Tag: Technology

November 13, 2017

Perspective

FT – How Germany got its gold back – Claire Jones 11/10

  • “It was kept abroad to escape the Soviet Union. But then Germany decided to bring it home.”

NYT – After Weinstein: A List of Men Accused of Sexual Misconduct and the Fallout for Each – Sarah Almukhtar, Larry Buchanan, and Michael Gold 11/12

Worthy Insights / Opinion Pieces / Advice

FT – Little room for error as investors chase leveraged loan boom – Ben McLannahan 11/9

  • “Riskier ‘covenant-lite’ loans now account for about 70% of new leveraged loans, up from 30% before the Lehman Brothers crisis. Protections that were standard back then have now vanished altogether.”
  • “’As long as investors keep buying these loans, there’s nothing really to put the brakes on,’ says Derek Gluckman, a vice-president at Moody’s. ‘Things just keep getting worse.’”
  • “’Loan terms never got this bad in ‘07,’ says Mr. Cohen (founder and CEO of Covenant Review). ‘The contracts … are the worst they’ve ever been. Period, full stop.’”

Markets / Economy

WSJ – A Starbucks Coffee Costs What? – Chelsey Dulaney and Ira Iosebashvili 11/9

  • You’ve heard of the Big Mac Index, this is the Starbucks proxy.

WSJ – Daily Shot: FRED – Financial Stress Index 11/10

FT – Catastrophes wipe $35bn from insurers’ profits – Oliver Ralph and Alistair Gray 11/12

  • “A string of natural disasters from Hurricane Harvey in the US to earthquakes in Mexico have left the insurance industry facing one of its most expensive years on record.”
  • “The catastrophes have wiped more than $35bn from insurers’ profits, according to a Financial Times analysis of third-quarter results that have laid bare the scale of the damage. Berkshire Hathaway, run by billionaire Warren Buffett, and AIG were among the hardest hit in the US, while in Europe Swiss Re and Munich Re face large claims. Lloyd’s, the London-based insurance market, expects to pay out a total of $4.5bn.” 
  • “Insurers say the final cost is likely to be larger and push up premiums. Commercial insurance and reinsurance have suffered from years of falling rates, as excess capacity and a lack of big claims combined to drive prices down.”
  • “’The losses have been extensive across reinsurance, commercial insurance and personal lines,’ said Kurt Karl, chief economist at Swiss Re. ‘There were $20bn of natural catastrophe losses across the industry in the first half. Hurricanes Harvey, Irma and Maria, combined with the earthquakes in Mexico, will create about $95bn of insured losses.’”
  • “Added together, the industry is facing more than $110bn of insured losses from natural catastrophes. Only 2005 — when Hurricane Katrina hit the US — and 2011 — when there were earthquakes in Japan and New Zealand — were more costly.”
  • “The $35bn figure, taken from company reports, does not include losses from unlisted companies, or from insurance-linked securities in which investors’ capital is used to directly back insurance risk.” 

Tech

Statista – Attack of the Clones – Felix Richter 11/9

Environment / Science

WP – The Earth’s ozone hole is shrinking and is the smallest it has been since 1988 – Marwa Eltagouri 11/3

  • “This year, the ozone hole is the smallest it has been since 1985. NASA and NOAA scientists have been studying the ozone layer and monitoring its hole over Antarctica for years. This year, the ozone hole is the smallest it has been since 1985.”
  • “Here’s a rare piece of good news about the environment: The giant hole in the Earth’s protective ozone layer is shrinking and has shriveled to its smallest peak since 1988, NASA scientists said.”
  • “The largest the hole became this year was about 7.6 million square miles wide, about two and a half times the size of the United States, in September. But it was still 1.3 million square miles smaller than last year, scientists said, and has shrunk more since September.”
  • “Warmer-than-usual weather conditions in the stratosphere are to thank for the shrinkage since 2016, as the warmer air helped fend off chemicals like chlorine and bromine that eat away at the ozone layer, scientists said. But the hole’s overall reduction can be traced to global efforts since the mid-1980s to ban the emission of ozone-depleting chemicals.”
  • “The ozone hole was largest in 2000, when it was 11.5 million square miles wide, according to NASA.”

Health / Medicine

WP – Aaron Hernandez suffered from most severe CTE ever found in a person his age – Adam Kilgore 11/9

India

FT – Smog-cloaked Delhi looks with envy at Beijing’s cleaner air – Kiran Stacey, Emily Feng, and Archie Zhang 11/10

  • “As Indian politicians squabble over who is to blame for the thick smog that has descended over the north of the country this week, citizens have been looking enviously over the border at China, where particulate levels have been falling for years.”
  • “Many in India believe Beijing has been better able to combat its air pollution problem because it does not get bogged down in political infighting. They blame India’s problems on the country’s raucous but inefficient democracy.”
  • This week, pollution in Delhi literally went off the charts, hitting the top reading of 999 on the US embassy’s air quality index. Anything over a reading of 100 is considered unhealthy.” 
  • By Wednesday afternoon, Delhi saw airborne levels of tiny damaging particles known as PM2.5 hit 833 parts per million, while in Beijing the level was 76. Anything over 50 is considered unhealthy, and anything over 300 hazardous.
  • “The difference between the two cities reflects a broader divergence over recent years, during which Delhi has taken over from Beijing as the world’s most polluted megacity.” 
  • “’Indian politicians have this very weird idea that we will do something about pollution when we are developed, but we won’t develop unless they invest in public health,’ says TK Joshi, director of the Centre for Occupational and Environmental Health in Delhi.”
  • “He adds: ‘Beijing has tackled this problem much better, but then it is much easier to control things in an authoritarian regime than in a democracy, especially one like India, where 50% of the people are so badly educated about the problem.’”

Middle East

WSJ – Saudi Crackdown Targets Up to $800 Billion in Assets – Margherita Stancati and Summer Said 11/7

  • “The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter.”
  • “The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of ‘persons of interest’ and said the move is ‘in response to the Attorney General’s request pending the legal cases against them.’”
  • “Much of that money is abroad, which will complicate efforts to reclaim it, people familiar with the matter said. But even a portion of that amount could help Saudi Arabia’s finances. A prolonged period of low oil prices forced the government to borrow money on the international bond market and to draw extensively from the country’s foreign reserves, which dropped from $730 billion at their peak in 2014 to $487.6 billion in August, the latest available government data.”

