South Korea’s birth rate, already the lowest in the
developed world, has fallen to a new low on factors such as the high cost of
private education despite various government initiatives to prop it up, raising
concerns about the country’s bleak demographic outlook.
The country’s fertility rate — the number of expected
babies per woman — fell to 0.98 in 2018, according to the latest government
data released on Wednesday. It was already the lowest at 1.05 in 2017 among
members of the OECD, far lower than Israel, which was the highest in the
organization with 3.11 expected babies in 2017, the US at 1.77 and Japan’s
1.43.
The replacement level — the total fertility rate for
developed countries needed to keep the population constant — is 2.1.
Policymakers are also concerned about the country’s
falling potential growth rate due to ageing, with South Korea now having more
economically active people aged over 60 than in their twenties.
Despite growing concerns about the looming labor
shortages, South Korea maintains a strict immigration policy, not allowing
foreign workers to migrate with their families or apply for South Korean
citizenship in most cases.
“WeWork’s steep valuation depends on a blinkered faith in its originality despite a crowded market of competitors. If the company’s equity value was based on the same multiple of sales as flexible workspace peer IWG (formerly Regus) it would be worth less than $3bn.”
“The company’s pitch is scale. WeWork envisions a world in which offices are so attractive that workers will choose to spend more time in them. Eventually, it pictures global cities of We-flats and We-offices, where members work out at We-gyms, learn at We-schools and network at We-events — all the while tracked by the We-operating system.”
“WeWork’s valuation comes courtesy of the deep pockets of Japan’s SoftBank and the Saudi-backed $100bn Vision Fund , which led a $3bn investment last year. That came with an additional $1.4bn raised for WeWork’s Asian subsidiaries. The fundraising round transformed WeWork into one of the world’s top 10 most valuable start-ups. Further financing from the Vision Fund, valuing WeWork at $35bn, has been mooted. This would exceed the value of SpaceX, Elon Musk’s space technology company.”
“In the meantime, WeWork needs financing. It is likely to require at least $2bn from investors in the next two years. To plug future outflows, it may seek far more. A successful initial public offering will require WeWork to convince investors that its value is based on more than giddy markets and a millennial-friendly aesthetic.”
“Unfortunately for WeWork, costs are growing just as steeply. Some look extravagant. Last year the group spent an additional $6.5m on events that included a weekend summer camp. The company justifies this as the price of growth.”
“However, WeWork’s valuation is based on its growth potential. Airbnb might therefore be a better comparison. It is valued at a higher $31bn. Yet even this is a more sober reflection of business than WeWork’s. The value is equal to 12 times trailing sales versus 20 for WeWork.”
“For now, WeWork is far from self-sustaining. The company lost nearly $1bn last year. Office occupancy at 82% is higher than IWG’s 75%. However, average membership fees are falling. There is little reason to think the decline will reverse while expansion is driven by Asia, where rates are lower.”
“Funding rounds were the only reason the company ended 2017 with cash of $2bn on the balance sheet. On FT estimates it is likely to need about $2bn more by the end of 2019.”
Markets / Economy
WSJ – Daily Shot: Deutsche Bank – US-Europe monetary policy divergence 7/3
“FlyHomes’ ability to turn clients into cash buyers exploits a quirk in the capital markets that’s arisen since the housing meltdown: Consumers are being put through more rigorous standards when they apply for a mortgage. Meanwhile, it’s comparatively easy for companies—even those with new, barely tested ideas—to get buckets of money from banks, venture capitalists, and other institutional investors.”
“Redfin CEO Glenn Kelman says these new ventures are part of a shift in how homes will be bought and sold. ‘There is just money coming out of every possible part of the world, and it isn’t going toward the consumer,’ he says. ‘It’s going toward real estate businesses who charge the consumer for access to that money.’”
Considering the headwinds of retail over the last few years, I’d say things are doing not too shabby considering it took the closure of Toys ‘R’ Us to push the absorption rate negative (granted local situations vary).
“Cut from 68-hour maximum aims to improve life balance for country of workaholics.”
“The country is home to the longest working hours and highest suicide rate in the developed world. South Koreans put in an average of 2,024 hours in 2017, the second-most after Mexico among members of the Organization for Economic Cooperation and Development (OECD). But the long hours have not translated into better productivity, with the country’s per-hour productivity ranking near the bottom.”
“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.”
“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.”
“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.”
Trade War. Chinese Aviation. Japan Sex Industry. Facebook. Investment Management. Interest Rates. Solar Installations. US Treasuries. Shipping. Ireland. Britain. Former presidents Park and Lula.
“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.”
“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.”
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.”
“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
“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…”
“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.”
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.
“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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“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.”
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.
“The Manhattan tower co-owned by the family of Jared Kushner, President Donald Trump’s son-in-law, has been losing money for three years and faces increasing loan fees in 2017, which may explain why the family has been negotiating with Chinese insurance behemoth Anbang on new financing.”
“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.”
“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.”
“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.'”
“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.”
“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
“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
“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.”
“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.
“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.”
