Tag: Technology

October 10, 2017


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.'”


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.”


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.”


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.”


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.”


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).”


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.”


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


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


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


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.”


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


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

Health / Medicine

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


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.”


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


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.”


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


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.”


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


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.”


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.”


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.”


December 9 – December 15, 2016

You can be certain that China is doing what it can to buy local. A US municipal pension crisis takes center stage in Dallas. Yeah, interest rates are going up – oh wait, what…


Special Reports / Opinion Pieces


  • Martin Sandbu of the Financial Times added some context to Opec’s recent production cut agreement with non-Opec member countries and likened it to a swan song.
    • Oil has rallied on recent production cuts agreed to by both OPEC and key non-OPEC countries (Russia).
    • “To top it off, Saudi Arabia’s oil minister signaled a willingness to cut, if necessary, even beyond the agreed limits to prop up prices – an announcement billed by some as a ‘whatever it takes’ moment to warn markets off testing the cartel’s resolve.”
    • However, the oil industry has changed and the US Shale producers are challenging Saudi Arabia for the key swing producer status. Two key facts to consider are 1) “…the break-even price for many shale producers is coming down  surprisingly fast. That means that the level at which shale can replace any OPEC cutback keeps going lower.” And 2) “…that, partly due to its manufacturing-style cost structure, shale is a dispersed private activity. Especially in market economies, it would be very difficult to decide production levels strategically even if one wanted to. So if US shale oil takes over Saudi Arabia as the global market’s swing producer, it will behave in a very different, and largely unstrategic, manner.”
    • “All this means is that OPEC – even with its new non-OPEC friends – has largely used up its ammunition by driving prices to where they are now.”
  • Tom Mitchell of the Financial Times illustrated how Trump’s policy shifts pose ‘unthinkable’ risks for China investors.
    • “We do not take an outbreak of a US-China trade war as our baseline case… But the … US election clearly show[s] how the conventional wisdom in economics may backfire these days. We need to think of previously unthinkable risk scenarios.” – Zhiwei Zhang, economist at Deutsche Bank
    • In regard to new capital controls, the “companies most at risk from the restrictions on dividend remittances include large automakers GM, Volkswagen and Toyota, for whom China is their largest and most profitable market.”
    • “Left to its own devices, the ruling Chinese Communist party would rather not restrict foreign investors’ dividends or punish American multinationals, even if Mr. Trump does indeed upend Sino-US relations…. Last week the party’s politburo identified ‘actively attracting foreign investment’ as one of its key ‘economic work tasks’ for 2017.”
    • “The risk for US multinationals lies in the fact that the Communist party is not entirely free to decide how it reacts to foreign ‘provocations.’ The party’s hand can be forced if an increasingly nationalist public feels the leadership is not being assertive enough in defense of territorial interests.”
    • It would seem the counter-argument would be that the Communist party should be able to pacify its citizens through its control of the media and propaganda apparatus, but as we’ve seen state-side, false news spreads far-and-wide and can affect people’s beliefs and behaviors.


FT – The ECB, bond buying and the capital key: a Q&A – Elaine Moore 9/7


FT – Casino stocks jolted by Macau ATM limit reports – Peter Wells 12/8


FT – Amazon’s no-checkout store threatens death of the cashier – Mark Vandevelde and Lindsay Whipp 12/8



WSJ – Daily Shot: BAML EM High Yield Index (Spread) 12/9

  • “Despite higher bond yields, the global chase for yield continues.”


Bloomberg – Good Luck Privatizing the American Dream – Mark Whitehouse 12/12


WSJ – The Simple Truth About China’s Economy – Nathaniel Taplin 12/13


Bloomberg – Tokyo Regains Costliest City for Expats Title as London Drops – David Roman 12/14



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

South Korea, Germany at risk from China tech rise. James Kynge. Financial Times. 13 Dec. 2016.

According to a recent report by The Mercator Institute for China Studies (Merics), a Berlin-based think-tank, the “Made in China 2025” plan is going to dramatically alter the market for a number of industrial countries that rely on China for a large portion of their sales.

“Industrial countries should have no illusions: Made in China 2025 will elevate a small but powerful group of Chinese manufacturers, dramatically increasing their competitiveness.”

“The Czech Republic, Germany, Italy, Hungary, Japan and South Korea are most at risk from the strategy because each of them derives more than 40% of the value of their industrial output from the high-tech and medium-tech industries that are targeted in China’s plan.”