FT – Greed and intrigue grip Saudi Arabia – Simeon Kerr 11/10

November 9, 2017

If you were only to read one thing…

Bloomberg – America’s ‘Retail Apocalypse’ Is Really Just Beginning – Matt Townsend, Jenny Surane, Emma Orr, and Christopher Cannon 11/8

  • “The so-called retail apocalypse has become so ingrained in the U.S. that it now has the distinction of its own Wikipedia entry.”
  • “The industry’s response to that kind of doomsday description has included blaming the media for hyping the troubles of a few well-known chains as proof of a systemic meltdown. There is some truth to that. In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year.”
  • “But chains also said 6,800 would close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.”
  • “The reason isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.”
  • “The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.”
  • “Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.”
  • “Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years.”
  • “Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20%, to $35 billion, and the industry’s leveraged loans are up 15%, to $152 billion, according to Bloomberg data.”
  • “Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.”
  • “Retailers have pushed off a reckoning because interest rates have been historically low from all the money the Federal Reserve has pumped into the economy since the financial crisis. That’s made investing in riskier debt—and the higher return it brings—more attractive. But with the Fed now raising rates, that demand will soften. That may leave many chains struggling to refinance, especially with the bearishness on retail only increasing.”
  • “One testament to that negativity on retail came earlier this year, when Nordstrom Inc.’s founding family tried to take the department-store chain private. They eventually gave up because lenders were asking for 13% interest, about twice the typical rate for retailers.”
  • “Store credit cards pose additional worries. Synchrony Financial, the largest private-label card issuer, has already had to increase reserves to help cover loan losses this year. And Citigroup Inc., the world’s largest card issuer, said collection rates on its retail portfolio are declining. One reason that’s been cited is that shoppers are more willing to stop paying back a card from a chain if the store they went to has closed.”
  • “The ripple effect could also be a direct hit to the industry that is the largest employer of Americans at the low end of the income scale. The most recent government statistics show that salespeople and cashiers in the industry total 8 million.”
  • “During the height of the financial crisis, store workers felt the brunt of the pain when 1.2 million jobs disappeared, or one in seven of all the positions lost from 2008 to 2009, according to the Department of Labor. Since the crisis, employment has been increasing, including in the retail industry, but that correlation ended as jobs at stores sank by 101,000 this year.”
  • “The drop coincides with a rapid acceleration in store closings as bankruptcies surge and many of the nation’s largest retailers, including Wal-Mart Stores Inc. and Target Corp., have decided that they have too much space. Even before the e-commerce boom, the U.S. was considered over-stored—the result of investors pouring money into commercial real estate decades earlier as the suburbs boomed. All those buildings needed to be filled with stores, and that demand got the attention of venture capital. The result was the birth of the big-box era of massive stores in nearly every category—from office suppliers like Staples Inc. to pet retailers such as PetSmart Inc. and Petco Animal Supplies, Inc.”
  • “Now that boom is finally going bust. Through the third quarter of this year, 6,752 locations were scheduled to shutter in the U.S., excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That’s more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis. Apparel chains have by far taken the biggest hit, with 2,500 locations closing. Department stores were hammered, too, with Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. downsizing. In all, about 550 department stores closed, equating to 43 million square feet, or about half the total.”
  • “One response to the loss of store-based retail jobs is to note that the industry is adding positions at distribution centers to bolster its online operations. While that is true, many displaced retail workers don’t live near a shipping facility. The hiring also skews more toward men, as they make up two-thirds of the workforce, and retail store employees are 60% women.”
  • “The coming wave of risky retail debt maturities doesn’t take into account that companies currently considered stable by ratings agencies also have loads of borrowings. Just among the eight publicly-traded department stores, there is about $24 billion in debt, and only two of those—Sears Holdings Corp. and Bon-Ton Stores Inc.—are rated distressed by Moody’s.”
  • “’A pall has been cast on retail,’ said Charlie O’Shea, a retail analyst for Moody’s. ‘A day of reckoning is coming.’”

Perspective

FT – Forbes says Wilbur Ross lied about being a billionaire – Lindsay Fortado and Shawn Donnan 11/7

  • “Forbes business magazine has booted US secretary of commerce Wilbur Ross off its list of the richest people in America for the first time in 13 years, alleging he lied to them about his net worth by more than $2bn.”

FT – Electric cars’ green image blackens beneath the bonnet – Patrick McGee 11/7

  • “Nico Meilhan, a Paris-based car analyst and energy expert at Frost & Sullivan, says regulators should not encourage this race to sell electric vehicles with bigger batteries. ‘It’s a race, but it’s a very stupid race. It’s not towards a good solution,’ he says. ‘If you switch from oil to cobalt and lithium, you have not addressed any problem, you have just switched your problem.’”
  • “Instead, he says regulators should take weight into account by taxing heavier vehicles and creating incentives for smaller models in both electric and traditional vehicles.”
  • “Mr. Meilhan points out that petrol-engine cars weighing just 500kg — such as the French Ligier microcar or some popular ‘kei cars’ in Japan — emit less lifecycle emissions than a mid-sized electric vehicle even when driven in France, where carbon-free nuclear power generates three-quarters of electricity.”
  • “’If we really cared about CO2,’ he adds, ‘we’d reduce car size and weight.’”

WSJ – Jet-Set Debt Collectors Join a Lucrative Game: Hunting the Superrich – Margot Patrick 11/7

  • “Private investigators spend millions, scour globe, chasing an estimated $2 trillion in pending claims.”

Worthy Insights / Opinion Pieces / Advice

Economist – Asian households binge on debt 11/2

  • “What should be good news for the global economy has its downsides.”

FT – The House of Trump and the House of Saud – Edward Luce 11/8

  • “The blossoming relationship with Riyadh symbolizes the decay of the US-led order.”

Markets / Economy

Business Insider – Someone deleted some code in a popular cryptocurrency wallet – and as much as $280 million in ether is locked up – Becky Peterson 11/7

  • “An estimated $280 million worth of the cryptocurrency ether is locked up because of one person’s mistake.”
  • “An unidentified user accidentally deleted the code library required to use recently created digital wallets within Parity, a popular digital-wallet provider, according to a security alert posted on the company’s blog on Tuesday.”
  • “The freeze affects all multi-signature wallets created on Parity after July 20.”
  • “Multi-sig wallets are especially popular among cryptocurrency startups and other groups because they require more than one person to agree before any currency gets moved around. It’s a safeguard against rogue employees who might want to run off with the money.”

WSJ – Clamor for Tech IPOs Reaches Fever Pitch in Asia – Saumya Vaishampayan and Steven Russolillo 11/8

  • “Nearly three quarters of the 66 tech floats in the first nine months of 2017 have been in Asia, and the companies have raised about 40% of the total $16.8 billion from the sector, according to a report by PricewaterhouseCoopers.”
  • “Shares of newly public companies in Asia, on average, have risen by 141% from their IPO prices this year through the end of October, according to Dealogic. That compares with an average 25% gain for U.S. IPOs and a 13% increase for new issues in Europe.”

WSJ – Daily Shot: FRED – US Student Loan Balance 11/8

Real Estate

WSJ – Republican Tax Plan Would Slam California Housing Market – Laura Kusisto 11/8

  • “Limits on mortgage-interest deduction would affect many buyers in coastal regions around the U.S.”

WSJ – Co-Working Trend Eats Into Office Demand – Peter Grant 11/7

  • “The co-working trend, popularized by startup businesses like WeWork Cos., has been attractive to entrepreneurs and small companies looking for communal office space and short-term commitments.”
  • “But it could turn out badly for landlords, according to a new report from Green Street Advisors. The report predicts co-working will detract from cumulative office demand through 2030 by about 2% to 3% as the shared working space approach spreads from small businesses to large ones.”
  • “The report estimates there will be about 14,000 co-working locations world-wide by the end of this year, compared with 600 in 2010. WeWork alone has more than 20 locations in London and is now among New York’s largest office tenants, it says.”
  • “’The most ominous prospect for landlords is that [corporate] users could ‘outsource’ big chunks of their headquarters and regional offices to co-working operators,’ the report warns.”
  • “Consider the new business that WeWork launched earlier this year that creates tailored WeWork centers for big companies that employ hundreds or even thousands of workers. Named Onsite Solutions, it is marketing itself to employers that have flexible office space requirements or who want to circulate employees through hipper environments than their traditional workplaces.”
  • “Mr. Reagan (Jed Reagan, Green Street analyst) said such initiatives have the potential to hurt office landlords because co-working facilities typically require less space: about 75 square feet per worker compared with 175 square feet in traditional offices. Also, co-working leases for big tenants tend to be six months to five years, much shorter than the common lease term of five to 15 years, he said.”
  • “’That could undermine the stability and security of cash flow for landlords and could create more churn among tenants,’ Mr. Reagan said.”

