singapore’s Neptune Orient Lines Ltd.; Maersk agreed to buy Hamburg Süd and Japan’s three shipping companies agreed to consolidate their container shipping businesses.”
    • “In 2017, Hapag-Lloyd AG completed its acquisition of United Arab Shipping Co. and Cosco Shipping offered to buy Orient Overseas International of Hong Kong.”

January 13 – January 19, 2017

China’s maritime footprint. Judicial independence in China – don’t count on it. Music streaming to the rescue. 

Headlines

NYT – Samsung Heir Faces Arrest on Charges of Bribing South Korea’s President 1/15. It appears that no one is ‘safe’ if the arguably the most powerful person in the country can be taken down – it’s like watching House of Cards.

NYT – Earth Sets a Temperature Record for the Third Straight Year 1/18“The heat extremes were especially pervasive in the Arctic, with temperatures in the fall running 20 to 30 degrees Fahrenheit above normal…”

FT – China’s 2016 capital outflows estimated at over $700bn 1/18. A recent report from Standard Chartered puts the 2016 total at $728bn, slightly less than the record $744bn in 2015.

Briefs

  • Sue-Lin Wong and Lusha Zhang of Reuters highlighted the continued flow of credit by Chinese banks and the concerning increase in debt levels.
    • “China’s banks extended a record 12.56 trillion yuan ($1.82 trillion) of loans in 2016 as the government encouraged more credit-fueled stimulus to meet its economic growth target, despite worries about the risks of an explosive jump in debt.”
    • “In December alone, Chinese banks extended 1.04 trillion yuan in net new yuan loans, far more than economists had expected, central bank data showed on Thursday.”
    • “Analysts polled by Reuters had expected new lending would fall to 700 billion yuan from November’s 794.6 billion yuan.”
    • “New bank loans last year surpassed the levels of China’s massive credit-led stimulus during the global financial crisis in 2009, according to Reuters calculations based on central bank data. The 2016 total was some 8% above the previous all-time high of 11.72 trillion yuan set just the year before.”
  • Dexter Roberts of Bloomberg Businessweek brought attention to the crisis facing China’s aging rural poor.
    • “Unlike people in much of the rest of the world, China’s citizens spend less on their health as they grow older, not more, says Albert Park, an economist at the Hong Kong University of Science and Technology.”
    • Why, simply because they seek to avoid healthcare costs due to the cost relative to their incomes.“The average cost of a hospital visit is 50% of the annual income of a city dweller; for rural residents it’s 1.3 times annual income, according to Gerard La Forgia, the lead author of Healthy China: Deepening Health Reform in China, a joint report by the World Bank, the World Heath Organization, China’s finance ministry, and other government agencies.”
  • Onur Ant and Benjamin Harvey of Bloomberg Businessweek covered the purge that is paralyzing Turkey.
    • Following the failed coup in Turkey,“at least 100 media outlets have been closed and more than 36,000 suspected Gulenists detained.”
    • The markets are not amused.“The lira has tumbled more than 18% since the coup attempt, the largest depreciation among major currencies worldwide, data compiled by Bloomberg show. The Borsa Istanbul 100 index fell as much as 28% in dollar terms by early December.”
    • Further“on Dec. 12 the Turkish government released third-quarter numbers for gross domestic product, which contracted for the first time in seven years, by 1.8%.”
    • Bottom line, now is a terrible time to have any affiliation with Gulenists. If you do have any, be prepared to have assets seized.“If a seizure is endorsed by the courts, the Savings Deposit Insurance Fund, a government-backed fund that manages companies the government takes over, will prepare the underlying assets for sale. The fund estimates the collective value of all the companies seized to date at about $10 billion.”
    • As Sevket Pamuk, an economist at Bogazici University in Istanbul puts it“what I find most striking is how easily ownership rights are being ignored. Why would local businesses invest in such an environment?”
  • Art Patnaude of The Wall Street Journal illustrated the growing amounts of ‘dry powder’ being accumulated by real estate funds as for-sale supply has been limited.
    • “Investors are piling money into real-estate funds – but fund managers are finding it a challengeto spend it.”
    • “Global fund managers had a record $237 billion available to invest in commercial property at the end of last year, according to data firm Preqin, up from $229 billion at the end of 2015 and $136 billion at the end of 2012.”
    • “Global fund managers have raised $446 billion for commercial property in the last four years, on par with the total raised between 2015 and 2008 in the run-up to the global financial crisis, Preqin said.”
    • However, there simply has not been enough property to buy.  “One reason for the lack of property to buy: Landlords aren’t willing to sell. Their low debt levels and readily available bank financing have made it easy to hold on to properties longer in hopes of reaping bigger paydays later, analysts said.”
    • Another are the“potential returns down the road. Strong levels of demand now suggest that if they wait, the value of their property could rise even more.”
    • Further, don’t forget that if they do sell, then there are the taxes to pay and what to do with the proceeds?
  • Tom Hancock of the Financial Times highlighted a recent acknowledgement by a Chinese provincial governor that they had been falsifying fiscal data.
    • “The Chinese province of Liaoning fabricated fiscal data for four years, a senior official has admitted, the latest blow to the already shaky reputation of China’s economic statistics.”
    • “Fiscal revenues in the province were inflated by at least 20% from 2011 to 2014, said provincial governor Chen Qiufa, according to Communist party mouthpiece The People’s Daily.”
    • “Economists and investors have long expressed doubts about Chinese economic data, particularly gross domestic product figures.Compared with other countries, China’s inflation-adjusted GDP growth rates are remarkably stable from quarter to quarter.”
    • “Following Mr. Chen’s admission, respected Chinese financial publication Caijing said it had already exposed Liaoning’s fake data in a 2015 report… that report dated the falsification of the data back to 2009, earlier than the 2011 date given by Mr. Chen, who became provincial governor in 2015.”
  • Yuan Yang of the Financial Times covered that China’s housing boom appears to have ended now that prices have fallen in its top cities.
    • “House prices have fallen across most of China’s hottest property markets for the first time in almost two years, marking an end to the enormous growth that saw prices rise as much as 40% last year.”
    • “Prices of newly built residential properties dropped between 0.1 and 0.4% in December from the previous month in 12 out of 15 ‘hotspot’ cities, according to data released by the National Bureau of Statistics on Wednesday.”
    • “Although many analysts expect property prices to fall at most 5% year on year in the current downturn, local governments are ready to move to avoid sharper crashes.”

