Tag: South Korea

April 10, 2018

Worthy Insights / Opinion Pieces / Advice

NYT – Federal Budget Deficit Projected to Top $1 Trillion in 2020 – Thomas Kaplan 4/9

  • “The federal government’s annual budget deficit is set to widen significantly in the next few years, topping $1 trillion in 2020 despite healthy economic growth, according to new projections from the nonpartisan Congressional Budget Office released Monday.”
  • “The national debt, which has topped $21 trillion, is expected to soar to more than $33 trillion in 2028. By then, debt held by the public will almost match the size of the nation’s economy, reaching 96% of gross domestic product, a higher level than any point since just after World War II and well past the level that economists say could court a crisis.”

Markets / Economy

WSJ – Daily Shot: Garth Friesen – 10-year Government Yield Comparison 4/9

Real Estate

WSJ – Daily Shot: MBA – Top 10 Commercial & Multifamily Mortgage Originators in 2017 4/9

Cryptocurrency / ICOs

FT – Celebrities warned over risk of cryptocurrency endorsements – Joshua Oliver and Hannah Murphy 4/8

  • “Celebrity endorsers of cryptocurrency fundraisers are at risk of legal action from regulators and investors, legal experts have warned, following a US case that highlighted the involvement of famous promoters in a so-called initial coin offering that collapsed.”
  • “The Securities and Exchange Commission last week charged two men with taking $32m from thousands of investors via an ICO, a crowdfunding mechanism used to raise money for digital currency ventures. The co-founders allegedly raised the funds for a ‘fraudulent’ start-up called Centra Tech, with the scheme touted on social media by champion boxer Floyd Mayweather and musician DJ Khaled.”
  • “While the SEC stopped short of naming the celebrity promoters in their statement, it noted their involvement — an unusual move because they are not defendants in the case. Experts said celebrities who have endorsed ICOs could now face legal action from regulators, as well as investors who believe they have been scammed.”
  • “Charles Whitehead, a professor at Cornell Law School, warned that even if an ICO was not a scam, promoters could face legal action. In most cases, someone who promoted an ICO that was not registered with the regulator could have violated market rules, he said, noting that US laws tightly regulate publicity around the sale of new securities.”

Asia – excluding China and Japan

Economist – Cases against two ex-presidents of South Korea fit an alarming pattern 4/7

  • “The past seven heads of state have all been embroiled in corruption scandals.”

China

FT – China’s fund industry predicted to grow fivefold by 2025 – Chris Flood 4/8

  • “China will provide the ‘single largest growth opportunity’ for global investment managers, with the country’s mutual fund assets forecast to multiply fivefold to reach $7.5tn (Rmb47tn) by 2025.”
  • “This expansion could create a fee pool for running mutual funds worth $42bn a year, a lucrative new stream of profits for international managers with an established Asian presence, according to UBS, the Swiss bank.”
  • “China is on course to become the world’s second biggest fund market, behind the US.”
  • “Beijing unveiled far-reaching reforms in November intended to accelerate the growth of China’s under-developed investment industry with less than 5% of Chinese household assets held in mutual funds.”
  • “It plans to relax or eliminate foreign ownership limits on Chinese financial services groups, including asset managers, a change that is designed to attract greater involvement by large international players.”
  • “Stewart Aldcroft, Asia chief executive of CitiTrust, the securities and fund services arm of US bank Citigroup, said Beijing’s decision to allow foreigners to own 100% of mainland fund management companies as early as 2020 had provided a ‘huge opportunity’ for international players.”
  • “He noted that about $17tn in assets is held in unregulated wealth management products.”
  • “’Chinese regulators want a large proportion of those assets to move to the regulated areas so they are making it easier for fund management companies to operate,’ said Mr Aldcroft.”

April 9, 2018

Trying a new approach. Thoughts?

 

Trade War. Chinese Aviation. Japan Sex Industry. Facebook. Investment Management. Interest Rates. Solar Installations. US Treasuries. Shipping. Ireland. Britain. Former presidents Park and Lula.

Continue reading “April 9, 2018”

April 5, 2018

Perspective

The Verge – South Korean millennials are reeling from the Bitcoin bust – Rachel Premack 4/3

  • “From the outside, the Korean economy appears to be flourishing: the country is home to major industry leaders such as Samsung, Hyundai, and Kia. It’s the 11th-largest economy in the world, with semiconductors, car LCDs, and other high-tech products dominating its exports. The overall unemployment rate is just 4.6%.”
  • “Still, young people can’t find jobs. Youth unemployment has hovered around 10% in Korea for the past five years. The underemployment rate — defined by those involuntarily working jobs they’re overqualified for or are part-time — is even higher as of this year: it hovered at 38% in 2016, according to Dongseo University professor Justin Fendos.”
  • “In this highly educated economy, it can be hard for young Koreans to distinguish themselves from their peers. Nearly 70% of all Koreans ages 25–34 have a post-secondary degree, the highest of all Organization for Economic Co-operation and Development (OECD) countries, and a high school degree is nearly universal. Entire neighborhoods in Seoul are full of college graduates studying to pass hiring exams in order to get in at Korea’s biggest companies or the enviable public sector.”
  • “’The design of Korean society is a big reason why the cryptocurrency became so popular,’ says Yohan Yun, a 25-year-old assistant reporter in Seoul who invested around $400 in Ethereum. ‘People here are generally unhappy with their current status in society.’”
  • “Even employed young people are pessimistic about their economic prospects: a survey conducted in 2015 showed that half of young Koreans don’t believe that they will do better than their parents’ generation, compared to 29% in 2006.”
  • “For young Koreans, cryptocurrency seems like a rare shot at prosperity. Months after last year’s bubble started to implode in February, the Korean won remains the third most traded currency for Bitcoin. The country of 52 million comprises 17% of all Ethereum trading, and it was the location of two-thirds of world’s biggest exchanges this winter, Korea Expose reported in February.”
  • “An estimated three in 10 salaried workers in Korea had invested in e-currencies by December 2017, according to a survey by Korean recruiting firm Saramin. Eighty percent of those people were in their 20s and 30s.”
  • “But now that the prices of cryptocurrency coins like Bitcoin, Ethereum, and Ripple have tanked, many Korean youths are dealing with the mental and financial aftermath of their losses. Korean psychologists have reported an uptick of patients from the so-called ‘Bitcoin blues,’ divorce counselors say marriages are splitting from failed investments, and even the country’s prime minister said that virtual currencies are on track to cause ‘serious distortion or pathological social phenomena’ among Korea’s young population.”
  • “Real estate used to be the traditional way to grow one’s fortune in Korea, but prices have become exceedingly expensive for even upper-middle-class people. And interest rates for savings accounts are rarely more than a few percentage points a year.” 
  • “Koreans’ hyperconnectivity helped spur Bitcoin’s popularity. Teens and young adults spend around four hours a day using mobile phones in Korea. Nearly every Korean home has internet access, and 88% have smartphones, the highest percentage globally. Such an abundance of connectivity allowed potential traders of all ages to learn about the craze and hear about the insane amounts of money one could make on trading. Cryptotrading clubs, where people can meet like-minded traders and share tips, popped up at many Korean universities.”
  • “Thanks in part to the frenzy, some coins cost up to 51% more in Korean markets than anywhere else. Bitcoin’s price was up nearly $8,000 in January, Bloomberg reported. The ‘kimchi premium’ drew foreign traders to buy their coins abroad and trade them in the Korean market.”
  • “But then came the crash. From January 6th to January 16th, 2018 the price of Bitcoin to Korean won tumbled from a high of a US-equivalent $25,065 to $13,503, according to Korbit. It continued to fall to $7,410 by February 5th, and as of April 2nd, the price of a bitcoin sits at $7,241.”
  • “In total, the Bitcoin crash wiped out $44 billion of value in January, or more than Ford’s entire market capitalization, according to Bloomberg. New regulations against cryptocurrency trading, particularly ones from a worried South Korean government, helped usher the fall.”