India

FT – One year on, jury is still out on India’s ‘black money’ ban – Amy Kazmin 11/7

  • “Economy has slowed and cash in circulation is 90% of previous level, data show.”

South America

FT – Venezuela’s debt struggle poses more questions for investors – Robin Wigglesworth 11/7

  • “Analysts and investors say there are more questions than answers surrounding Venezuela’s plans to ‘refinance and restructure’ its financial liabilities.”
  • “Venezuela has about $63bn of foreign bonds outstanding, according to Torino Capital, while the central bank estimates the country’s overall foreign debts at about $90bn. The real number say most analysts is much higher.” 
  • “PDVSA, the state oil company, has sold $28.6bn of bonds and owes billions of dollars more in ‘promissory notes’. Venezuela owes another $4bn or so to creditors that have taken it to the World Bank’s ICSID court. Stuart Culverhouse, chief economist at Exotix, thinks total public sector external debts range between $100bn and $150bn.”
  • “Even this is uncertain. Venezuelan president Nicolás Maduro has mentioned ‘refinancing’ and ‘restructuring’ the country’s external liabilities. But a refinancing usually implies something voluntary while a restructuring means forcibly ‘haircutting’ creditors. Crucially, US sanctions imposed this summer in practice means both options are off the table.” 
  • “That Mr. Maduro named vice-president Tareck El Aissami as the lead negotiator with bondholders complicates matters further. Mr. Aissami has himself been sanctioned by the US as an alleged narcotics trafficker, which means US investment groups — the biggest holders of Venezuelan debt — cannot enter talks with him.” 
  • “’The logistics seem almost impossible,’ notes Siobhan Morden, head of Latin American fixed income strategy at Nomura. ‘The cynical interpretation is that the impossible deadline for negotiations conveniently shifts the blame of default to bondholders for their unwillingness (inability) to negotiate.’”
  • “With a competent government and more orthodox economic policies, Venezuela could probably handle its debt burden. Although oil exports are declining, it still boasts the world’s largest proven reserves and prices are at their highest level for more than two years.”
  • “But chronic mismanagement by governments under Hugo Chávez and now Mr. Maduro and the oil slump has taken its toll. According to the IMF, the economy has shrunk by a third over the past five years.”
  • “The country’s options appear limited. Venezuela is overdue on the interest payments on bonds that mature in 2019, 2024, 2025 and 2026, demonstrating the ‘significant fiscal strain’ the country is facing, S&P notes. Foreign currency reserves are below $10bn — and much of this is in gold that will be hard to liquidate. China is wary of deepening its financial exposure to Venezuela while the country has already restructured some of its bilateral loans from Russia.”
  • “The price of Venezuela’s bond maturing in August next year has tumbled from 72 cents on the dollar to about 34 cents this week, as investors panicked after the restructuring announcement and bank traders pulled out of the market, causing prices to ‘gap’ lower.” 
  • “Russia could provide a loan secured by Venezuelan oil assets that the government could either use to pay creditors, or to buy back some of its bonds at their current big price discount.” 
  • “Venezuela could also seek to improve its fiscal space by separating PDVSA from the state, defaulting on the latter debts while staying current on the oil company’s bonds. That could in theory prevent creditors from interrupting PDVSA’s oil sales, while letting Venezuela’s sovereign creditors stew. Suing countries is much harder than companies with assets that can be seized.”
  • “Moreover, ringfencing PDVSA from the government will be tricky. Crystallex, a Canadian miner, is already suing Venezuela and arguing that PSDVA is the ‘alter ego’ of the state. If Crystallex wins, it opens the door for all creditors to try to seize Venezuelan and PDVSA assets interchangeably.” 
  • “The most likely outcome, investors and analysts say, is a protracted period of financial limbo, with a restructuring precluded by US sanctions and Venezuela facing a barrage of lawsuits that will tie it up for years to come.”

October 10, 2017

Perspective

Business Insider – Forget stealing data – these hackers broke into Amazon’s cloud to mine bitcoin – Becky Peterson 10/8

  • Hackers are seeking ways into corporate computers and cloud space to gain access to computing power in order to mine bitcoin.

NYT – Wall Street Firms Gambled on Puerto Rico. They’re Losing. – Matthew Goldstein 10/9

Worthy Insights / Opinion Pieces / Advice

WSJ – The Truth Is Catching Up With Tesla – Charley Grant 10/7

  • “CEO Elon Musk is a visionary, but there is a fine line between setting aggressive goals and misleading shareholders.”

FT – Tech’s fight for the upper hand on open data – Rana Foroohar 10/8

  • “What happens if big companies control who has access to the marketplace of ideas?”
  • “Whether your concern is anti-competitive business practices, or the preservation of free speech, one thing that we have to grapple with is that we are both the raw material and the end consumer of what is being sold online. We are the product.”

WSJ – Why Bitcoin’s Bubble Matters – Rob Curran 10/8

  • “Ask most people about the bitcoin bubble, and they’ll probably have the same reaction: It’s interesting, but it won’t affect me. After all, they’ll figure, they aren’t investing in bitcoin, so if there is a bubble, and it does burst, they’ll be just fine.”
  • “Well, maybe they should start worrying.”
  • “The market for cryptocurrencies—digital tokens used to transfer money between individuals’ computers with minimal fees—has grown in stature in recent years and is increasingly entwined with broader financial markets as well, a trend that is likely to continue. Bitcoin is now traded by some of the institutional investors around which bond and stock markets revolve.”
  • “As the bubble grows, analysts say, a crash has a greater chance of affecting investor sentiment about stocks, especially in the technology and financial sectors.”
  • “’Any product that blows up, there’s always collateral damage,’ says Joe Kinahan, chief market strategist at brokerage TD Ameritrade . Tech and financial ‘companies who are relying on it for business, and those who have put a significant investment into the [blockchain] infrastructure would be the first’ to suffer collateral damage, Mr. Kinahan says.”
  • “At around $150 billion, the market capitalization of bitcoin and other cryptocurrencies is up by a factor of roughly eight this year, according to the Cointelegraph website. If this growth rate continues, what’s now a relatively small part of global investible assets could become a significant one, says Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund and a student of the history of speculation. By next year, Mr. Di Mattia expects the bubble to have inflated to the point where a pop could send a shock wave through the stock market.”
  • “Give bitcoin its due: Most people in finance agree that bitcoin and the blockchain, the open-access ledger that underpins the currency, were great inventions; even as J.P. Morgan’s Mr. Dimon derides bitcoin as a ‘fraud,’ his bank is working on its own blockchain technology.”
  • “Clever as it is, however, bitcoin has shown no signs of replacing the dollar and other ‘fiat’ currencies.”
  • “Meanwhile, speculation in bitcoin—driven by hopes of its wider adoption—actually has diminished its usefulness as a means of exchange.”
  • So speculation for now.
  • Some that are exposed…“a crash in the price of leading cryptocurrencies would almost certainly hurt shares of Nvidia Corp., the chip maker that was the biggest percentage gainer on the S&P 500 in 2016, and its rival Advanced Micro Devices Inc., at least temporarily. Both companies have noted in their quarterly filings that cryptocurrency miners are a key source of demand for their graphic chips. Sales of chips to cryptocurrency sources represented 6.7% of Nvidia’s fiscal second-quarter revenue of $2.23 billion.”
  • Then there are those seeking to create an ETF in bitcoins (regulators haven’t agreed so far). If one does get through, there is quite a bit of institutional capital waiting.
  • Stay tuned.