“The Merics report, which was based on an examination of policy documents, expert journals and newspaper articles, as well as more than 60 interviews with Chinese experts, finds that one clear aim of the industrial strategy is to cultivate domestic champions to replace the sales by foreign companies in China.”

 “Such an intent, the report says, can be seen in a semi-official document called Made in China 2025 Key Area Technology Roadmap, which has been endorsed by Ma Kai, a vice-premier and the official heading the interministerial Leading Small Group for Constructing a Manufacturing Superpower.”


“Indications of strong state support are reinforced by funding being made available to spur Chinese innovation in smart manufacturing. The Advanced Manufacturing Fund, established this year, was approved by the State Council (cabinet) and is charged with spending its Rmb20bn allocation on upgrading the technology of important industries.”

“Another fund, the National Integrated Circuit Fund, has capital of Rmb139bn at its disposal and the Emerging Industries Investment Fund, which was also approved by the State Council, has Rmb40bn to spend on promising domestic companies.”

“The Merics report suggests that such assistance, plus the ability of some companies to undertake acquisitions of industry leaders overseas, is likely to catapult some Chinese manufacturing giants into the vanguard of global technology.”


A stampede for the exit: A Dallas public pension fund suffers a run. Economist. 8 Dec. 2016.

To illustrate the challenges that many municipalities are having or going to have over the coming years, witness what is going on in Dallas where the Mayor is suing the city’s policemen and firefighters to keep them from pulling their funds from the pension fund.

“At the start of the year the fire and police pension fund had $2.8bn in assets. Since then nearly $600m has been withdrawn from the plan, of which almost $500m has been taken out since August 13th. That is an alarming acceleration; in 2015 total withdrawals were just $81m.”

“Even at the start of 2016, the plan was just 45% funded, and was expected to become insolvent within 15 years… The city estimates that the funded ration has fallen to 36% after the withdrawals.”

“The crisis is the result of three linked issues: overgenerous pension promises; the flawed nature of public-sector pension accounting in America; and some bad investment decisions. In order to pay the generous benefits, the scheme counted on an investment return of 8.5% a year, absurdly high in a world where the yield on ten-year Treasury bonds has been hovering in a range of 1.5-3%. So the scheme opted for riskier assets in private equity and property. But the strategy did not work; the value of its investments declined by $263m in 2014 and $396m in 2015, thanks largely to write-downs of those risky assets.”

Dallas is not alone in its pension woes, “the average scheme (in America) was 73.6% funded at the end of 2015, according to the Center for Retirement Research at Boston College. A more conservative accounting approach, as is required of private-sector pension plans, would bring the ratio down further, to 45%.”

However, “the Dallas fund has a particularly big problem. It operates a deferred-retirement option plan (DROP) which allows police and firemen who have qualified for retirement to keep working, while their benefits are kept in a separate account earning an interest rate that has been 8-10% a year. More than 500 Dallas DROP accounts are worth more than $1m; the average account is worth nearly $600,000.”

“In addition, since 1989, retirement benefits have been upgraded using an annual cost-of-living adjustment of 4%.” Instead of say at a consumer-price index of 1-2%.

“Together, the DROP plan and cost-of-living increases make up around half of the scheme’s total liabilities.”

“There are only two possible solutions to the shortfall: put more money into the fund or cut the benefits. A 1984 referendum limits the maximum amount of city contributions – a limit that the city has reached this year. The 2015 scheme report suggested that total annual contributions to the pension fund would need nearly to double, from 37.6% to 72.7% of payroll, in order to close the deficit, and even that would take 40 years. The pension scheme has asked that the city make a one-off payment of $1.1bn in 2018, which the city says would require it to more than double property taxes.”  And of course, “any attempt to reduce past benefits will almost certainly end up in the courts.”

So… invest in even riskier ventures?

Subprime borrowers to feel pinch as Fed raises rates. Alistair Gray. Financial Times. 14 Dec. 2016.

“Subprime borrowers are set to feel the pinch as US banks nudge interest charges up in response to the Federal Reserve’s rate rise, threatening to sour more credit card loans and some types of debt.”

“About 92m consumers who have taken out loans with variable rates, such as credit cards, face higher monthly debt service payments as a result, according to TransUnion, which keeps an anonymized database of 220m borrowers. On average, the monthly increase comes to $6.45 per month.”