Worthy Insights / Opinion Pieces / Advice

Business Insider – People have stopped paying their mobile-home loans, and it’s a warning sign of the economy – Matt Turner 4/3

  • “The mobile-home market is showing signs of stress.”
  • “The delinquency rate on mobile-home loans has increased by 200 basis points, or 2 percentage points, over the past year, according to research cited by UBS. The 30-day-plus delinquency level is now about 5%, the highest level since 2005.”
  • “The increase in the number of struggling mobile-home borrowers suggests that a large chunk of these people haven’t benefitted from the economic growth of the past few years, despite the low unemployment level.”
  • “This data represents a piece of a jigsaw puzzle of the condition of consumer finances in the US. And the picture that’s emerging, according to UBS, is of a two-speed economy, with lower-income consumers and younger borrowers with substantial student debt moving at a slower pace than more affluent and established participants.”
  • “‘We believe weakness in these two groups (lower-income consumers and younger borrowers) will drive higher credit losses at some stage over the next few years — particularly in credit card, installment, and student loans — with macroeconomic inflection from job growth to job loss as a likely catalyst,’ UBS said.”

NYT – How Dr. King Lived Is Why He Died – Jesse Jackson 4/3

WSJ – Telsa’s Model 3 Is No Model T – Charley Grant 4/3

  • “First-quarter production is not as rosy as the electric-car maker believes.”

Markets / Economy

WSJ – Daily Shot: Deutsche Bank – US Actual vs Potential GDP 4/4

WSJ – Iowa’s Employment Problem: Too Many Jobs, Not Enough People – Shayndi Raice and Eric Morath 4/1

Real Estate

John Burns RE Consulting – California Has Density Solutions, but Not Enough New Housing – Pete Reeb 4/3

Finance

WSJ – Daily Shot: Deutsche Bank – European Bond Issuance v ECB Purchases 4/4

WSJ – Daily Shot: Deutsche Bank – Emerging Market USD & EUR Debt Issuance 4/4

China

WSJ – Daily Shot: Deutsche Bank – Credit Expansion in BRIC Countries 4/4

WSJ – Daily Shot: Hong Kong Retail Sales 4/4

  • “Hong Kong’s retail sales jumped by most in eight years as wealthy shoppers from the mainland return.”

Japan

WSJ – Daily Shot: Deutsche Bank – Declining Service Quality in Japan 4/4

  • “Instead of inflation, Japan’s extremely tight labor markets are translating into reduced-quality services for consumers. The US is starting to experience this trend as well.”

Puerto Rico

Bloomberg – Stunned Investors Reap 95% Gains on Defaulted Puerto Rico Bonds – Michelle Kaske 4/3

  • “Not only are Puerto Rico’s bonds the top performer in the $3.9 trillion municipal market, they’ve gained more than any other dollar-denominated debt in the world, according to data compiled by Bloomberg.”

WSJ – Daily Shot: Puerto Rico General Obligation Bonds 4/4

December 21, 2017

Perspective

Visual Capitalist – Sellbrite: Breaking Down How Amazon Makes Money – Jeff Desjardins 12/19

NYT – How the Winklevoss Twins Found Vindication in a Bitcoin Fortune – Nathaniel Popper 12/19

WSJ – Daily Shot: BMO & statista – US States with Highest rates of debt collection 12/19

Worthy Insights / Opinion Pieces / Advice

FT – The long and short of H&M’s travails – Richard Milne 12/19

  • “Concerns rise that family-controlled Swedish retailer needs radical change.”

ZeroHedge – China Systemic Risk: Liquidity Problem Surfaces at HNA Group Less Than Two Weeks After Company’s Denial 12/18

Markets / Economy

Bloomberg Businessweek – Fees Rise for Underfunded Pensions – Katherine Chiglinsky and Brandon Kochkodin 12/14

  • “The largest pension plans held by S&P 500 companies face a $348 billion funding gap. As a result, they’re paying higher annual fees to the U.S. Pension Benefit Guaranty Corp., the government agency that backstops plans. ‘There’s increased awareness that an underfunded plan imposes risk on employees, it imposes risk on shareholders, and it’s getting more expensive,’ says Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School and executive director of the Pension Research Council.”
  • “Only about two dozen companies in the S&P 500 have overfunded pensions. Nine of them are banks.”
  • “Offloading risk isn’t on the table for every company. Insurers don’t take on obligations from underfunded plans…”

CNN Money – SEC suspends trading of red-hot bitcoin stock – Paul R. La Monica 12/19

WSJ – Cryptocurrency Exchange Collapses, Files for Bankruptcy After Second Hack – Eun-Young Jeong and Steven Russolillo 12/19

  • “Yaipan, which operates South Korea’s Youbit, said latest security breach caused it to lose 17% of its total assets.”

Bloomberg – South Korean Crypto Exchange Files for Bankruptcy After Hack – Todd White and Kyungjin Yoo 12/19

  • “Korea has emerged as a sort of ground zero for the global crypto-mania. So many Koreans have embraced bitcoin that the prime minister recently warned that cryptocurrencies might corrupt the nation’s youth. The craze has spread so far that, in Korea, bitcoin is trading at a premium over prevailing international rates.”

Real Estate

Yahoo Finance – The hottest housing market of 2017 – Amanda Fung 12/20

  • Spoiler alert: it’s Seattle.

Tech

ARS Technica – Currency-mining Android malware is so aggressive it can physically harm phones – Dan Goodin 12/19

Britain

FT – Help! My house has been hijacked – Lucy Warwick-Ching 12/19

  • “Fake tenants adopt a property owner’s identity and sell the property.”

Europe

WSJ – EU Triggers ‘Nuclear Option’ in Fight With Poland – Valentina Pop 12/20

Other Interesting Links

NYT – ‘Porch Pirates’ Steal Holiday Packages as They Pile Up at Homes – Nick Wingfield 12/19

December 14, 2017

Perspective

Visual Capitalist – Animation: Visualizing the ICO Explosion – Jeff Desjardins 12/12

WSJ – Thousands of Fake Comments on Net Neutrality: A WSJ Investigation – Paul Overberg and James V. Grimaldi 12/12

Worthy Insights / Opinion Pieces / Advice

FT – The twin trap for Tesla investors predicting the future – Vitality Katsenelson 12/12

  • “Fear of diluted stock remains, even if the electric carmaker becomes profitable.”

NYT – Quakes and Fires? It’s the Cost of Living That Californians Can’t Stomach – Conor Dougherty 12/12

The Real Deal – The Long View: HNA, Anbang and the myth of low leverage – Konrad Putzier 12/12

  • “New York’s real estate market now grappling with the Chinese debt binge.”

Markets / Economy

CNN – South Korea is going bitcoin crazy – Jake Kwon 12/12

  • “On any given day, South Korea accounts for as much as 20% of all bitcoin trades around the world.”

Real Estate

FT Due Diligence – M&A is the weapon of choice against Amazon for mall operators – 12/12

China

NYT – Artist Flees Beijing After Filming Devastation of Mass Evictions – Austin Ramzy 12/12

March 24 – March 30, 2017

Shale markets to the financial markets – can I get some more money please… Slow housing recovery sapping GDP growth. China’s smartphone users flock to risky investments.

Headlines

FT – Chile heads for first recession since 2009 3/23. The Chilean economy contracted 0.4% in the fourth quarter of 2016 and it is looking like there will be another contraction in the first quarter of 2017 due to a strike at Escondida (the world’s largest copper mine) which would put the country in a technical recession, it’s first since 2009.

WSJ – Former South Korean President Park Geun-hye Is Arrested in Corruption Probe 3/30. First she was impeached and now arrested…geez.