Markets / Economy

WSJ – Central Banks Pull Back as Global Growth Picture Brightens – Josh Zumbrum 10/8

  • “Following the financial crisis from 2007-2009, the world’s big central banks had been net buyers of financial assets in global markets, expanding their portfolios of government bonds, mortgage debt and corporate securities by 1% to 3% of global economic output per year for much of the past six years.”
  • “Now that’s changing. The Bank of England announced in February it would mostly end its bond purchases, the Fed stopped buying bonds at the end of 2014 and announced in September it would move ahead with a plan to gradually shrink its holdings, and the European Central Bank is expected to announce at the end of October it will slow its pace of purchases.”
  • “All told, net purchases are on track to drop to 2.4% of global GDP by the end of this year, 0.8% of global GDP at the end of next year, and by mid-2019 the central banks of advanced economies will be shrinking, according to estimates by the Institute of International Finance, a Washington, D.C.-based organization which represents the global financial industry.”
  • “Interest rates are ticking up as well, another form of more restrictive monetary policy. The Federal Reserve has raised interest rates four times since 2015 and is expected to do so again in December. The Bank of Canada raised rates in July and September and could move again this year. Meantime the Reserve Bank of Australia and Bank of Korea are laying the groundwork for higher rates next year.”

Real Estate

CoStar – Washington Prime Turning Over Pair of Malls to Lenders; Will Buyback One – Mark Heschmeyer 10/5

  • “Washington Prime Group Inc. continued its portfolio re-construction agreeing to turn two malls over to lenders but with plans to buyback one of them. It also sold an additional mall and repaid the debt on a fourth.”
  • “Washington Prime agreed to transfer the Southern Hills Mall in Sioux City, IA, to the lender. Currently encumbered with the $99.7 million mortgage loan, it is currently anticipated that a wholly-owned affiliate of Washington Prime Group will repurchase the 571,465-square-foot property from the lender for $55 million or about $96/square foot. Washington Prime will recognize a $45 million in gain on debt extinguishment.
  • “The debt yield on the current mortgage loan is approximately 7.5% with a yield on the anticipated purchase of approximately 13.5%. The transaction is expected to close this month, subject to due diligence and customary closing conditions, the company said.”
  • “In note discussing the deal, analysts at Morgan Stanley Research said, ‘We agree that it a compelling way to reduce debt loads, but we wonder if the CMBS market will remain a viable lending alternative for lower productivity malls if it ultimately results in a ‘heads I win, tails you lose’ outcome in favor of the borrower.'”

Tech

Economist – Tech giants are building their own undersea fiber-optic networks 10/7

  • “On September 21st Microsoft and Facebook announced the completion of a 6,600km (4,100-mile) cable stretching from Virginia Beach, Virginia, to Bilbao, Spain. Dubbed Marea, Spanish for ‘tide’, the bundle of eight fiber-optic threads, roughly the size of a garden hose, is the highest-capacity connection across the Atlantic Ocean. It is capable of transferring 160 terabits of data every second, the equivalent of more than 5,000 high-resolution movies.”
  • “Such ultra-fast fiber networks are needed to keep up with the torrent of data flowing around the world. In 2016 international bandwidth usage reached 3,544 terabits per second, roughly double the figure in 2014. Firms such as Google, Facebook and Microsoft used to lease all of their international bandwidth from carriers such as BT or AT&T. Now they need so much network capacity to synchronize data across their networks of data centers around the world that it makes more sense to lay their own dedicated pipes.”
  • “This has led to a boom in new undersea cable systems. The Submarine Telecoms Forum, an industry body, reckons that 100,000km of submarine cable was laid in 2016, up from just 16,000km in 2015. TeleGeography, a market-research firm, predicts that $9.2bn will be spent on such cable projects between 2016 and 2018, five times as much as in the previous three years.”

Canada

WSJ – Daily Shot: Scotiabank – Home Price Indices – Repeat Sales 10/9

WSJ – Daily Shot: Scotiabank – Canadian Household Debt and Balance Sheets 10/9

WSJ – Daily Shot: Scotiabank – Canadian Home Equity & RE Assets 10/9

July 26, 2017

If you were to read only one thing…

NYT – 110 N.F.L Brains 7/25

  • “Dr. Ann McKee, a neuropathologist, has examined the brains of 202 deceased football players. A broad survey of her findings was published on Tuesday in The Journal of the American Medical Association.”
  • “Of the 202 players, 111 of them played in the N.F.L. – and 110 of those were found to have chronic traumatic encephalopathy, or C.T.E., the degenerative disease believed to be caused by repeated blows to the head.”
  • “The brains here are from players who died as young as 23 and as old as 89. And they are from every position on the field – quarterbacks, running backs and linebackers, and even a place-kicker and a punter.”

Perspective

WSJ – Daily Shot: Forbes – Large Tech Firm Lobby Budgets 7/25

WSJ – U.S. Military’s Space in Trump Tower Costs $130,000 a month – Paul Sonne 7/19

  • It’s a 3,475 sq. ft. space, so $37.41 per sq. ft. per month. Mind you, “the most expensive Trump Tower listing recently was a 3,725 sq. ft., three-bedroom apartment on the 62nd floor. It was listed in the spring of 2016 for $50,000 a month unfurnished and $60,000 a month furnished, according to Streeteasy.com.”
  • Basically, Trump’s neighbor recognizes they have a captive audience.

FT – Google and Facebook lay foundations for modern-day company towns – George Hammond 7/19

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Fund Managers and Strategists Think the Bull Market Is Ending Next Year – Adam Haigh, Natasha Doff, Dani Burger and Julie Verhage 7/25

  • “We have had a liquidity-fueled bull market. If that is taken away, there is a pressure point.” – Remi Olu-Pitan, Schroder Investment Management Ltd.

WP – Disabled and disdained – Terrence McCoy 7/21

  • “In rural America, some towns are divided between those who work and those who don’t.”

FP – The argument to be a buyer of the Saudi Aramco IPO – John Dizard 7/21

  • “As one international oil analyst says, though: ‘The Permian is preventing high prices today, but ensuring high oil prices tomorrow. The low prices are holding back investment in most of the world, and that is storing up a significant problem in meeting demand in the future.'”
  • “That is the argument to be a buyer of the Saudi Aramco IPO.”
  • “There are two bets involved in the listing. Can Saudi Arabia contain the social and strategic pressures caused by cheap oil? And will the capital markets eventually stop subsidizing shale producers?”

