Tag: Uber

March 28, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – Users Built Facebook’s Empire, and They Can Crumble It – Nir Kaissar 3/26

FT – It is Venezuela’s crisis that is driving the oil price higher – Nick Butler 3/25

  • “While the Maduro-military alliance holds, output is likely to fall further.”

NYT – Live in a Drainpipe? Five Extreme Ideas to Solve Hong Kong’s Housing Crisis – Austin Ramzy 3/26

NYT – Repeal the Second Amendment – John Paul Stevens (retired associate justice of US Supreme Court) 3/27

NYT – New Leadership Has Not Changed Uber – Steven Hill 3/26

  • “The problem with Uber was never that the chief executive had created a thuggish ‘Game of Thrones’-type culture, as Susan Fowler, an engineer, described it in a blog post. The problem was, and still is, Uber’s business model: Its modus operandi is to subsidize fares and flood streets with its cars to achieve a transportation monopoly. In city after city, this has led to huge increases in traffic congestion, increased carbon emissions and the undermining of public transportation.”
  • Most customers who love Uber don’t realize that the company subsidizes the cost of many rides. This is likely a major factor in Uber’s annual losses surging from 2.8 billion in 2016 to $4.5 billion in 2017. This seemingly nonsensical approach is actually Uber’s effort to use its deep pockets to mount a predatory price war and shut out the competition. That competition is not only taxis and other ride-sharing companies, but public transportation.”
  • Ridership on public transportation is down in nearly every major American city, including New York City (which recorded its first ridership dip since 2009). This is hurting the revenue that public transportation needs to sustain itself. Uber passengers and public transportation users alike now find themselves stuck in heavy traffic for far longer because of what’s been called ‘Uber congestion.’ In Manhattan, there are five times as many ridesharing vehicles as yellow taxis, which has caused average speeds to decline by 15% compared with 2010, before Uber.
  • “Ride-sharing services could potentially add something positive to our transportation options, but only if they are regulated properly.”
  • “First, regulators should limit the number of ride-sharing cars. Traditional taxis already have a sensible limit to minimize congestion. A balance must be found between having enough taxi-type vehicles but not so many that the streets are choked with traffic. Fix NYC, a panel appointed by Gov. Andrew Cuomo of New York, has called for all Ubers, Lyfts and taxis to be outfitted with GPS technology to track congestion and to charge a fee on for-hire vehicles that could help reduce traffic and generate hundreds of millions of dollars for public transportation.”
  • “Second, Uber should be prohibited from subsidizing its fares. It should be required to charge at least the true cost of each ride. If Uber refuses, a ‘fairness fee’ should be added to each fare.”
  • “Third, ride-sharing companies and their vehicles should be required to follow the same laws as traditional taxis, especially in terms of background checks for drivers and insurance requirements.”
  • “Fourth, Uber should be required to share its data with regulators, including information about its drivers and their contact information, so that members of this ‘distributed work force’ can more easily contact one another and organize collectively if they choose.”
  • “Finally, regulations should ensure that Uber treats its drivers fairly. Mr. Khosrowshahi asserts that drivers’ wages are adequate, but according to one study, more than half of Uber drivers earn less than the minimum wage in their state, and some even lose money once the costs of driving are taken into account. That helps explain why, according to Uber’s own internal study, half of its drivers leave after a year.”

WSJ – Turkey Is the One to Watch for Emerging Markets Risk – Richard Barley 3/26

WSJ – How a Tiny Latvian Bank Became a Haven for the World’s Dirty Money – Drew Hinshaw, Patricia Kowsmann, and Ian Talley 3/26

Markets / Economy

WSJ – Libor’s Rise Accelerates, Squeezing Short-Term Borrowers – Ben Eisen and Chelsey Dulaney 3/27

  • “The three-month London interbank offered rate climbed to 2.29% in the U.S. on Monday, its highest since November 2008. Libor measures the cost for banks to lend to one another and is used to set interest rates on roughly $200 trillion in dollar-based financial contracts globally, from corporate loans to home mortgages.”
  • “Libor has been rising for the last 2½ years as the Federal Reserve lifts its key policy rate, but recently the pace has picked up. It has climbed nearly a full percentage point in the last six months—outpacing the Fed—and could rise further with the approaching end of the quarter, typically a time of elevated demand for short-term funds in the banking sector, analysts say.”
  • “Demand for dollars at the end of the first quarter could send Libor up an additional 0.2 percentage point in the coming days, market analysts say, as investors rebalance their portfolios and banks rein in their balance sheets. The end of March also marks the finish of Japan’s fiscal year, potentially compounding the moves as big investors bring money back to Japan.”
  • “Libor has already sprinted ahead of the rates indicated by central bank policies, an acceleration that has baffled economists and traders. That widening gap has alarmed those who watch it as a signal of stress in the financial system. Others have pinned it on a series of technical factors, such as rising short-term debt sales by the U.S. government and new corporate tax policies.”
  • “Other markets that can be tapped for dollars—including through the swaps market and liquidity lines maintained by global central banks—aren’t yet showing a big dollar squeeze.”