Special Reports / Opinion Pieces

Briefs

  • Gloria Cheung and Don Weinland of the Financial Times highlighted recent restrictions by UnionPay barring Chinese from buying HK property with plastic.
    • “Chinese citizens have been barred from using their debit and credit cards to buy property in Hong Kong in the latest attempt by Beijing to curb capital flight.”
    • “The use of Chinese credit cards to pay for a portion of property transactions is widespread in Hong Kong. Willy Liu, chief executive of local real estate agent Ricacorp, said 15-20% of new property buyers were mainland Chinese. The majority use UnionPay (China’s sole clearing house for bank card transactions) cards to pay for 5% of the home price as a mortgage deposit in Hong Kong.”
    • “Most of those transactions are worth at least HK$500,000 ($64,371), Mr. Liu said, surpassing the $50,000 annual limit for personal foreign exchange imposed by China’s regulators.”
    • However, agents don’t expect the curbs to have much effect on Hong Kong property.
    • “UnionPay cards have been a common conduit for mainland Chinese to move cash offshore, and the company has sought to shutter those channels. In October, it said it had barred the use of its credit and debit cards to purchase investment-linked insurance products.”
    • “Investment-linked insurance products often have a cash value that allows customers to cash out after a set period. The business was viewed by Chinese regulators as a means of moving money offshore.”
    • “The insurance policies bought by Chinese customers last year were much larger than those bought by other customers. Average single-paid premiums for life and investment-linked policies bought by Chinese were HK$3.7m-HK$6.1m ($477,000-$786,000), Moody’s said in a report this year.”
  • David Blood of the Financial Times illustrated that fake news is shared as widely as the real thing.
    • “Nearly a quarter of web content shared on Twitter by users in the battleground state of Michigan during the final days of last year’s US election campaign was so-called fake news, according to a University of Oxford study.”
    • “Researchers at the Oxford Internet Institute (OII) also determined that these users shared approximately as many fake news items as ‘professional news’ over the same period.”
    • “The report, published on Monday, concludes that links to fake news stories accounted for 23% of the links tweeted by a sample of 140,000 Michigan-based users during the ten days up to November 11 last year.”
  • Bryan Harris and Kang Buseong of the Financial Times covered the how South Korea has joined the ranks of the world’s most polluted countries.
    • “South Korea has joined the ranks of the world’s most polluted countries, with air pollution in the first months of this year soaring to record levels.”
    • “Long associated with Asian capitals such as Beijing or Delhi, hazardous smog has for weeks blanketed Seoul – a city now appearing among the world’s three most polluted in daily rankings.”
    • “Already this year authorities in South Korea have issued 85 ultrafine dust (PM2.5) warnings, up more than 100% from the 41 advisories in the same period last year.”
    • “An OECD report found that up to 9m South Koreans could die prematurely by 2060 as a result of current levels of air pollution – the worst projection among members of the group of mainly rich countries.”
    • “Many in South Korea blame pollutants wafting in from China – but experts say much of the pollution is homegrown.”
    • “The South Korean environment ministry attributes up to 80% of the fine dust to overseas sources during periods of pronounced pollution.”
    • “But Prof. Kim (Kim Shin-do, a professor of environmental engineering at the University of Seoul) believes China is to blame for only 20% of South Korea’s fine dust. Environmental group Greenpeace puts the figure at 30%.”
    • “Much of the country’s pollutants come from vehicle emissions and construction or industrial sites. Power plants also play a crucial role – and energy officials are pushing to develop even more coal-powered capacity.”
  • Don Weinland and Javier Espinoza of the Financial Times highlighted the shock waves that have resulted in the global M&A world due to Chinese capital constraints.
    • “In the space of 12 months, China’s companies have gone from being the most prolific and sought after bidders in international dealmaking to some of the most unreliable and sometimes even unwelcome, according to senior bankers and lawyers.”
    • “The stark change reflects the regulatory crackdown in China on outbound transactions since the start of 2017, which has been part of a coordinated effort to stem the hundreds of billions of dollars in capital pouring out of the country.”
    • “In the first three months of the year, the value of announced outbound deals from China dropped sharply to $23.8bn, according to Thomson Reuters data, its lowest level since 2014.”
    • “In 2016, Chinese companies agreed [to] about $222bn worth of deals…”
    • Bottom line, the restrictions put in place by the State Administration of Foreign Exchange (SAFE) to limit acquisitions of non-core lines of business are working.
    • Granted, “groups with sizeable assets overseas, such as the airlines and hospitality conglomerate HNA Group, have continued to ink deals at a ravenous pace this year.”

Graphics

FT – Struggling Sears signals decline of US malls – Gary Silverman, Lindsay Whipp and Joe Rennison 3/24

WSJ – Why China’s Latest Cash Crunch Is Scarier This Time – Anjani Trivedi 3/24

WSJ – Daily Shot: Insider Sentiment 3/26

Bloomberg – Manhattan Landlords Are Turning to Retailer Giveaways – Sarah Mulholland 3/28

WSJ – Daily Shot: Moody’s Investors Service – Plateauing US auto sales 3/27

WSJ – Daily Shot: BMO Wealth Management – World Housing Affordability 3/28

WSJ – Daily Shot: Moody’s – Share of property as a component of household wealth in China 3/29

WSJ – Daily Shot: Saudi Arabia Foreign Exchange Reserves 3/29

Featured

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

America’s shale firms don’t give a frack about financial returns. Schumpeter. The Economist. 25 Mar. 2017.

“Shale’s second coming is testament to Texan grit. But the industry’s never-say-die spirit may explain why it has done next to nothing about its dire finances. The business has burned up cash for 34 of the last 40 quarters, according to figures on the top 60 listed E&P (exploration and production) firms collected by Bloomberg, a data provider. With the exception of airlines, Chinese state enterprises and Silicon Valley unicorns-private firms valued at more than $1bn-shale firms are on an unparalleled money-losing streak. About $11bn was torched in the latest quarter, as capital expenditures exceeded cashflows. The cash-burn rate may well rise again this year.”

“Meanwhile, the prospect of rapidly rising production is rattling global energy markets.”

“When oil prices halved in just 16 weeks starting in late 2014, panic hit Texas, followed-for a while-by grim austerity. The number of drilling rigs in America dropped by 68% from peak to trough. Companies slashed investment. Over 100 firms went bankrupt, defaulting on at least $70bn of debt.”

But here we go again.

“The partial recovery in the oil price, which at one point fell as low as $26, is only one factor behind renewed enthusiasm for shale. Houston’s optimists also argue that the full geological potential of Texas’s Permian basin has only just become apparent. Some experts think it could in time produce more barrels each day than Saudi Arabia does.”

“But the fact that the industry makes huge accounting losses has not changed. It has burned up cash whether the oil price was at $100, as in 2014, or at about $50, as it was during the past three months. The biggest 60 firms in aggregate have used up $9bn per quarter on average for the past five years. As a result the industry has barely improved its finances despite raising $70bn of equity since 2014. Much of the new money got swallowed up by losses, so total debt remains high, at just over $200bn.”

Thing is E&P firms are rewarded for taking risks. “Not one of the ten biggest E&P firms, for example, puts significant emphasis in its pay scheme on how much return on capital it produces. Low interest rates make it easy for shale firms to borrow, and fee-hungry banks cheer on the spectacle. But the only way that this mania will end well is if oil prices rise sharply, bailing out the industry, or if E&P firms are bought by bigger energy firms. That is possible, but companies such as Exxon and Shell are too seasoned to pay a lot for small, unprofitable firms.”

Then there is the circular argument that they’ll produce their way out of the debt with higher production at higher or sustained prices – but the more they produce (particularly as the swing producer in a global context) the more likely it is that prices will fall.

“The oil bulls of Houston have yet to prove that they can pump oil and create value at the same time.”

Sluggish Housing Recovery Took $300 Billion Toll on U.S. Economy, Data Show. Laura Kusisto. The Wall Street Journal. 26 Mar. 2017.

“The decline in homeownership rates to near 50-year lows is partly to blame for the U.S. economy’s sluggish recovery from the last recession, new data suggests.”

“If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8% boost to gross domestic product, according to a study expected to be released Monday by the Rosen Consulting Group, a real-estate consultant.”

“In 2016, total spending on housing declined to 15.6% of GDP, a broad measure of goods and services produced across the U.S., compared with a 60-year average of nearly 19%. The share of spending specifically lined to new-home construction and remodeling likewise declined to 3.6% of GDP, just over half its prerecession peak in 2005.”

“If you want to get the economy going, housing is typically the flywheel.” – Ken Rosen, chairman of Rosen Consulting and chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.

“The homeownership rate stood at 63.7% in the fourth quarter of 2016, according to the U.S. Census Bureau. That was down from a high of 69.2% during the housing boom and below the 65% economist say is a normal level.”

“It is unlikely that easing credit alone would be enough to bring the share of households who own back up to historic norms. Even in hot markets where demand is strong despite tight credit standards, builders can’t construct enough homes to meet demand because of labor shortages and regulatory barriers, said Robert Dietz, chief economist at the National Association of Home Builders.”

“Tighter mortgage lending has led to sharp declines in default rates and helped produce a market in which price growth is linked to economic prosperity.”

“But some experts argue default rates are too low. Under typical conditions, similar to those in the early 2000s, about 12% of mortgages are at risk of default, but in the third quarter of 2016, just 5.1% of mortgages were at risk of default – a level that indicates that lenders aren’t making loans to thousands of people who pose little risk, according to the Urban Institute, a nonprofit think tank.”

“Mr. Rosen said many middle-class families have missed out on the appreciation that has occurred over the past five years because they haven’t been eligible for mortgages.”

“‘We’re being paternalistic in our regulatory environment and it’s forcing lower middle-class people…to rent,’ he said.”