WSJ – Investors, Stop Worrying About Why ‘Nobody’ Is Worrying – Jason Zweig 7/21

Markets / Economy

WSJ – In Reversal, Colleges Rein In Tuition – Josh Mitchell 7/23

  • “U.S. college tuition is growing at the slowest pace in decades, following a nearly 400% rise over the past three decades that fueled middle class anxieties and a surge in student debt.”
  • “Abundant supply is running up against demand constraints. The number of two-year and four-year colleges increased 33% between 1990 and 2012 to 4,726, Education Department data show. But college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills.”
  • “Longer-running economic and demographic shifts also are at play. Lower birthrates and the aging of baby boomer children have reduced the pool of traditional college-age Americans. The number of new high-school graduates grew 18% between 2000 and 2010 but only 2% in the first seven years of this decade, Education Department data show.”
  • “Another factor: Congress last increased the maximum amount undergraduates could borrow from the government in 2008. Some economists have concluded schools raise prices along with increases in federal financial aid. A clampdown on aid, in turn, could limit the ability of schools to charge more.”
  • “But other factors could keep cost pressures rising. George Pernsteiner, head of State Higher Education Executive Officers, a trade group that tracks state funding for schools, notes that many states are on track to experience budget crunches as the population ages and health-care and public pension costs rise. That could squeeze public support for schools.”

Real Estate

WSJ – Americans Pour Record Sums Into Home Improvements – Laura Kusisto and Sarah Chaney 7/25

  • “A shortage of new single-family homes across the U.S. is pushing up prices and locking many buyers out of the market. The silver lining: a boom in renovations of existing homes.”
  • “Americans are expected to pour a record $316 billion into home remodeling this year, up from $296 billion a year earlier, according to Harvard University’s Joint Center for Housing Studies.”

FT – Funds hunt for cracks in most-prized US shopping malls – Miles Johnson 7/21

  • “A defining feature of the financial crisis was a group of hedge funds making vast sums by wagering against supposedly AAA-rated mortgage debt well before markets imploded in 2008.”
  • “Now some believe a similar story will play out for US shopping malls — that the most risky investments will end up being those that investors now believe to be the safest. Central to their premise is the idea that too much faith may be being placed in a classification system used for shopping malls that is little known outside of the real estate sector.”
  • “Malls are given ratings by a small group of property consultants generally ranging from A++ to C based on factors that include their sales per square foot and location. While there is no universally accepted system for ranking the malls, with each consultant having slightly different methodologies, banks and investors tend to rely on these ratings to make decisions over how secure each mall is as a creditor or investment.”
  • “The stock market has until recently appeared to believe that prime ‘A’ malls are largely insulated from the pain being felt across a US retail sector being shaken by e-commerce.”
  • “Yet there is growing evidence to suggest that these prime malls, which have been treated by investors and lenders alike as rock solid bets in the face of the internet headwinds, are not as protected as once thought.”
  • “The hedge funds wagering against the highest quality malls believe that the wider market will come to believe these A-quality malls are far more similar to lesser ranked ones. ‘This idea that there are these magic malls in America that are immune to secular change is a myth,’ the US-based hedge fund manager says.”
  • “Some argue that the market underappreciates that A class mall operators and B and C class mall operators all have very similar tenant bases, in spite of being in different locations.”

Energy

BloombergGadlfy – Venezuela’s Perfect Storm for Oil May Be About to Break – Liam Denning 7/21

  • “We may be about to see the first sovereign producer to unequivocally fail.”
  • “The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA.”
  • “But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”
  • “Venezuelan bonds, which haven’t looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country’s constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.”
  • “Venezuela’s economy is in free-fall: By the end of this year, it will have shrunk by 32% compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt — including bonds owed by the state-owned oil champion, Petróleos de Venezuela, S.A., or PdVSA — plus billions more in interest. As of this week, Venezuela’s international reserves stood at less than $10 billion.”
  • “Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies’ interests have caused Venezuela’s oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela’s surplus of oil available for earning export dollars has shrunk considerably.”
  • “Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University’s Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.”
  • “For three years, oil watchers have been waiting for a chaotic wave of bankruptcies in places like Texas and North Dakota to jolt the market. They’ve been looking in the wrong place.”

FT – Coal has no future, says US railroad boss – Gregory Meyer 7/19

  • “One of the largest haulers of US coal says fossil fuels have no future, despite pledges to the contrary from President Donald Trump.”
  • “CSX, a freight railroad company with origins in the bituminous coal seams of Appalachia, will not buy a single new locomotive to pull coal trains, chief executive Hunter Harrison told analysts on Wednesday.”
  • “’Fossil fuels are dead,’ Mr Harrison said. ‘That’s a long-term view. It’s not going to happen overnight. It’s not going to be in two or three years. But it’s going away, in my view.’” 
  • “North American railroads have reshaped their asset holdings in acknowledgment that coal’s apex has passed.”
  • “Lance Fritz, chief executive of the Union Pacific railroad, said in a recent interview that Mr Trump’s move to scrap Clean Power Plan regulations was unlikely to grow its coal business. ‘It takes away a headwind,’ he said.”

Tech

NYT – Silicon Valley Giants Confront New Walls in China – Paul Mozur and Carolyn Zhang 7/22

  • “It’s basically like someone who has been training for Olympic taekwondo going up against a street fighter. The Olympic fighter is waiting for the whistle, and the street fighter already has him on the ground hitting him with elbows. There’s no rules.” – Andy Tian, co-founder of Asia Innovations Group and former general manager of Zynga China

FT – Uber, Amazon and Microsoft braced for accounting shake-up – Leslie Hook and Richard Waters 7/19

  • “Uber’s reported revenues are being cut in half and sales at Amazon and Microsoft could be higher than previously stated — all thanks to a forthcoming change to accounting rules.”
  • “An update to generally accepted accounting principles (GAAP) for US companies is turning out to have particularly large consequences in parts of the tech industry, which is having to overhaul the way it reports revenues and costs.”
  • “One of the more dramatic impacts will affect car-booking services such as Uber, a private company whose GAAP revenue drops by more than half when it adopts the new standard, which it plans to do this year.”
  • “Uber’s first-quarter revenue this year was $3.4bn under old GAAP accounting, but it says that under the new rules its revenue would have been just $1.5bn for the same period. Uber has already started sharing the lower figure with investors.”
  • “Under the old standard, car-booking services such as Uber and Lyft counted their commissions from regular rides, plus the entire fare of carpool rides, as revenue. Under the new standard, only the commissions from both regular and carpool rides will count as revenue.”
  • “The shift is due to changes to the ‘principal versus agent’ rules that determine when a company is acting as a principal and when it is acting as an agent. The car-booking services were previously considered the ‘principal’ for carpooled rides. As private companies, they must adopt the new standard by the beginning of 2019, although Uber has moved to do so much earlier.”
  • “The new standard, known as Revenue from Contracts with Customers, is designed to narrow the distance between US GAAP rules and International Financial Reporting Standards (IFRS).”

Agriculture 

WSJ – Daily Shot: CBOT Soft Red Winter Wheat Futures 7/24

  • “The recent wheat rally has been almost entirely reversed.”

Asia – excluding China and Japan

FT – Jailed Duterte foe prepares for long haul – Michael Peel 7/20

  • “Philippine Senator Leila de Lima, 57, was arrested at her senate office in February on charges that she received payoffs from jailed drug lords. She has branded the allegations ‘simply surreal’ and said they were part of a ‘personal vendetta’ by a president who is ‘rather obsessed with me’.”
  • “Ms. de Lima has certainly earned implacable enmity from Mr. Duterte for her efforts to probe his bloody drugs wars first as a provincial mayor and now as president. She maintains her innocence but also accepts her stay in jail could be a long one. The same day she marks five months in detention next week, Mr. Duterte will give an annual state of the nation speech against a background of soaring approval ratings.”
  • “I think as long as Duterte is president (5 more years), I will be locked up in jail,” Ms. de Lima says. “I have no false hopes about achieving justice very soon.”