“A group of about 9.3m borrowers may be at risk of defaulting on at least one type of loan as a result of the rate increase, according to TransUnion.”

“The forecasts highlight the fragile financial state of many US consumers despite the economic recovery.”

“Sean McQuay, credit expert at NerdWallet, said some households are in for an unpleasant surprise since banks are not required to notify customers that their rates have ticked up in response to a rise in prime rates.”

“Savers, meanwhile, are unlikely to benefit from the Fed’s rate increase. Banks are already awash with deposits, and there is limited competition on these savings rates.”

Rather “the higher rates are expected to be good for banks, since they improve profit margins from lending. Even so, banking executives will be keeping a watchful eye on bad loans.”

Back to the consumers, the rate rise should be marginal unless the Fed does actually raise rates by 0.75 points next year and it is not accompanied by meaningful broad-sector growth in the US. As it is credit card delinquency rates are expected to increase with just the rate increase from this week.


Other Interesting Articles

The Economist

Economist – A house divided: The alarming response to Russian meddling in American democracy 12/11

FT – Macau clarifies that daily ATM withdrawal limits to stay the same 12/8

FT – Airbnb backlash spells trouble for landlords 12/8

FT – China stocks fall by most in months amid crackdown on insurers 12/11

FT – Trump and China: the year of the chicken 12/12

FT – China challenges EU and US over market economy status 12/12

FT – S&P lowers rating for Dalian Wanda Commercial Properties 12/12

FT – Alphaville exclusive: Inside the gig economy 12/12

FT – IEA predicts oil glut will end if producers deliver deal 12/13

FT – Managing the inevitable decline of the renminbi 12/14

FT – Betting on German Bunds 12/14

NYT – Russian Hackers Acted to Aid Trump in Election, U.S. Says 12/9

NYT – Trump Suggests Using Bedrock China Policy as Bargaining Chip 12/11

NYT – Small Investors Join China’s Tycoons in Sending Money Abroad 12/11

NYT – Drug 85 Times as Potent as Marijuana Caused a ‘Zombielike’ State in Brooklyn 12/14

WSJ – Why Would a Chinese Insurance Giant Want to Own a Gas Pipeline? 12/13

WSJ – Tata Drama Bruises Confidence of Once-Loyal Investors 12/14

WSJ – Tesla Could Lose Lead in Electric Cars to Big Automakers 12/15


November 11 – November 17, 2016

Folks this Pension issue is a BIG PROBLEM. Speaking of problems, pollution in Delhi is a doozy. Supply side subsidies loom large in corporate China.


Special Reports / Opinion Pieces

  • GMO Quarterly Letter – Not With a Bang But A Whimper – Jeremy Grantham – Q3 2016
    • “Well, the US market today is not a classic bubble, not even close. The market is unlikely to go “bang” in the way those (Japanese land and Japanese equities in 1989, US tech in 2000, and more or less everything in 2007) bubbles did. It is far more likely that the mean reversion will be slow and incomplete. The consequences are dismal for investors: we are likely to limp into the setting sun with very low returns. For bubble historians, though, it is heartbreaking for there will be no histrionics, no chance of being a real hero. Not this time.”