Swipe by Swipe, Chinses Smartphone Users Flock to Risky Investments. James T. Areddy. The Wall Street Journal. 28 Mar. 2017.

“In China, about 700 million people carry a smartphone, and many of them are comfortable sending money from their screens through the world’s busiest mobile-payment networks. That has created a crowdfunding wave bigger than anywhere else, a real-time experiment in a type of online investing proponents have long pushed in the U.S.”

“A million companies in China have turned to the internet to raise money, hawking loosely regulated, often risky investments, according to one of the country’s largest online lenders.”

“Swipe by swipe, the online money supply is helping to democratize investing and loosen capital markets. It also is propping up indebted Chinese companies and inflating bubbles in asset types from bonds to plastic pellets. And it is shifting more of the risks from China’s corporate debt load onto consumers.”

“Chinese banks hold more than $20 trillion in deposits, with more than a third of the total from household savings. Online pitches…attracted roughly $200 billion in 2015 and even more last year, consulting firm McKinsey & Co. estimated.”

“In just one corner of the booming online finance sector, more than 5,700 firms are registered with the Association of Shanghai Internet Financial Industry, a quasigovernmental group, to match small lenders and borrowers.”

“In January and February, Chinese electronics maker Cosun Group failed to repay about $166 million in bonds sold through an online marketplace owned by Ant Financial Services Group. Ant is an affiliate of e-commerce giant Alibaba Group Holding Ltd and is valued by some analysts at more than $70 billion.”

“Last April, crying investors flocked to Shanghai Kuailu Investment Group to demand their money back after its 13 fundraising platforms halted redemptions for about 38,000 customers who invested more than $2 billion, according to company documents reviewed by The Wall Street Journal. It had invested in at least 20 feature films, one starring former boxer Mike Tyson.”

“The company’s owner has disappeared, and investors claim they haven’t been repaid.”

You can imagine that the government has a cautious eye on the sector; however, previously they were all for it – hence the rapid adoption.

“In a recent survey, about 70% of Chinese internet users said carrying cash is no longer a daily necessity. It is common for consumers to swipe from deal to deal on apps that advertise investment opportunities. The apps usually are connected to online payment services that supply the customer’s personal details and link to bank accounts.”

“The migration of investing onto mobile phones happened in a flash. After Alipay pioneered a way to pay for goods with mobile phones, entrepreneurs used Alipay to sell shares during the 2015 stock-market boom. Stocks crashed, but other investment options proliferated, including commodities trading and interest-bearing insurance products.”

As an aside “multiple financial firms accept nude photos of borrowers as collateral on loans to college students.”

“Online finance is part of China’s wider shadow-credit system, where borrowings totaled $9.22 trillion in 2016, equivalent to 90% of GDP, according to UBS Securities. The term shadow credit refers to lending outside the formal banking system and its regulations.”

“Many people in the industry say investors pay little attention to details, other than the advertised return. Their money often is supposed to be tied up for just days or weeks, giving investors more comfort about the risks.”

“While most borrowers have been able to repay, often with a new round of money borrowed from somewhere else, investors have suffered losses in the billions of dollars.”

As Andrew Collier, founder and managing director of research firm Orient Capital Research in Hong Kong puts it, investors “are handing over their cash to a small group of internet pioneers who are trying to find ways to lend it short-term.”

Buckle your seatbelts.

Other Interesting Articles

Bloomberg Businessweek

The Economist

 

Bloomberg – Deutsche Bank in Bind Over How to Modify $300 Million Trump Debt 3/27

Economist – Anti-corruption demonstrations sweep across Russia 3/27
FT – Emerging market government debt rush before US rates rise further 3/23

FT – Property developer Kaisa surges 70% after exiting two-year suspension 3/26

FT – Hedge fund closures hold nuggets for stock market investors 3/27

FT – US producers build up sales hedges as oil falls 3/27

the guardian – A world without retirement 3/29

Mauldin Economics: Outside the Box – Raoul Pal, Paying Attention 3/29

NYT – China’s New Limits on Money Outflows Hit a Would-Be Paradise 3/24

NYT – Amazon’s Ambitions Unboxed: Stores for Furniture, Appliances and More 3/25

WSJ – China Tanked Oil Once, It Can Do It Again 3/27

WSJ – Spoiled-Milk Lending Flows to a Chinese Insurance Giant 3/27

WSJ – China’s Booming Car Market Fueled by Credit 3/28

 

March 17 – March 23, 2017

In the markets, even more so than in life, confidence is key. The American retail apocalypse. China is stirring a hornet’s nest.

Headlines

FT – S&P 500 posts steepest slide since October 3/21. The S&P 500 index finally broke its 109-day streak of not having a 1% drop in a trading day.

NYT – In Berlin, a Grass-Roots Fight Against Gentrification as Rents Soar 3/18. “Under pressure from a growing grass-roots movement, the city authorities have put into effect a slate of measures, including rent caps, a partial ban on vacation rentals, development-free zones and increased social housing subsidies.”

FT – Sovereign wealth funds move beyond trophy assets 3/19. No longer able to rely on the continuous cash flows of $100 a barrel oil, sovereign wealth funds have sharpened their pencils in their underwriting standards as they seek to generate higher investment returns for their citizens.

Yahoo Finance – Sears says there’s ‘substantial doubt’ it can stay in business 3/21. The company can sell its remaining key brands (Kenmore and Diehard); however, on an operating basis the company continues to lose cash.

Bloomberg – Record Number of Fund Managers Say U.S. Equities Are Overvalued 3/21. “Fund managers now say stocks are the most overvalued they have been in nearly 20 years, according to a survey done last week by Bank of America Merrill Lynch.”

Special Reports / Opinion Pieces

Briefs

  • Rosamond Hutt of the World Economic Forum illustrated that 92% of the world’s population is breathing unsafe air.
    • “An estimated 92% of the world’s population lives in areas where air pollution exceeds safety limits, according to the World Health Organization (WHO)…”
    • “Parts of Africa, Eastern Europe, India, China and the Middle East are the biggest regional danger spots. The WHO says almost all air pollution-related deaths (94%) occur in low-and middle-income countries.”
    • Image from WSJ – Daily Shot 3/20
  • Pilita Clark of the Financial Times highlighted the positive news that the sharp drop in US emissions kept global levels flat in 2016.
    • “Climate-warming emissions from burning fossil fuels have remained flat for a third year in a row in a development that suggests a shift to a greener global economy is happening faster than previously thought.”
    • “A striking drop in carbon pollution in the US, where emissions fell back to what they were in 1992, helped to keep global CO2 levels in 2016 virtually unchanged from the two previous years, the International Energy Agency said.”
    • “‘This is a very welcome development,’ said Fatih Birol, IEA executive director. ‘It appears we now have the first signs of an established trend of flat emissions as a result of natural gas replacing coal in major markets and renewables becoming more and more affordable.'”
    • “Mr. Birol said it was especially significant that emissions stayed flat during a period of sustained global economic growth, currently about 3% per annum.”
    • “Mr. Birol cautioned that it was still unclear whether global emissions had peaked after surging for much of the past 60 years. ‘I think it’s too soon to say [the levelling-off] is permanent but compared with two or three years ago I am much more optimistic,’ he said.”
  • Gabriel Wildau of the Financial Times covered the increase in measures by the Chinese governments seeking to slow the growing property bubble.
    • “Big Chinese cities (Beijing, Guangzhou, Zhengzhou, Changsha, and Shijiazhuang) have launched a new round of lending curbs and purchase restrictions in an effort to cool overheated property markets, as official media warn that some have veered towards a bubble.”
    • “At the conclusion of the annual session of China’s rubber-stamp parliament last week, the government pledged to ‘contain excessive home price rises in hot markets.'”
    • “Nationally, home prices were 11.8% higher in February than a year earlier, following 12.2% growth in January, according to Reuters’ calculations based on the government’s 70-city survey. But other indicators suggest that the previous round of property tightening measures, which began last autumn, has not had the desired impact.”
    • “Property investment grew at its fastest pace in two years in January and February at an annual rate of 8.9%, while sales accelerated to 25.1% growth in floor space terms.”
    • “‘There is no doubt that in some cities the property market’s ‘high fever’ hasn’t subsided, and there are even signs of an evolution towards a bubble,’ read a Monday analysis in Financial News, a newspaper owned by the People’s Bank of China, the central bank. ‘The hidden risks and potential damage cannot be ignored.'”
  • Aaron Back of The Wall Street Journal pointed out the negative trends in the auto lending business.
    • “The auto-finance sector has taken a bad turn. An investor update on Tuesday from auto lender Ally Financial, formerly the auto-lending arm of General Motors, added to building evidence that trend lines are negative in the industry. That ranges from rising defaults to falling used-car prices.”
    • “The National Automobile Dealers Association sparked concern last week with a report that its used-car price index fell by 8% from a year earlier in February to its lowest level since 2010. NADA cited several factors for the decline, including a higher supply of used cars hitting the market, better sales incentives for new vehicles and even a delay in the mailing of tax-refund checks.”