 Graphics

WSJ – Daily Shot: China’s credit-driven Growth Model 01/12

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WSJ – Forecasters See Upside Risks to Their Economic Outlooks at Highest in More Than Two Years – Josh Zumbrun 1/12

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WSJ – Daily Shot: FRED Retail Department Store Sales 01/15

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FT – The problem with US healthcare in one chart – Federica Cocco 1/16

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NYT – How 2016 Became Earth’s Hottest Year on Record – Jugal K. Patel 1/18

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WSJ – Daily Shot: US Cost of Living Changes by Category 01/17

wsj_daily-shot_us-inflation-by-category_1-18-17

Featured

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

How China rules the waves. James Kynge, Chris Campbell, Amy Kazmin, and Farhan Bokhari. Financial Times. 12 Jan. 2017.

“Investments into a vast network of harbors across the globe have made Chinese port operators the world leaders. Its shipping companies carry more cargo than those of any other nation – five of the top 10 container ports in the world are in mainland China with another in Hong Kong. Its coastguard has the globe’s largest maritime law enforcement fleet, its navy is the world’s fastest growing among major powers and its fishing armada numbers some 200,000 seagoing vessels.”

“China understands maritime influence in the same way as Alfred Thayer Mahan, the 19th century American strategist. ‘Control of the sea,’ Mr. Mahan wrote, ‘by maritime commerce and naval supremacy, means predominant influence in the world; because, however, great the wealth of the land, nothing facilitates the necessary exchanges as does the sea.”

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“‘There is an inherent duality in the facilities that China is establishing in foreign ports, which are ostensibly commercial but quickly upgradeable to carry out essential military missions,’ says Abhijit Singh, senior fellow at the Observer Research Foundation in New Delhi. ‘They are great for the soft projection of hard power.’

“Beijing’s shipping lines deliver more containers than those from any other country, according to data from Drewry, the shipping consultancy. The five big Chinese carriers together controlled 18% of all container shipping handed by the world’s top 20 companies in 2015, higher than the next country, Denmark, the home nation of Maersk Line, the world’s biggest container shipping group.”

“In terms of container ports, China already rules the waves. Nearly two-thirds of the world’s top 50 had some degree of Chinese investment by 2015, up from about one-fifth in 2010, according to FT research.”

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“And those ports handled 67% of global container volumes, up from 42% in 2010, according to Lloyd’s List Intelligence, the maritime and trade data specialists.”

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“Rounding out a picture of China’s merchant fleet dominance is the country’s fishing fleet, which is by far the largest in the world, according to a recent paper by Michael McDevitt, a former rear admiral in the US navy and now a senior fellow a CNA Strategic Studies, a US think-tank.”

Bottom line, “analysts say that China’s naval strategy is aimed primarily at denying US aircraft carrier battle groups access to a string of archipelagos from Russia’s peninsula of Kamchatka to the Malay Peninsula in the South, a natural maritime barrier called the ‘first island chain’ within which China identifies its strategic sphere of influence.”