    • While not the crux of the article, Anjani provides a succinct description of the rationale for Prime Minister Modi’s recent invalidation of 500 and 1,000-rupee notes (with just a few hours’ notice).
    • “The shock reform is aimed at rubbing out India’s pervasive black money – or unaccounted-for cash, some counterfeit, some legitimate but evading taxes. It is a bold move for Prime Minister Narendra Modi, who should get credit for bringing a larger part of the shadow economy into the formal economy.”
    • “But it is a dangerous move in the near term. The shadow economy accounts for more than 20% of gross domestic product and cash is equal to 12% of the GDP, triple the level in emerging markets generally, according to Nomura. The move has the potential to stifle commerce until the new notes are widely available.”
  • Pilita Clark of the Financial Times discussed an interesting finding by Scientists that there is progress in the fight against growing CO2 emissions.
    • “Global carbon dioxide emissions from burning fossil fuels have stayed almost flat for the third year in a row in what scientists say is a “clear and unpredicted break” that could mark a turning point in the world’s efforts to curb climate change.”
    • “Emissions are only expected to rise by 0.2% in 2016, having failed to increase in 2015 and growing by just 0.7% in 2014.”
    • “That is a sharp turnaround from the decade up to 2013 when carbon pollution growth averaged 2.3% a year.”
    • “A fall in the use of coal in China, by far the world’s largest carbon emitter, is the main reason for the slowdown.”
    • However, “researchers also cautioned that the job of curbing dangerous temperature rises had been made harder by the record growth of carbon dioxide concentrations in the atmosphere.”
    • “Atmospheric CO2 levels surged to 400 parts per million in 2015, the highest level seen in at least the last 800,000 years.”
    • “Concentrations are expected to climb to new records in 2016 on the back of a strong El Nino weather system that produced hot and dry conditions in many parts of the world, sapping the ability of trees and other vegetation to absorb carbon dioxide.”
  • Lucy Hornby and Christian Shepherd of the Financial Times featured the lengths that Chinese shopping mall landlords are going through to attract visitors to their centers, steps that include housing a polar bear named ‘Pizza.’
    • “The use of animals and other attractions comes as malls combat overcapacity, a problem immediately apparent to anyone who has turned up at a dusty, half-vacant shopping center in China’s provincial cities. The country has an estimated 4,000 malls, more than the US, and plans to reach 7,000 by 2025, according to Mall China, an industry organization.”
    • “Malls are starting to bring in a lot more entertainment and a lot more food. There is also a big focus on children – playgrounds, learning centers, even museums.” – Shaun Rein, founder of Shanghai-based China Market Research Group
    • “Last year 83 shopping malls gave up the fight and closed, according to a blue book on the commercial sector by the Chinese Academy of Social Sciences. They will be joined this year by Marks and Spencer, which announced last week it would close several stores in China in an effort to boost its flagging fortunes.”
  • Landon Thomas Jr. of the New York Times highlighted a recent interview with Blackstone’s Hamilton E. James and his plans to help with the retirement crisis.
    • The billionaire, Hamilton E. James, president of Blackstone, the private equity group. The plan, mandatory retirement contributions. It works in Singapore…
    • Why… “the average retirement savings for Americans from the age of 40 to 55 is $14,500… Sixty-eight percent of working-age Americans do not have an employer-sponsored retirement plan. And by 2050, 25 million Americans are projected to face lives of poverty when they stop working.”
  • Peter Grant of the Wall Street Journal pointed to the trouble brewing in commercial real estate.
    • “Defaults are rising in a key corner of the commercial real-estate debt market just as borrowing costs are set to jump, raising the likelihood of a slowdown of the $11 trillion U.S. commercial property sector in 2017.”
    • “Commercial property sales volume was down 8.6% in the first nine months of 2016 to $345.4 billion, according to Real Capital Analytics.”
    • “Now defaults are on the rise as well. More than 5.6% of some $390 billion worth of commercial property mortgages that have been packaged into securities was more than 60 days late in payment in September, according to Moody’s Investors Service. That was up from a 4.6% delinquency rate earlier this year.”
    • “In all, Morningstar Credit Ratings LLC predicts borrowers won’t be able to pay off roughly 40% of the commercial mortgage-backed securities loans coming due next year.”
    • “Adding to the market’s worries are new rules that go into effect on Christmas Eve under the Dodd-Frank regulatory overhaul requiring issuers of commercial mortgage-backed securities to keep at least 5% of the securities they create.”
    • “The so-called risk-retention rules likely will make borrowing more costly and complicated, raising the chances that some property owners won’t be able to refinance loans from the boom years.”
  • Chris Kirkham of the Wall Street Journal illustrated how a worker shortage has led more home builders to turn to prefab construction.
    • “A persistent shortage of construction workers across the U.S. is prompting some of the nation’s largest home builders to experiment with a model they once derided: factory production.”
    • “In the U.S., only about 2% to 3% of homes built in recent years are classified as modular, according to the Census. In other parts of the world, that share is significantly higher. More than a third of all homes in Austria and Sweden are built using off-site methods, and in Japan more than three-quarters of all detached homes are pre-assembled, according to industry research.”
    • wsj-modular-home-building_11-14-16
    • “But throughout the U.S. housing recovery, builders have suffered from a shortage of skilled labor, making it tough for them to keep up with demand. The number of workers employed in the industry this year is nearly 30% below the peak in 2006 and more than 15% below the average during the 2000s, according to the Labor Department.”
  • Chris Kirkham of the Wall Street Journal featured a recent affordable-housing initiative that was passed in Los Angeles that builders say will stifle construction.
    • “Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement for developers seeking to build projects of 10 or more units that need a zoning or height change.”
    • “The rule requires that up to 25% of units in rental properties and up to 40% in for-sale projects meet affordability guidelines. Alternatively, developers can pay a fee to the city.”
    • On top of that, the Los Angeles initiative “sets wage standards for the projects.”
    • “Developers must pay construction wages on par with those required for public-works projects, hire 30% of the workforce from within city limits, set aside 10% of jobs for certain disadvantaged workers living within 5 miles of the project and ensure 60% of workers have experience on par with graduates of a union apprenticeship program.”
    • Yeah, so that shortage in labor mentioned above is only going to get better when the qualifications and attributes of which labor you can use are made specific.
    • “Research is mixed on whether affordable housing mandates restrict the overall supply of housing in an area. A San Jose University study of California cities adopting such requirements in the mid-2000s found a notable decline in building permits after the rules were put in place, whereas other studies have found little or no effect on overall construction.”