Graphics

WSJ – Daily Shot: FRED – Multifamily Housing Permit Issuance 3/16

“Multifamily housing permits, while volatile, have stalled over the past couple of years. Part of the reason for the lack of growth has been a pullback in financing, as banks become uneasy with this space.”

WSJ – Daily Shot: FRED – Multifamily Housing Under Construction 3/16

However a lot of inventory is coming to market.

WSJ – Daily Shot: Cities with High percentage of Multifamily Housing Permits 3/16

WSJ – Daily Shot: Americans on Food Stamps 3/16

“It’s been almost a decade since the Great Recession but the number of Americans on food stamps remains elevated.”

WSJ – Daily Shot: US Per Capita Consumption of Soft Drinks 3/16

FT – China treads closer to a day of debt reckoning – Izabella Kaminska 3/16

WSJ – Daily Shot: Italian House Price Growth 3/17

Want to buy an Italian villa?

Bloomberg – Manhattan & Brooklyn Real Estate Hot Spots – Oshrat Carmiel 3/20

WSJ – Barriers to Trade Are Multiplying Fast – Anjani Trivedi 3/20

“Some 2,200 antitrade measures like higher tariffs, subsidies and requirements for governments to buy locally are now in place globally – fourfold increase since 2010 – according to the World Trade Organization. On a broader definition, governments have taken some 3,500 antitrade steps since the global financial crisis, many of which were supposed to be temporary, according to Global Trade Alert, an independent initiative that monitors trade policies.”

WSJ – Daily Shot: US Household debt to disposable income 3/21

eia – Record precipitation, snowpack in California expected to increase hydro generation in 2017 – 3/22

Credit Suisse – The Incredible Shrinking Universe of Stocks – Michael Mauboussin, Dan Callahan, Darius Majd 3/22

FT – Debt piles add to risk for China’s property groups – Yuan Yang and Jennifer Hughes 3/22

Featured

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

America’s Confidence Economy. Mohamed A. El-Erian. Project Syndicate. 20 Mar. 2017.

Life – the confidence game.

“Financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in ‘hard’ data, such as GDP growth, business investment, consumption, and wages. But economists and policymakers are not so sure. Whether their doubts are vindicated will matter for both the United States and the world economy.”

“Donald Trump’s election as US president has triggered a surge in positive economic sentiment, because he pledged that his administration would aggressively pursue the policy trifecta of deregulation, tax cuts and reform, and infrastructure construction. Republican majorities in both houses of Congress reinforced the positive sentiment, as they signaled that Trump would not face the kind of paralyzing gridlock that Barack Obama confronted for most of his presidency.”

“The surge in business and consumer sentiment reflects an assumption that is deeply rooted in the American psyche: that deregulation and tax cuts always unleash transformative pro-growth entrepreneurship. (To some outside the US, it is an assumption that sometimes looks a lot like blind faith.)”

“In his groundbreaking General Theory of Employment, Interest, and Money, John Maynard Keynes referred to ‘animal spirits’ as ‘the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism, rather than mathematical expectations, whether moral or hedonistic or economic.'”

“But sentiment is not always an accurate gauge of actual economic developments and prospects.”

“So far, the exuberant reaction of markets to Trump’s victory – all US stock indices have reached multiple record highs – has not been reflected in ‘hard data.’ Moreover, economic forecasters have made only modest upward revisions to their growth projections.”

“It is not surprising that equity investors have responded to the surge in animal spirits by attempting to run ahead of a possible uptick in economic performance. After all, they are in the business of anticipating developments in the real economy and the corporate sector. In any case, they believe that they can quickly reverse their portfolio positions should their expectations change.”

“That is not that case for companies investing in new plants and equipment, which are less likely to change their behavior until announcements begin to be translated into real policies.”

“It is in this context that the economy awaits a solid timeline for policy announcements to evolve into detailed design and durable implementation.”

“If improved confidence in the US economy does not translate into stronger hard data, unmet expectations for economic growth and corporate earnings could cause financial-market sentiment to slump, fueling market volatility and driving down asset prices. In such a scenario, the US engine could sputter, causing the entire global economy to suffer, especially if these economic challenges prompt the Trump administration to implement protectionist measures.”

“The US is on relatively strong footing to achieve higher economic growth. Indeed, by animating the economy’s animal spirits, the Trump administration has laid the groundwork for the private sector to do a lot of the heavy lifting. But there is more to do. Unless the Trump administration can work well with a cooperative Congress to translate market-motivating intentions into well-calibrated actions soon, the lagging hard data risks dragging down confidence, creating headwinds that extend well beyond financial volatility.”

The retail apocalypse has officially descended on America. Hayley Peterson. Business Insider. 21 Mar. 2017.

“Thousands of mall-based stores are shutting down in what’s fast becoming one of the biggest waves of retail closures in decades.”

“More than 3,500 stores are expected to close in the next couple of months.”

“Some retailers are exiting the brick-and-mortar business altogether and trying to shift to an all-online model.”

“For example, Bebe is closing all its stores – about 170 – to focus on increasing its online sales, according to a Bloomberg report. The Limited also recently shut down all of its stores, but it still sells merchandise online.”

“Others, such as Sears and JCPenney, are aggressively paring down their store counts to unload unprofitable locations and try to staunch losses.”

“Sears is shutting down about 10% of its Sears and Kmart locations [not to mention their very existence as a ‘going concern’ is at stake], or 150 stores, and JCPenney is shutting down about 14% of its locations, or 138 stores.”

“According to many analysts, the retail apocalypse has been a long time coming in the US, where stores per capita far outnumber that of any other country.”

“The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia, the next two countries with the most retail space per capita, according to a Morningstar report from October.”

Of course all of this is not good for the malls. The immediate outcome of closed stores is the drop in rental income; however, when the anchors (i.e. Sears and JCPenney) close, co-tenancy clauses can be triggered – basically enabling other tenants to leave. Further, the queue of suitable replacement tenants isn’t as long as it used to be. So, some malls (particularly the C- and D-rated ones) are on the path to closure.

Regardless, don’t interpret this to be the apocalypse that the title describes – there is still a need for retailers.

China stokes grievance against Seoul at its peril. FT View. Financial Times. 22 Mar. 2017.

“Faced with the menace of a nuclear-armed Pyongyang, Seoul has allowed the US to deploy its Terminal High Altitude Area Defense (Thaad) missile shield on its soil. China claims the weapons system’s radar will enable the US to see deep into Chinese territory, thereby tilting the strategic balance in the region and undermining Beijing’s own military capabilities.”

“This is certainly part of the rationale behind Washington’s plan to deploy the shield. The US is essentially telling Beijing that it is fed up with China’s lack of action in reining in its client state. If Beijing does not want Thaad to be deployed then it should do more to curb provocative aggression by North Korea.”

“Instead, the Communist Party has blanketed Chinese state media with anti-Korean vitriol, harassed South Korean businesses, stopped Chinese tourists from travelling to Korea and even allowed schoolchildren to be indoctrinated through mass rallies and boycotts of Korean products.”

“Korean supermarket chain Lotte, which provided some land for the deployment of Thaad, has borne the brunt of the Chinese attacks. As many as 87 of its 99 stores in China have been temporarily or permanently closed, including many that have been targeted for spurious ‘fire safety’ violations. This behavior may violate World Trade Organization rules. Seoul has already requested that the WTO looks into China’s actions.”

“The Chinsese government has tried to distance itself from the protests against South Korea by arguing that they are simply a reflection of public opinion. But all forms of public protest in China are effectively banned, except those that happen to rail against the latest foreign enemy that party leaders are annoyed at.”

Careful instigating a mob.