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China’s top judge denounces judicial independence. Lucy Hornby. Financial Times. 16 Jan. 2017.

“China’s top judge has fired a warning shot at judicial reformers by formally acknowledging that China’s court system is not independent of the Communist Party and rejecting attempts to make it so.”

“‘Bare your swords towards false western ideals like judicial independence,’ Mr Zhou told a gathering of higher court officials. Only two months before, he had said that party committees should not interfere in the judicial process.”

“‘This statement is the most enormous ideological setback for decades of halting, uneven progress toward the creation of a professional, impartial judiciary,’ said Jerome Cohen, an 86-year old American lawyer who has spent most of his career promoting legal exchanges between the US and China. ‘It has already provoked some of China’s most admirable legal scholars to speak out in defiance, and I fear not only for their academic careers but also for their personal safety.'”

“Mr. Zhou, once seen as a reformist, is one of the highest-ranking members of the Communist Youth League faction, which Mr. Xi moved to neutralize last summer ahead of a leadership reshuffle later this year.”

Further, “a crackdown on lawyers has intensified since 2015, ‘disappearing’ hundreds of lawyers. The most recent is Jiang Tianyong, a particularly active civil rights lawyer, who has been missing since November.”

How streaming saved the music industry. Anna Nicolaou. Financial Times. 16 Jan. 2017.

“Thanks to growth in Spotify and Apple Music, music streaming has passed the milestone of 100m paying subscribers worldwide, a feat few imagined possible a few years ago. The US music industry is on track to record a second consecutive year of growth – something that has not happened since 1999, the year Napster launched. Some analysts and executives are beginning to confidently predict a new golden age.”

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“It has been hard to imagine how the music industry could ever match its pre-Napster performance in the 1990s, when compact disc sales ruled. But now one monthly payment zaps 30m songs into your smartphone, tablet or desktop app, enabling artists like Drake to notch up streams by the billions. The Canadian rapper’s music was streamed more than 4.7bn times on Spotify alone last year. Every hour, his songs are streamed more than 500,000 times on the service.”

“Artists like Drake helped power Universal to profitability last year, earning the company $.1bn in streaming revenues in the first nine months – enough to offset the fall in sales of digital downloads and CDs.”

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“In a research note called Music in the Air, Goldman Sachs projected that streaming will help revenues double to $104bn by 2030.”

“Each year more people are buying access to digital music; Americans streamed 431bn songs on demand in 2016.”

Doesn’t mean there aren’t detractors – i.e. Taylor Swift – but the format continues to gain momentum.

As to control of this pipeline, “the music groups hold the leverage. The source of their power is…through ownership of the rights to… master recordings, Vivendi-owned Universal, Warner Music and Sony together control 80% of all recorded music, with Universal having a one-third share.”

Further, “streaming is a high-margin business. The labels no longer face the costs of hauling truckloads of CDs to Walmart. Instead of ownership, they are selling access to a digital music fortress.”

“This compares well with television studios, which have lost some grip over content as video streaming services like Netflix make shows and offer a limited selection of programs. Music fans, though, expect streaming services to offer more comprehensive digital back-catalogues, forcing them to cut deals with the labels. As one label executive puts it: ‘TV and film studios have to coexist with Netflix now. We haven’t made that mistake.'”
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However, the “one large thorn in the labels’ side is Google-owned YouTube, whose music draws more regular listeners than Spotify and Apple Music combined. Most music consumption on YouTube takes place on its free, ad-supported tier, a revenue stream vulnerable to the fortunes of the advertising market.”

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At this point “streaming is the industry’s latest white knight but after decades of grappling with pirates, new technologies and evaporating sales, music executives know there will be twists to come.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

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FT – Over half of China’s white-collar workers go without year-end bonus 1/12

FT – Toyota marks break from past with fund for tech investments 1/15

FT – US companies rush to reprice debt as higher rates loom 1/15

FT – China’s energy strategy: power and independence 1/15

FT – Fingerprint theft points to digital danger 1/16

FT – Saudi Arabia energy minister downplays US shale threat 1/17

FT – Mall staple Claire’s pulls IPO 1/17

FT – Capital Group chief says post-Trump change in markets ‘is real’ 1/17

NYT – With the Rain Comes Hope That 6-Year California Drought Is Ending 1/13

WSJ – Pulling Retirement Cash, but Not by Choice 1/16

WSJ – Mall Owners Find Relief From Unlikely Source: Online Retailers 1/17

WSJ – Mortgage-Rate Rise Hits Coastal Property Markets Hardest 1/18