Bloomberg – World’s Biggest Real Estate Binge Is Coming to a City Near You 11/14


FT – India’s cash clampdown is not radical enough – Martin Sandbu 11/14


FT – 10-yr Bund yields at 9-month high as bond sell-off continues – Nicholas Megaw 11/13


WSJ – Daily Shot Charts – 11/15





A Wealth of Common Sense – The Bright Side of Rising Interest Rates – Ben Carlson 11/13

Charts from the Wall Street Journal. Effect of a 1 percentage point increase:


Effect of a 1 percentage point decrease:



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

Era of Low Interest Rates Hammers Millions of Pensions Around World. Timothy W. Martin, Georgi Kantchev, and Kosaku Narioka. Wall Street Journal. 13 Nov. 2016.

“As low interest rates suppress investment gains in the pension plans, it generally means one thing: Standards of living for workers and retirees are decreasing, not increasing.”

“The low rates exacerbate cash problems already bedeviling the world’s pension funds. Decades of underfunding, benefit overpromises, government austerity measures and two recessions have left many retirement systems with deep funding holes. A wave of retirees world-wide is leaving fewer active workers left to contribute. The 60-and-older demographic is expected to roughly double between now and 2050, according to the United Nations.”

“Pension funds around the world pay benefits through a combination of investment gains and contributions from employers and workers. To ensure enough is saved, plans adopt long-term annual return assumptions to project how much of their costs will be paid from earnings. They range from as low as government bond yield in much of Europe and Asia to 8% or more in the U.S.”

“The problem is that investment-grade bonds that once churned out 7.5% a year are now barely yielding anything. Global pensions on average have roughly 30% of their money in bonds.”

“Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis.”

“Japan is wrestling with the same question of generational inequality. Roughly one-quarter of its 127 million residents are now old enough to collect a pension. More than one-third will be by 2035.”


“A typical Japanese couple who are both 65 would collect today a monthly pensions of ¥218,000 ($2,048). If they live to their early 90s, those payouts, adjusted for inflation, would drop 12% to ¥192,000.”

“In the U.S., the country’s largest public-pension plan is struggling with the same bleak outlook. The California Public Employees’ Retirement System, which handles benefits for 1.8 million members, recently posted a 0.6% return for its 2016 fiscal year, its worst annual result since the financial crisis. Its investment consultant recently estimated that annual returns will be closer to 6% over the next decade, shy of its 7.5% annual target.”

“Yet the Sacramento-based plan still has just 68% of the money needed to meet future retirement obligations. That means cash-strapped cities and counties that make annual payments to Calpers could be forced to pay more.”

As an example, the affluent city of Costa Mesa in Orange County, “has outsourced government services such as park maintenance, street sweeping and the jail, as a way to absorb higher payments to Calpers. Pension payments currently consumer about $20 million of the $100 million annual budget, but are expected to rise to $40 million in five years.”

“The outsourcing and other moves eliminated one-quarter of the city’s workers. The cost of benefits for those remaining will surge to 81 cents of every salary dollar by 2023, from 37 cents in 2013, according to city officials.

Pollution in India: Worse than Beijing. Economist. 10 Nov. 2016.