Other Interesting Articles

Bloomberg Businessweek

The Economist

 

Bloomberg – PBOC Said to Inject Funds After Missed Interbank Payments 3/21

Bloomberg – Ray Dalio Says Populism May Be a Bigger Deal Than Monetary and Fiscal Policy 3/22

FT – A blind spot masks the danger signs in finance 3/16

FT – Swift severs remaining North Korean links to global banking 3/16

FT – Surge of foreign buying builds case for China bond index inclusion 3/17

FT – Capital Group takes on the passive investors 3/20

FT – Investors grow more adventurous in their search for income 3/20

FT – Chinese cinemas punished for box office fraud 3/23

Guardian – Has the tech bubble peaked? Signs that the startup boom may be fizzling 3/17

Knowledge@Wharton – The Economic Toll of High Suicide Rates in Japan and South Korea 3/20

NYT – While Scolding Trump, Mexico Seeks to Curtail Citizens’ Rights 3/16

NYT – How ‘Consumer Relief’ After Mortgage Crisis Can Enrich Big Banks 3/17

NYT – Gripes About Obamacare Aside, Health Insurers Are in a Profit Spiral 3/18

NYT – Arctic’s Winter Sea Ice Drops to Its Lowest Recorded Level 3/22

WP – Secret Service asked for $60 million extra for Trump-era travel and protection, documents show 3/22

WSJ – Bond-Yield Rebound Poses a Threat to Stock Rally 3/19

WSJ – With the World’s Most Billionaires, China Has Its Own Populism Problem 3/20

WSJ – Cities Restore Lost Streets, Local Charm After Razing Failed Malls 3/20

WSJ – Blackstone Looks to Cash Out of European Warehouse Platform 3/21

WSJ – Tax Overhaul Threatens Affordable-Housing Deals 3/21

WSJ – Jared Kushner’s White House Role Complicates Skyscraper Deal 3/21

WSJ – Used-Car Prices Put Auto Finance in a Pickle 3/21

 

 

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

wsj_daily-shot-china-credit-driven-growth_1-12-17

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

wsj_us-economic-projectsions_1-12-17

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

wsj_daily-shot_fred-us-dept-sales_1-15-17

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

ft_life-expectancy-v-health-expenditure-oecd_1-16-17

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

nyt_global-monthly-temperatures_1-18-17

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.”

ft_chinas-dual-use-of-commercial-and-naval-ports_1-12-17

“‘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.”

ft_chinese-investment-in-world-ports_1-12-17

“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.”

ft_chinese-container-traffic_1-12-17

“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.”

ft_china-defense-spending_1-12-17

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.”

ft_music-streaming-revenues_1-16-17

“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.”

ft_music-revenue-splits_1-16-17

“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.'”
ft_streaming-quantity-to-generate-revenues_1-16-17

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.”

ft_most-popular-streaming-services_1-16-17

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

FT – How smartphones are transforming healthcare 1/12

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

 

December 23 – December 29, 2016

A review – how India and Indonesia have gone about chasing tax revenue. Global bond sales hit a record in 2016 led by corporations. US housing gains highlight the growing economic divide.

First, Happy New Year! 

Headlines

Special Reports / Opinion Pieces

Briefs

  • Yuan Yang and Sherry Fei Ju of the Financial Times highlighted how China city governments have collided with Didi over migrant drivers.
    • “China’s ride-sharing platforms face their biggest regulatory test so far after city governments in Beijing and Shanghai approved a policy of ‘local cars, local drivers’ on Wednesday.”
    • “Migrants from rural China constitute the core of the workforce for not only car-hailing apps but some of the country’s largest internet groups including Alibaba and Meituan-Dianping, all of which rely on low-paid drivers and couriers.”
    • “The regulations say you can be fined Rmb10,000 ($1,440) if you are discovered. But 99% of passengers don’t want us to be checked, or they wouldn’t be able to take taxis, so they won’t report us.” – Mr. Huang, a driver in Shanghai originally from Jiangsu
    • “About 40% of Beijing’s and Shanghai’s combined 43m residents are from outside the city, according to the cities’ statistics bureaus.”
    • “China has over 270m rural migrants who have moved to cities to seek a better livelihood. But they are kept under firm restrictions by China’s internal passport rules, the hukou system, under which people receive different benefits depending on whether they have an urban or rural registration and where they are registered.”
    • So two things: 1) you have a huge section on the economy that operates at an equilibrium that requires subsidized labor and investor losses in order to provide products at a price point where consumers will pay for them, and 2) there are millions of people that are forced into a “second-class” citizenship (with rights similar to those of illegal immigrants in the US) by a registration system that seeks to control migration patterns.  Think about it.
  • Tom Mitchell of the Financial Times covered how the lease renewals in Wenzhou have eased homeowner fears.
    • “In an announcement at the weekend, the land ministry said that 20-year residential property leases in the eastern city of Wenzhou would be automatically extended without charge, ending speculations that homeowners would face steep renewal fees equivalent to one-third of their property’s value.”
    • “Ever since Deng Xiaoping’s landmark economic reforms were introduced in the early 1980s, allowing people to buy land and property for the first time since the 1949 communist revolution, titles in the world’s most populous country have been limited by fixed-term leases.”
    • Wenzhou was the first to the fixed-term leases to expire – clearly garnering national and global interest.  Granted, the city is unusual with its 20-year leases versus the norm of 70-years; “the shorter leases were introduced in Wenzhou in the 1990s to make properties more affordable.”
    • The bigger issue at hand is the moral hazard that it represents. Presumably buyers believed that the government would come to their rescue at the end of their lease terms – probably the punters selling the units assured the buyers of the same – and low and behold, they did.  While the lease rollovers represent a huge revenue source for municipalities, actually letting market forces take hold would put many homeowners in dire straits when their leases expire.  Further such a course of action would send shivers across the country when all property owners suddenly realize how precarious their land tenures are… which of course would limit property appreciation – likely to send it down meaningfully, and so on and so forth.
    • To be sure the special case of Wenzhou “does not signal a final resolution of the issue.” The government is “studying a new law that would regulate lease renewals nationwide.”
  • Bruce Einhorn, Peter Pae, Jungah Lee, Kanga Kong, and Abhishek Vishnoi of Bloomberg Businessweek featured the current unrest in South Korea as the country seeks to rein in its corporate elite.
    • The recent impeachment of South Korean President Park Geun-hye and the scandal surrounding it has brought to the surface the anger and frustration “of a population struggling with the transition to a slow-growth era.”
    • “Economists expect South Korean gross domestic product this year to expand 2.7%, marking the first five-year period with growth below 3.5% since the 1950s. Manufacturers are suffering from the slowdown in China, South Korea’s top export market, and soft demand elsewhere. Export growth has declined in 21 of the past 23 months. Youth unemployment is 9.3%, in part because rigid labor laws discourage employers from hiring young graduates. ‘ Without some serious restructuring,’ says Emily Dabbs, an economist for Moody’s Analytics in Sydney, the outlook ‘is going to be quite weak.'”
    • “Monthly household incomes for urban salary and wage earners grew 1.7% in the third quarter from a year earlier. As recently as 2012, income growth regularly topped 5%.”
    • Worse, “many jobs are low-paying temporary positions without the insurance, pensions, and other benefits regular workers enjoy. Temporary employees, who make up one-third of the workforce, earn on average about 41% of what a full-fledged employee does.
    • “Since the end of military rule in the late 1980s, an unwritten social compact has allowed corruption among the political and corporate elite as long as ordinary Koreans enjoyed solid economic growth.”
    • This story line is being played out all around the globe…

 Graphics

WSJ – Paying to Lend: The Negative-Yield Story of 2016 – Richard Barley 12/27

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WSJ – The Mystery of Japan’s Stagnant Wages – Anjani Trivedi 12/27

wsj_mystery-of-japans-stagnant-wages_12-27-16

WSJ – As Home Prices Rise, Flippers Make a Comeback – Kirsten Grind and Peter Rudegeair 12/28

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WSJ – Daily Shot: FRED Declining US Homeownership Rate 12/28

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WSJ – Daily Shot: FRED US Home price growth vs. Wage growth 12/28

Doesn’t help that rents and home prices are outpacing wage growth

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WSJ – Daily Shot: FRED US Housing Cost Inflation 12/28

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WSJ – Daily Shot: Prescription Drug Price Inflation 12/28

Another place inflation has been taking off

wsj_daily-shot_prescription-drug-price-inflation_12-28-16

WSJ – Daily Shot: US Food Deflation 12/28

And a place where it is not

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WSJ – Daily Shot: Declining Cost of Chinese Imports 12/28

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WSJ – Daily Shot: Value of US Manufacturing Shipments 12/28

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WSJ – Daily Shot: China Central Government Stimulus 12/28

As things are slowing down in China, the government has been stepping up its stimulus

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WSJ – Daily Shot: China Private investment growth 12/28

While the private sector has been hitting the breaks

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WSJ – Daily Shot: China 20yr Government Bond Yield 12/28

Doesn’t help that the cost of funds is jumping

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WSJ – Daily Shot: China AA+ Corporate Bond Yield (Index) 12/28

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WSJ – Daily Shot: Family Incomes spent on childcare 12/28

I can relate to this.