China

NYT – In China, Herd of ‘Gray Rhinos’ Threatens Economy – Keith Bradsher and Sui-Lee Wee 7/23

  • “Let the West worry about so-called black swans, rare and unexpected events that can upset financial markets. China is more concerned about ‘gray rhinos’ — large and visible problems in the economy that are ignored until they start moving fast.”
  • “The rhinos are a herd of Chinese tycoons who have used a combination of political connections and raw ambition to create sprawling global conglomerates. Companies like Anbang Insurance Group, Fosun International, HNA Group and Dalian Wanda Group have feasted on cheap debt provided by state banks, spending lavishly to build their empires.”
  • “Such players are now so big, so complex, so indebted and so enmeshed in the economy that the Chinese government is abruptly bringing them to heel. President Xi Jinping recently warned that financial stability is crucial to national security, while the official newspaper of the Communist Party pointed to the dangers of a ‘gray rhinoceros,’ without naming specific companies.”

FT – China’s LeEco appoints new chairman from Sunac – Emily Feng 7/21

  • Sunac continues to be busy. In addition to its property acquisitions from Dalian Wanda, Sunac’s chairman – Sun Hongbin, is adding a new chairmanship to his belt, that of the struggling Chinese tech company, LeEco.

WSJ – The Saga Isn’t Over for Dalian Wanda – Jacky Wong 7/20

NYT – At the Finish, Dalian Wanda of China Rewrites a Blockbuster Sale – Sui-Lee Wee and Zhang Tiantian 7/19

  • “Dalian Wanda Group, the Chinese conglomerate, tore up a $9.3 billion agreement to sell a portfolio of hotels and theme parks, unexpectedly reaching new deals on the properties that highlighted uncertainty over the financial health of the country’s biggest companies.”
  • “Wanda had reached an overall agreement with the property firm Sunac China Holdings last week, but Wanda announced at a signing ceremony on Wednesday that it was backtracking and would instead sell just the theme parks to Sunac. The hotels will instead be sold to R&F Properties, based in the southern Chinese city of Guangzhou.”
  • “The hasty reorganization of the deals has raised concern about the due diligence conducted by many of China’s first-generation dealmakers as they seek to become bigger players domestically and around the world.”
  • “The signing was dominated by the announcement that Sunac would pay $6.5 billion for a 91% stake in Wanda’s 13 theme parks across China, while R&F Properties would buy 77 hotels from Wanda for $3 billion. In a sign of the wildly fluctuating valuations of assets, however, Wanda had said last week that it was selling Sunac only 76 hotels, but that they were worth $5 billion.”

South America

WSJ – Daily Shot: Venezuelaecon.com – Venezuelan Bolivar Black Market Exchange Rate 7/25

Turkey

NYT – Turkey Sees Foes at Work in Gold Mines, Cafes and ‘Smurf Village’ – David Segal 7/22

  • “Since then (after the failed attempt to overthrow the government of President Recep Tayyip Erdogan on July 15, 2016), more than 950 companies have been expropriated, all of them purportedly linked to Fethullah Gulen, the Muslim cleric who Turkish leaders say masterminded the putsch.”
  • “About $11 billion worth of corporate assets — from small baklava chains to large publicly traded conglomerates — have been grabbed by the government, a systematic taking with few precedents in modern economic history. Several thousand dispossessed executives have fled overseas to cities as far-flung as Nashville and Helsinki. The less fortunate were imprisoned, part of a mass incarceration campaign that has included purged members of the military, judiciary, police and news media, adding 50,000 new inmates to the prisons.”

July 5, 2017

Perspective

WSJ – Daily Shot: Credit Suisse – USA Aggregate Net cash and Debt % of Sales 7/3

WSJ – Daily Shot: WEF – World’s most crowded cities 7/3

FT – SF Express uses first China drone license to deliver the goods – Yuan Yang 6/30

  • “SF Express has completed commercial drone deliveries after receiving China’s first drone airspace license, state media reported on Friday.”
  • “China’s logistics and technology companies have announced such delivery services before but little commercial use has followed. However, there are some signs that the SF Express launch was different.”
  • “The granting of the license indicates that national regulators are now more willing to open airspace to drone delivery companies, say analysts.”
  • “SF Express, one of China’s biggest logistics services, flew a fleet of drone models, some of which can carry up to 25kg and have a range of up to 100km, in the southern area of Ganzhou in Jiangxi province.”

Worthy Insights / Opinion Pieces / Advice

INET – Jim Chanos: U.S. Economy is Worse Than You Think – Lynn Parramore 6/30

  • “Since the election of Donald Trump, the stock market has soared and many pundits have noted positive economic trends in the US. Jim Chanos of Kynikos Associates, known for his financial prescience, is less sanguine.”

NYT – After Killing Currency, Modi Takes a Leap With India’s Biggest-Ever Tax Overhaul – Geeta Anand 6/30

Economist – How fracking leads to babies 7/2

  • “The typical family in America is changing. Couples are increasingly reluctant to seal their relationships with the stamp of marriage, or to tie the knot before having children. In 1960 fewer than a tenth of births were to unmarried women, whereas these days around two fifths of children are born out of wedlock. Economists wonder whether the changing economic fortunes of men might be driving these decisions, but struggle to disentangle the different factors at work. Recently, though, new evidence has emerged on the topic. Did, for example, the fracking boom affect family formation?”
  • “A new study by Melissa Kearney and Riley Wilson, two economists at the University of Maryland, looks at the impact of the recent fracking boom in America, which boosted job opportunities for less-educated men. The economists wanted to see how this affected birth rates, both in and outside of marriage. They compared marriage and birth rates in areas where fracking had boosted the local economy with those where it had not had any effect. The researchers found no effect on marriage rates, though fertility rates did rise. On average, they find that $1,000 of extra fracking production per person was associated with an extra six births per 1,000 women.” 
  • “The result confirms the hypothesis that better economic prospects lead to higher fertility. But it also sheds light on changing social mores in America: good times used to mean more wedding bells and babies, whereas now they just mean the latter. The policy prescriptions are not obvious. Whether or not people get married is their own business. But the finding does offer some comfort to those who worry that declining marriage rates are purely the product of worsening economic prospects for men. Clearly, some other factor is at play.”

NYT – Confidence Boomed After the Election. The Economy Hasn’t. – Neil Irwin 7/4

FT – China was the real victor of Asia’s financial crisis – James Kynge 7/2

Energy

WSJ – Behind Oil’s Ups and Downs, Little Has Changed – Nathaniel Taplin 7/4

  • “If oil heads higher, it will elicit a quick supply response – same on the downside. Nothing in the past six weeks has done much to change that equation.”