“Delhi’s annual average measure of PM2.5, a fine dust that is the most toxic component of its pollution, stands at 122 micrograms per cubic meter (μg/m3), about double Beijing’s annual average. On Diwali and ten succeeding days this year, Delhi’s air was clogged with averages of well over 500μg/m3, with peaks of up to 1,000μg/m3. The World Health Organization (WHO) says the ‘safe’ PM2.5 level is a mere 25μg/m3 over hours.”

“Edward Avol, an American scientist who has studied the effects of vehicle exhaust on children, says that Delhi’s pollution is at ‘an occupational level of exposure,’ meaning that it is as bad as that experienced by, say, miners using power tools in a closed space.”

Why… a couple of reasons. 1) The burning of rice stubble after harvest in neighboring areas – politicians are loath to make life difficult for farmers and have provided subsidies to encourage rice cultivation over other crops. 2) The diesel fuel used in India – which has also been subsidized to make it cheaper for farmers and truck drivers whose rigs and machinery run on diesel. Side effect is that diesel has been cheaper than gasoline, hence most Indians drive vehicles that run on diesel. 3) There are simply a lot of people in Delhi and the country is going through an industrialization.

As to the price being paid by the citizens… “A study published in Delhi in 2008 estimated that 40% of residents had damaged lungs. Along with a range of other ill effects from pollution, they were five times more likely to suffer from chronic lung disease than other Indians, and four times more likely to have hypertension.”

“Frighteningly, notes Mr. Avol, those results were based on levels of pollution that are only one-fifth to one-tenth of what Delhi lives with.”

In Trump’s China, Industrial Subsidies Loom Large. Anjani Trivedi. Wall Street Journal. 16 Nov. 2016.

“Large government subsidies, which are no secret, are becoming a larger part of operating profits at China’s companies, both state-owned and private. Almost 14% of listed, nonfinancial companies’ profits are attributable to government support, according to an analysis by Wind Info. That’s up from just under 5% six years ago. Even among private firms, many of which have state shareholders, 11% of profits come from the state.”

“Driving the need for the hand outs: In China, when a company posts losses for four straight years, it gets delisted from the stock exchange. Almost 10% of listed provincial state-owned companies rely on government largess to be profitable.”


“Thriving sectors benefit as well. In China’s car industry, the world’s largest, subsidies have grown 50% annually since 2010. For leading car maker Geely, government subsidies and grants have accounted for 19% of gross profits, on average, over the past five years.”

However, “government incentives are hardly confined to China. The U.S. has its own web of tax incentives and other inducements. Global multinationals rank among the largest recipients too. Many boost come through programs that incentivize consumers. China’s help tends to be more on the supply-side.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Manhattan Renters Score Record Incentives in Apartment Glut 11/10

Bloomberg – Oil, Earthquakes and the Rush to Save Oklahoma 11/14

Bloomberg – The Real Cost of an MBA 11/16

FT – India’s cash chaos sparks growing backlash 11/13

FT – Buy dollars is the sudden Trump-era consensus trade 11/13

FT – Oil demand will grow for decades, says IEA 11/15

FT – Inflating inflation expectations 11/16

FT – Italy’s 50-year bond burnt in global sell-off 11/16

FT – Bank of Japan tests new firepower 11/16

FT – China’s renminbi hits 8-year low 11/16

FT – US urged to ban acquisitions by Chinese state-owned companies 11/16

LinkedIn – Reflections on the Trump Presidency, One Week after the Election (Ray Dalio) 11/15

NYT – ‘We Couldn’t Believe Our Eyes’: A Lost World of Shipwrecks Is Found 11/11

NYT – Teslas in the Trailer Park: A California City Faces Its Housing Squeeze 11/13

WSJ – SolarCity Could Give Tesla Too Much Sun 11/13

WSJ – At Long Last: The Earnings Recession Is Finally Over 11/13

WSJ – China’s Jack of All Trades (Evergrande Group) Needs a New Strategy 11/15

WSJ – China’s Debt Plan Feels Like Bad Case of déjà vu 11/15

WSJ – Donald Trump: The Housing Market’s Latest Threat 11/15

WSJ – New Competition for ‘Co-Working’ Model 11/15

WSJ – Firms Flee Mortgage-Backed Bond Business 11/15

WSJ – Ritzy Rentals Flood the Market 11/16

WSJ – Bank of Japan Keeps Rates Ready for Something Bigger 11/17