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Comstock’s – California to Pay Billions More After CalPERS Cuts Assumed Rate – Romy Varghese 12/29

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Bloomberg Businessweek – Mapping the Growth of Disability Claims in America – Brendan Greeley 12/16

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Visual Capitalist – These 5 Big Companies Control the World’s Beer – Jeff Desjardins 8/4

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Featured

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

How India and Indonesia are chasing tax revenue. Erwida Maulia and Kiran Sharma. Financial Times – Nikkei Asian Review. 25 Dec. 2016.

The Financial Times put together an interesting article on Indonesia’s and India’s efforts to increase their tax revenue base.

In Indonesia, they have “calculated that political stability and a dramatic drop in the tax rate could help to bring home an estimated 11,400tn rupiah ($851bn) parked overseas.”

To help repatriate this wealth, Indonesian President Joko Widodo has launched a massive tax amnesty campaign. “More than 10,000 people a day answered the president’s pitch in September: declare assets now and take advantage of a discounted tax rate – as little as 2% compared with 25% – and, in turn, be part of Indonesia’s future.”

The good news for some of this money is that “beyond the new low rates, the amnesty doesn’t require tax officials to trace the origins of the assets and it prohibits the disclosure of information, even to law enforcement.”

Granted, not everyone is happy about the repatriation. “The efforts to corral big assets unsettled Singapore, one of Asia’s leading financial centers, which is estimated to hold more than $200bn in assets for Indonesians. Account holders who notified financial institutions in Singapore that they would apply for the amnesty suddenly found the financial police involved. Singapore policy and the Monetary Authority of Singapore, the financial industry watchdog, had informed banks there to file suspicious transaction reports whenever anyone sought to participate in the amnesty.”

“According to financial sources, Singapore banks offered some of the wealthiest Indonesians better interest rates if they would declare but not repatriate their money.”

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“As of December 19, 141tn rupiah had been committed for repatriation, just 14% of the target. The number of participants declaring assets, though, has been far more encouraging. From July to mid-December, there were 508,000 participants and a total of 4,035tn rupiah of assets declared, equal to 30% of the country’s gross domestic product.”

“While Indonesia has pursued a single, clear and well-publicized program to find hidden assets, India has launched a multi-faceted assault to find revenue in a country where only 1% of the 1.25bn population pays income tax.”

“It has made for a tumultuous year for nearly every Indian household.”

“From June to September, the government embarked on a much-publicized program for people to self-declare secret assets. The first such tax amnesty in nearly 20 years drew in a disappointing 673bn rupees ($9.93bn) from 71,726 people. Soon after, Modi (Prime Minister Narendra Modi) authorized raids of high-net-worth individual’s homes and offices.”

And then “November 8 was the game-changer. From midnight, the government declared a withdrawal of high-denomination notes, sucking out 86% of the currency in circulation by value from a predominantly cash economy. People were given until December 30 to deposit the banned notes into their bank accounts.”

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The affects are still being felt, especially as new notes have been slow in their roll out. “Former Prime Minister Manmohan Singh, an economist, said the national income could decline by 2%.”

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Hopefully it was worth it.

Bottom line, “sophisticated investors and wealthy families will always be searching for privacy and confidence in how their money is secured and governments will be hard pressed to keep pace. ‘Thinking of Indonesia in 1998 or India’s latest currency reforms gives you a good idea as to why people in these two countries want a safe place for their money,’ said Jason Sharman, professor of governance and public policy at Griffith University in Australia. ‘Offshore is often told as a story of greed, which it often is, but it’s even more a story of fear. Often justified fear.'”

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Corporates lead surge to record $6.6tn debt issuance. Eric Platt. Financial Times. 27 Dec. 2016.

“The bond rally that dominated the first half of the year helped entice borrowers that issued debt via banks to take on just over $6.6tn, according to data provider Dealogic, breaking the previous annual record set in 2006.”

“Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest-rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.”

“While US government bond yields touched their low in July, the prospect of Mr Trump cutting taxes and injecting fiscal stimulus has accelerated a move higher in interest rates that some investors fear will make debt burdens harder to bear in 2017.”

“After touching a record low of 1.32% in July, the yield on the 10-year US Treasury – an important benchmark for corporate borrowing costs – has surged more than a percentage point to 2.57%.”

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“With the universe of negative-yielding bonds touching almost $14tn at one point, money managers were willing to stomach lower returns. The year’s debt sales were buoyed by China and Japan-based issuers, up 23% and 30% respectively, from a year earlier.”

“Investors say they expect 2016 is likely to prove a high-water mark for debt issuance in this cycle, with the Fed forecast to raise rates further and question marks growing over the future of bond-buying programs from the BoJ and the ECB.”

Housing Gains Highlight Economic Divide. Laura Kusisto. Wall Street Journal. 27 Dec. 2016.

“The volatile housing market of the past 15 years is widening the divide between pricey urban and coastal areas and more affordable inland regions, creating large swaths of winners and losers based largely on geography.”

While the S&P CoreLogic Case-Shiller National Home Price Index is up 5.6% in the last twelve months through October, however, “adjusted for inflation, prices are still roughly 15% below the peak.”

“Much of the spoils have been concentrated on the high end. A study by Weiss Analytics, a housing-data firm, found homes in ZIP Codes where the median value is $500,000 to $1 million are now worth 103% more than they were 16 years ago, before a boom in the mid-2000s was followed by the worst housing crash since the Great Depression. Home prices in those areas have shot up 39% since the bust.”

“In ZIP Codes where the median home was worth $100,000 to $150,000, prices have risen 16% since the trough of the market and are now worth 24% more than they were in 2000.”

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Adding a political lens to this, “in counties that voted for Mr. Trump, home prices have been largely flat for the past 15 years, according to a county-by-county analysis of home values and voting patterns by real-estate tracker Zillow.”

“In January 2000, just before the housing market’s boom-bust cycle began, homes in counties that voted for Mrs. Clinton in 2016 were worth $36,000 more than those in the counties that voted for Mr. Trump, according to the Zillow analysis. Today, the gap stands at almost $97,000.”

“The difference is even starker in counties that changed how they voted in this election. In counties that swung for Mrs. Clinton, homes are worth about $147,000 more than homes in counties that swung for Trump.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Forget Rogue One, Disney Is Rebuilding the Entire Star Wars Universe 12/15

Bloomberg – It Was Going to Be the Year of the REIT 12/27

FT – Five industries under threat from technology 12/25

FT – Cristina Fernandez charged in Argentina corruption case 12/27
FT – Toshiba writedown warning revives financial stability fears 12/27

FT – China debt: long time coming 12/27

FT – Bond investors must accept low-for-long era is over 12/27

FT – US hits Russia with tough sanctions over election hacking 12/29

Investment News – Coming off a disastrous 2016, sales of nontraded REITs could bounce back in 2017 12/27

Naked capitalism – A Tale of Two Retirements: The Great Divide Between CEOs and Everyone Else 12/28

NYT – Growth of U.S. Population Is at Slowest Pace Since 1937 12/22

NYT – Obama Strikes Back at Russia for Election Hacking 12/29

WP – The Arctic is showing stunning winter warmth, and these scientists think they know why 12/23

WSJ – Italy’s Bank Rescue Is a Precarious Balancing Act 12/23

WSJ – Xi’s Power Play Foreshadows Historic Transformation of How China is Ruled 12/26

WSJ – The Real Story About Rising Home Prices 12/26

WSJ – Plain-Vanilla Real Estate Gains Clout With Chinese 12/27

WSJ – Aluminum Billionaire Planning Escape From China: Lawyer 12/28

WSJ – China’s Currency Drops But Pressure Still Builds 12/28

 

September 9 – September 15, 2016

It appears there is no “too big to fail” in South Korea. US inflation coming only from a few unproductive sectors. China’s credit hose targeted at housing.