Finance

FT – SEC accuses British executive of bitcoin fraud – David Lynch 6/30

  • The fraudster: Renwick Haddow
  • The companies: Bitcoin Store and InCrowd Equity Inc.
  • Caveat emptor

Tech

WSJ – Daily Shot: Credit Suisse – Data Storage Costs 7/3

Health / Medicine

FT – Our digital addiction is making us miserable – Izabella Kaminska 7/4

Religion

NYT – Israel Faces Uproar Abroad as Netanyahu Yields to Ultra-Orthodox Jews – Isabel Kershner 7/3

  • “Jews around the world have been in an uproar in the week since Mr. Netanyahu yielded to pressure from his ultra-Orthodox coalition partners and suspended a plan to provide a better space for non-Orthodox men and women to worship together at the Western Wall in Jerusalem.”
  • “That new prayer space had long been a goal of the Reform and Conservative movements, popular in the West. And in another blow to those more liberal wings of Judaism, the government also approved a contentious bill enshrining the strictly Orthodox Chief Rabbinate’s monopoly over conversions to Judaism in Israel.”
  • “Together, those moves have reawakened a decades-old dispute over who is a Jew. And they have prompted an emotional debate over the nature of the relationship between the world’s Jews and the Jewish homeland — at a time when a right-wing Israeli government, under increased international criticism, has relied on support among the generally more liberal Jewish diaspora in the West.”
  • “The furor over the Western Wall agreement boils down to a refusal by Israel’s Orthodox religious authorities to grant any recognition to Reform and Conservative Judaism. The main prayer space at the Western Wall, known in Hebrew as the Kotel, has separate men’s and women’s sections, in the Orthodox tradition, and is run like an Orthodox synagogue.”

China

FT – China bans homosexuality, luxurious lifestyles from online videos – Yuan Yang 7/1

  • “Sexual freedom, luxurious lifestyles and portrayals of Chinese imperialism are the latest targets of China’s crackdown on internet video content.”
  • “’Abnormal sexual lifestyles’, including homosexuality, are included among the 84 categories of topics that were banned from online video programs by Chinese censors last week. ‘Unhealthy’ views of the family, relationships, and money are also banned.”
  • “The detailed list is the first issued by government censors to cover the rapidly growing field of internet video, and comes after dozens of the country’s most popular entertainment channels were shut down in an online crackdown that started three weeks ago.”
  • “Beijing has heightened its scrutiny of online content in the run-up to the politically sensitive national congress of the Communist party later this year, analysts say.”
  • “Under the new guidelines, mocking revolutionary heroes is forbidden, as well as portraying ethnic discord or lack of national unity.” 
  • “In particular, programs should not portray ‘the use of military force to conquer others during China’s historic feudal period’.” 
  • “The clause is a veiled reference to Tibet and Xinjiang — two large border regions of China where separatist movements have emerged in opposition to the government’s policies against Buddhist and Muslim citizens.” 

WP – China vows to step up air and sea patrols after U.S. warship sails near disputed island – Simon Denyer and Thomas Gibbons-Neff 7/3

  • “China’s military vowed Monday to step up air and sea patrols after an American warship sailed near a disputed island in the South China Sea in what Beijing called a ‘serious political and military provocation.’”
  • “The past few days have seen a dramatic downturn in relations between the two sides, after the United States announced its intention to sell arms to Taiwan and sanction a Chinese bank doing business with North Korea.” 
  • “Then, on Sunday, the USS Stethem, an American guided-missile destroyer, sailed within 12 nautical miles of Triton Island, a small isle in the Paracel Islands chain claimed and controlled by China, a U.S. defense official said.”
  • “The Stethem’s patrol marked the second such operation near Chinese-controlled islands in six weeks, after a few months’ hiatus in the wake of Trump’s inauguration.”
  • “China’s Defense Ministry said its armed forces had dispatched two frigates, a minesweeper and two fighter jets to warn the Stethem away.”
  • “The Paracels are among a group of islands and atolls in the South China Sea at the heart of ongoing tensions in Southeast Asia. China claims full sovereignty over the sea and has built fully functional military facilities complete with airfields and antiaircraft defenses on some islands.”
  • Expect the movie WarGames to start trending.

NYT – China’s Vision for a Straddling Bus Dissolves in Scandal and Arrests – Austin Ramzy and Carolyn Zhang 7/4

June 29, 2017

Perspective

FT – Samsung set to eclipse Intel as world’s number one chipmaker – Song Jung-a 6/27

  • “Samsung Electronics is expected to overtake Intel as the world’s largest chipmaker in the current quarter, for the first time ever, on the back of strong demand for chips for mobile devices and data servers.”
  • “Intel has been the number one chipmaker since 1993 after releasing the Pentium CPU (central processing unit) for personal computers. However, the rapid adoption of mobile devices around the world has enabled Samsung to close the gap in chip sales in recent years.” 
  • “Samsung is estimated to have generated $15.1bn in chip sales for the April-June quarter, surpassing Intel’s estimated sales of $14.4bn, according to Nomura. Samsung is also expected to displace Intel as the industry leader for the full year, unless memory chip prices fall sharply in the second half. Samsung’s 2017 chip sales are forecast at $63.6bn, versus Intel’s estimated $60.5bn.” 

Real Estate

The Lead Left – Private Debt Intelligence: North America Real Estate Debt 6/26

WSJ – Has America Built Its Last Major Mall? – Esther Fung 6/27

  • “Appetite for building enclosed malls of more than 800,000 square feet has dried up. Department stores, once dependable foot-traffic generators, are closing locations amid stiff competition from off-price retailers and the growth of online shopping.”
  • “A mall construction spree in the 1970s and 1980s has left in its wake aging properties at a time when there is little capital available for upgrades. As anchor stores close, more mall space sits idle and foot traffic wanes, hastening the march toward death.”
  • “In all, there are roughly 1,200 malls in the U.S., and some analysts see the figure bottoming out at 500 to 800.”
  • “As of the current quarter, there were 612 so-called superregional malls, which typically have a gross floor area of 800,000 square feet or more, only two more than there were in 2010. Between 2002 and 2009, there were 37 such malls built. The number of smaller enclosed malls of 400,000 to 800,000 square feet stands at 599, up by 16 since 2010. Between 2002 and 2009, 40 such malls were constructed.”
  • “But other categories of retail are flourishing. The number of neighborhood shopping centers and strip centers has jumped by 2,303 since 2010 to 114,683. These centers typically offer a narrower range of goods and feature tenants such as grocery stores, laundromats and other necessity-based services that cater to nearby residents.”
  • To be sure, not everyone is hurting.
  • “Grade A malls in dense neighborhoods with above-average household incomes are still doing well, and their landlords argue that consolidation in the industry works in their favor.”

WSJ – Labor Shortage Squeezes Real-Estate Developers – Peter Grant 6/27

  • “About two-thirds of the contractors who are struggling with the labor shortages gripping the construction industry say it has become a challenge to finish jobs on time, according to a new survey.”
  • “More than one-third of contractors said they are being forced to turn work down and 58% said they are putting in higher bids, said the survey sponsored by USG Corp. and the U.S. Chamber of Commerce. Three-quarters of those who said they are having difficulty finding skilled labor said they are simply asking their employees to work harder.”
  • “Labor shortages are partly due to the increasing number of construction projects moving forward. During the first four months of this year, construction spending amounted to $359.5 billion, 5.8% more than the same period in 2016, according to the U.S. Census Bureau.”
  • “Also, tens of thousands of workers left the building trades during the economic downturn.”

Finance

WSJ – Daily Shot: US Leveraged Loan Issuance 6/26

WSJ – Daily Shot: Pension Partners – European High Yield Index – Effective Yield 6/26

Why… so much money chasing yield products.