Headlines

Briefs

    • “Yields on “junk”-rated euro-denominated debt hit a record low of 3.35% last week.”
    • “Traditional signals of risk aren’t as reliable as they might be in markets that have been so distorted by central-bank policies.”
    • “Take the developments in junk bonds. Ultralow yields and issuance of PIK (payment-in-kind) notes might usually suggest a market that is too bullish for its own good. Demand was so strong for Schaeffler’s (bearings maker) sale that it was able to sell 3.6 billion of debt in euros and dollars, versus an originally planned 2.5 billion; in the process it refinanced debt that carried rates ranging from 5.75% to 6.875% with notes paying from 2.75% to 4.75%. Moreover, it Ardagh’s (packaging group) case, some of the proceeds were used to pay a dividend to shareholders, another sign that borrowers have the upper hand.”
    • “Retail sales in Hong Kong fell by 10% in the first seven months of the year, compared with the same period in 2015, with purchases of jewelry and watches declining by 22%.”
    • “‘Our customer flow has dropped 60-70%’ since the peak of Chinese luxury spending in 2013, says manager (Kingdom Jewelry) Jacky Sze. ‘I don’t have much hope for the rest of this year, or next.'”
    • First there was the failed coup d’etat on President Recep Tayyip Erdogan, now there is the purge of detractors and then sum…
    • For those not familiar, the coup is being blamed on the Gulen community, aka the cemaat, an Islamist sect that promotes an interchange/dialogue with science.  The imam that founded the movement is Fethullah Gulen who now lives in Pennsylvania.
    • Over 100,000 Gulen sympathizers have been rounded up so far.
    • “According to one minister, the state has seized more than $4 billion-worth of Gulenist assets.”
    • And following on the maxim to ‘never waste a good crisis.’ President Erdogan is also targeting Kurdish minorities.
    • However, for a little bit of context, the “secular Turks (of which President Erdogan is one) have no love for the Gulenist, who targeted them in their own purges in the 2000s.”
  • Also in the Economist was a piece on how shipping profits are going overboard.
    • “Of the biggest 12 shipping companies that have published results for the past quarter, 11 have announced huge losses. Several weaker outfits are teetering on the edge of bankruptcy.”
    • “The industry could lose as much as $10 billion this year on revenues of $170 billion, reckons Drewry, a consultancy.”
    • Essentially, two primary forces are at play 1) world trade is down/slowing and many multinationals are creating manufacturing operations near their customers, and 2) there is overcapacity in the industry from the recent commodity boom.
    • As a result, “sending a container from Shanghai to Europe now costs half of what it did in 2014.”

Special Reports / Opinion Pieces

  • FT – The twisted logic of negative interest rates – John Kay 9/9
    • “All told, the primary effect of monetary policy since 2008 has been to transfer wealth to those who already hold long-term assets – both real and financial – from those who now never will. This week’s debt sale reinforces this. Henkel and Sanofi are not borrowing at negative interest rates to invest in new productive facilities. Both companies have large cash piles, and the cash generated from their operations far exceeds their investment needs.”
  • FT – Mongolia: Living from loan to loan – Lucy Hornby 9/12
    • “Mongolia was a darling among emerging markets during the commodities boom. Foreign miners flocked to exploit the mineral wealth under its grasslands and deserts, pushing up growth in gross domestic product by 17% in 2011. But after a debt-fueled spending spree at the peak of the cycle, the landlocked country is now one of the worst hit by the downturn.”
    • “Mongolia’s efforts to extricate itself highlight the dangers of the ‘resource curse’ – the notion that countries blessed with tremendous natural resources find themselves at the mercy of wealth-destroying boom-bust cycles.”

Graphics

FT – Air pollution deaths cost global economy $5tn annually – Shawn Donnan 9/8

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Bloomberg – San Francisco Housing Frenzy Shifts Across the Bay to Oakland – Alison Vekshin 8/22

Bloomberg_Oakland in demand_8-22-16

WSJ – Paradise Lost: Why the Good Times Are Over for Global Bonds – Richard Barley 9/14

wsj_ten-year-government-bond-yields_9-14-16

FT – Vantage to break famine for energy IPOs – Eric Platt and Ed Crooks 9/14

FT_Surge of equity sales by US oil and gas cos_9-14-16

Featured

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

Seoul signals tougher stance with Hanjin demise. Song Jung-a. Financial Times. 11 Sep. 2016.

“Hanjin’s move to seek bankruptcy protection last month was the first time a big container shipping line had done so for 30 years, and it caught out many in the industry. As recently as a couple of months ago, shipping executives considered the failure of Hanjin Shipping – the world’s seventh-largest container line and South Korea’s largest – unthinkable.”

“Hanjin Shipping and its rival Hyundai Merchant Marine handled the bulk of South Korea’s exports, which account for more than half of the country’s $1.4tn economy.”

“Until now, Seoul has spent decades keeping lossmaking companies afloat with cheap state loans. In the case of its embattled shipbuilders, it has injected billions of dollars, despite next to no progress in turning them around.”

“How Seoul ultimately handles Hanjin Shipping’s collapse will set the tone for future restructuring of Korea Inc.”

“Many of the country’s smokestack industries – including steel, chemicals and construction – are similarly suffering from overcapacity.”

“The government has set up the principle that it will no longer support ailing companies with taxpayers’ money just because they are too big.” – Yoo Il-ho, South Korea’s finance minister

Alphaville – Least productive sectors only thing keeping inflation going. Matthew C. Klein. Financial Times. 12 Sep. 2016.

Since 1990 “…the bulk of the growth in employment can be attributed to a few sectors where productivity is either low or unmeasurable, a whopping 88% of the total rise in the price level boils down to four sectors of the US economy.”

1) Healthcare services, 2) Housing, 3) Education, and 4) Prescription drugs

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“In January 1990, those four product categories only accounted for 30% of the money spent on consumption by the average American.”

And within education the main culprit has been the textbook.  Akin to prescription drugs, supply in both industries is tightly controlled by regulation.

“By contrast, thanks to astounding technological innovation, television prices have plunged at an average rate of 12% each year since 1990 and computer prices have fallen more than 18% per year.”

“In general, the prices of durable goods are about a third lower now than in 1990, while the prices of nondurable goods excluding commodity products (food, drinks, and fuel, which tend to rise at the same rate as the broader price level over time) and excluding prescription drugs, have also fallen, albeit not by as much. Inflation outside of healthcare and education has generally been modest, with the notable exception of a few small professional services such as tax preparation, lawyers, and funeral homes.”

China’s Credit Fire Hose Floods Housing Market. Anjani Trivedi. Wall Street Journal. 15 Sep. 2016.

“More than 70% of new loans in August were to households, much of that in the form of mortgages, going by historical averages, a remarkable shifting of the fire hose of credit. It also helps explain why China’s property market has raced higher despite broader economic worries.”

“China’s stock of mortgages stood at 16.9 trillion yuan ($2.5 trillion) as of June 30. Almost a quarter of that was built up in just the past year, according to ANZ. Mortgage loans outstanding now account for 18% of total loans, the highest since at least 2008.”

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“Local regulators are imposing clampdowns on mortgage lending and property speculation in the hottest cities such as Shanghai and Shenzhen. They are right to do so, as this leg of China’s multi-decade property bubble is clearly being fueled by leverage in a way that it wasn’t in the past.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – How Big Sugar Enlisted Harvard Scientist to Influence How We Eat – in 1965 9/12

Bloomberg – What’s Wrong With America’s Dream of City Living 9/14

Economist – Why does Thailand keep changing its constitution? 9/12

FT – When will the ECB run out of bonds to buy? 9/8

FT – China infrastructure investment model under fire 9/10

FT – Twitter and tech: hardly working 9/11

FT – What investors should know about R star 9/11

FT – Oil market braces for Kashagan field’s October debut 9/12

FT – The Swiss and negative rates: how is the experiment going? 9/12

FT – Philippines pivots away from the US 9/13

FT – Japan opens door to temporary foreign workers 9/13

FT – Manias make markets dance to a different tune 9/13

FT – Mythbusting Uber’s valuation 9/13

FT – China retail: shops will drop 9/14

Trepp – Non-Traded REITs on slowest capital-raising pace in 12 years 9/9

WSJ – Bank of Japan Has Enlarged Target in Corporate Bonds 9/12

Yahoo Finance – The internet is creating a demographic ‘seismic shift’ that is too big to ignore 9/12

Yahoo Finance – Billionaire Paul Singer warns of the ‘biggest bubble in the world’ 9/13