WSJ – Daily Shot: Topdown Charts – ETF Assets in Yield Products 6/26

China

FT – China’s fake travel spending masks capital flight, warns Fed – Gabriel Wildau 6/28

  • “Capital flight disguised as overseas tourism spending has artificially cut China’s reported trade surplus while masking the extent of investment outflows, according to research by the US Federal Reserve.” 
  • “A significant share of overseas spending classified in official data as travel-related shopping, entertainment and hospitality may over a 12-month period have instead been used for investment in financial assets and real estate, the Fed paper argued.”
  • “Disguised capital outflows in the year to September may have amounted to $190bn, or 1.7% of gross domestic product, according to the paper.”
  • “Foreign exchange purchases by individuals are capped at $50,000 a year, with the money meant to be used for consumption purposes such as travel, foreign medical care and tuition.”
  • “Until recently, however, Chinese bank tellers rarely asked for documentation to prove how the foreign currency they sold to individuals was actually used. Clients typically ticked the “travel” box on bank disclosure forms, even when they intended to stash funds in foreign bank or brokerage accounts.”
  • “Those wanting to buy real estate or make other large investments could pool quotas from friends and family in a process known as “antlike house moving” — named after the way ants can transport an entire colony by carrying one small piece at a time.”
  • “The Fed’s suspicion was sparked by a sharp rise of so-called travel spending among Chinese tourists.”
  • “Previously, official data showed the scale of Chinese travel spending was consistent with other middle-income countries. But in 2014 this spending became “anomalously high”, the Fed paper argued, with per-capita travel spending as a share of per-capita GDP reaching the same level as the UK — where per-capita GDP is seven times higher.”
  • “Zhang Zhiwei, chief China economist at Deutsche Bank in Hong Kong, acknowledged the possibility of disguised capital outflow but suggests another explanation: the wealth effect from rising house prices. ‘It’s hard to pin down how much comes from each factor,’ he said.”

Europe

WSJ – Daily Shot: Bloomberg & BMI – Select European Country NPL Exposure 6/26

India

FT – Trump’s India property empire hit by tax shake-up – Kiran Stacey 6/27

  • Come July 1, there will be a national goods and services tax that is implemented. In anticipation of this, many retailers and developers are pushing their products through discounts prior to the deadline.

 

April 25, 2017

If you were to read only one thing…

WSJ – ‘Apartheid Without the Racism’: How China Keeps Rural Folks Down – Mark Magnier 4/24

  • “An epic property boom restricted to city dwellers has opened a wealth gap that continues to widen in China, setting back a state campaign to ease poverty and shunting rural dwellers from the middle-class dream.”
  • “China’s system of hukou, or household registration, a decades-old legacy of the planned economy, binds most Chinese to their place of birth, and denies those outside China’s booming megacities the right to buy property inside them.”
  • “That has largely shut them out of one of history’s biggest wealth transfers: 98% of Chinese housing is now in private hands from virtually none a generation ago. Over the past decade, housing prices have increased as much as 700% in cities like Beijing and Shanghai. Property now accounts for 70% of personal wealth in the country.
  • “’Housing is everything in China,’ said Li Gan, a professor at Southwestern University of Finance and Economics. Unless the Communist Party privatizes land, which is unlikely, farmers will continue to lose ground, he said.”
  • “In 1978, when China embarked on economic overhauls, city dwellers earned about twice as much as rural residents; they now earn about 3.5 times as much, according to a study released in April by Paris School of Economics professor Thomas Piketty and World Bank consultant Li Yang.”
  • “Studies by the Asian Development Bank and the University of Michigan suggest China’s rich-poor gap is even higher once property and hukou status are taken into account. ‘The urban-rural wealth divide is much greater than the income divide,’ Southwestern University’s Mr. Gan said.”
  • “Often, the difference comes down to a line on a map.”
  • Across China, urban residents accumulated wealth at twice the rate of rural dwellers between 2002 and 2010, leaving city dwellers with a nest egg six times larger, mostly because of housing, according to a 2015 study by Shi Li and Haiyuan Wan in China Economic Journal.”
  • “The opportunity cost of a rural background becomes even starker when considering the insider deals handed to urbanites who lived in apartments associated with their government jobs when China started to privatize housing.”
  • “China has for decades talked about overhauling the hukou system, which economists say undercuts economic growth. Political resistance is strong as city officials balk at providing services to more people.”
  • “’The hukou system is kind of like apartheid without the racism,’ said Scott Kennedy, a China expert with the Center for Strategic and International Studies. ‘The life chances of rural and urban Chinese are vastly different.'”
  • “Beyond access to appreciating property markets, rural residents are also boxed out of good schooling and a range of other services in major cities.”

Worthy Insights / Opinion Pieces / Advice

FT – Can the bankers sell Saudi Aramco? – Nick Butler 4/23

Real Estate

FT- Why are hedge funds raising their bets against US shopping malls? – Miles Johnson 4/24

  • “The logic of the trade is simple: the financial health of mall operators is ultimately decided by their tenants and eventually the wider market will wake up to this. It hinges on one fairly simple idea – that the broadly held belief that ‘A’ malls are different to other malls is a fallacy. The hedge funds believe that, when reality dawns that many of the largest tenants of prime malls are also experiencing difficulties, their shares will experience a violent downward re-rating.”

Tech

Vanity Fair – Jack Ma to World: Prepare for Decades of Pain – Maya Kosoff 4/24

  • “Ma warned… that the education system must change to account for seismic advancements in technology – including artificial intelligence, robotics, and manufacturing automation – that will disrupt the labor market and create massive societal upheaval.”

WSJ – Once-Flush Startups Struggle to Stay Alive as Investors Get Pickier – Eliot Brown 4/23

  • “In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.”
  • “For some startups, investor demand is still robust. Much of the money still being invested is pouring into the upper echelon of highly valued startups like Airbnb Inc. and WeWork Cos., or younger ones with clear paths to profit.”
  • “Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.”
  • “But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers.”
  • “’They’re like the walking dead,’ said David Cowan, a partner at Bessemer Venture Partners, who expects a steady stream of failures.”
  • “In 2014 and 2015, more than 5,000 U.S. tech startups collectively raised about $75 billion, according to Dow Jones VentureSource—the largest amount in any two-year period since the dot-com boom.”
  • “Much of that money went to a small share of tech startups: 294 such companies raised at least $50 million apiece. Almost three-quarters of those companies—216—have neither raised money nor been acquired since the end of 2015. Startups tend to raise funding every 12 to 18 months.”
  • “Seemingly every week lately, a well-funded startup is slashing jobs or pulling the plug.”
  • “In recent months, mobile-search startup Quixey Inc. shut down after raising over $100 million, health-benefits broker Zenefits—which has raised more than $500 million—laid off nearly half of its staff, and blogging platform Medium cut one-third of its employees after raising $132 million.”

China

FT – Kaisa Group’s recovery suggests investors have selective memories – Tom Mitchell 4/25

  • “Put another way, would you buy the bonds or shares of a company that admitted just five months ago that it cannot explain how almost $9bn flowed into and out of its coffers over the course of three financial years?”
  • “In Kaisa’s case, following the money is like wandering through a maze with many dead ends… the number of still unanswered questions is shocking. The Rmb35bn in borrowings – tapped from unidentified ‘non-bank financial institutions’ – flowed into Kaisa at a time when investors were increasingly worried about the gearing of Chinese property developers.”