Real Estate

The Big Picture – WeWork: Manhattan’s 2nd-biggest Private Office Tenant – Barry Ritholtz 3/27

FT – House prices falling in two-fifths of London postcodes – James Pickford 3/26

  • “House prices are falling in two out of five London postcodes, according to research that underlines the growing divergence between prices in southern English cities and those elsewhere in the UK.”
  • “The average annual rate of price growth in the capital has slowed to 1%, down sharply from 4.3% a year ago, meaning it is at its lowest level since August 2011, according to research by Hometrack, a housing market analyst. This stands in contrast to UK-wide average house price growth of 5.2% in the year to February 2018, up from 4% a year ago.”
  • “Prices are under greatest pressure in central London, where owners of the most expensive types of property began cutting prices in 2015 responding to the impact of higher taxes. In the past year, however, the trend has deepened in areas beyond the prime zones of Westminster and Kensington & Chelsea. The boroughs that saw the greatest drop in value were the City of London, Camden, Southwark, Islington and Wandsworth, according to Hometrack’s research.”
  • “Hometrack is predicting that the number of areas of the capital experiencing falling house prices will multiply during this year as trapped sellers reduce their asking prices to drive through transactions. ‘The net result will be a negative rate of headline price growth for London by the middle of 2018,’ the research said.”
  • “Outside southern England, house prices are more likely to be rising, in some places at a substantial pace. Edinburgh, Liverpool, Leicester, Birmingham and Manchester are adding more than 7% a year to their average house price, Hometrack found, with Leeds, Nottingham and Sheffield pegging rises of 6% or more.”
  • “The laggards in the 20-city index were Aberdeen (down by 7.7%), Cambridge (down by 1.5%) and Oxford (up by just 0.5%).”

NYT – Grocery Wars Turn Small Chains Into Battlefield Casualties – Michael Corkery 3/26

WSJ – Homeowners Ditch Refinancings as Mortgage Rates Rise – Christina Rexrode 3/26

  • “Last year, 37% of mortgage-origination volume was because of refinancings, according to industry research group Inside Mortgage Finance. That is the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. In 2012, refinancings were 72% of originations.”
  • “While purchase activity has climbed steadily from a post-financial-crisis nadir in 2011, growth in 2017 wasn’t enough to offset a $366 billion decline in refinancing activity. The result: The overall mortgage market fell around 12%, to $1.8 trillion, according to Inside Mortgage Finance.”
  • “What’s more, there are fewer homeowners eligible to refinance because of rising rates. The number of borrowers who could benefit from a refinancing is down about 37% from the end of last year, estimates Black Knight Inc., a mortgage-data and technology firm. At 2.67 million potential borrowers, this group is at its smallest since 2008.”
  • “Home-purchase activity has so far been holding up. Sales of previously owned homes in February rose 1.1% from a year earlier, countering worries that a downturn the previous month signaled a peak for the market.”
  • “Still, rising interest rates, a shortage of housing inventory and higher home prices are all long-term threats to purchase activity.”
  • “For refinancings, rising rates are a more immediate worry. Freddie Mac said last week that the average rate on a 30-year fixed-rate mortgage was 4.45%, up from 3.95% at the beginning of the year.”
  • “The Mortgage Bankers Association expects mortgage-purchase volume to grow about 5% in 2018 but refinancing volume to drop 27%. Refinance applications fell 5% in the week ended March 16 from the prior one, according to the group.”

Cryptocurrency / ICOs

Bloomberg – Fewer Americans Hold Cryptocurrencies Than You Probably Think – Olga Kharif 3/16

  • “More than 90% of American adults don’t own cryptocurrencies – and most have a lot of concerns about the coins, a new survey from Finder found.”

Fishing

Bloomberg – Maine’s Lobster Tide Might Be Ebbing – Justin Fox 3/23

  • “The numbers came in earlier this month on Maine’s 2017 lobster harvest. By historical standards, the 110.8 million-pound, $434 million haul was pretty spectacular. But it was a lot lower than 2016’s 132.5 million-pound, $540 million record, and it was another sign that the Great Lobster Boom that has surprised and delighted Maine’s lobster fishermen since the 1990s — and brought lobster rolls to diners from coast to coast — may be giving way to … something else.”
  • “The lobster boom does not seem to be the result of overfishing; Maine’s lobster fishermen figured out a set of rules decades ago that appear to allow them to manage the catch sustainably. There are just lots and lots more lobsters off the coast of Maine than there used to be. Why? In a column last spring, I listed four reasons that I’d heard during a trip to Maine:”
    • “Warmer temperatures in the Gulf of Maine.”
    • “A collapse in the population of cod, which eat young lobsters.”
    • “Reduced incidence of a lobster disease called gaffkemia.”
    • “Increased effort and efficiency on the part of lobstermen, who go farther offshore and can haul in more traps in a day than they used to.”
  • “Given how quickly the lobster harvests grew, though, especially from 2007 through 2012, it’s hard not to wonder whether they might not eventually collapse. They already have in several states farther down the Atlantic coast. Lobster landings were still on the rise as of 2016 (data aren’t available yet for 2017) in New Hampshire and Massachusetts but peaked in Rhode Island in 1999, Connecticut in 1998, New York in 1996 and New Jersey in 1990.”
  • “So that’s some evidence for the warming-ocean-temperatures theory of the lobster boom. This would imply that eventually even the oceans off Maine will get too warm, although it doesn’t give much of a hint as to when.”
  • Canada has been benefiting as well.

 

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March 27, 2018

Perspective

WSJ – Retirees Reshape Where Americans Live – Janet Adamy and Paul Overberg 3/22

WSJ – Daily Shot: Ratio of Twitter Bacon-to-Kale Mentions 3/26

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – For Tesla, Cars + Cash + Credit + Convertibles = Crunch Time – Liam Denning 3/23

  • “Opinions differ on the exact nature of Tesla, ranging from struggling car manufacturer to tech pioneer to something akin to the second coming. Regardless, it is undoubtedly one thing: a money machine.”
  • “I don’t mean that in the sense of Tesla making a lot of money; more that it is a machine for the raising and consumption of money.”
  • “All companies are this to one degree or another, of course; it’s just that Tesla Inc. is more at the ‘another’ end of things. Reliably negative on free cash flow, Tesla depends on a smorgasbord of external funding, from equity raising to vehicle deposits to high-yield bonds to securitized leases to negative working capital. And that smorgasbord rests, of course, on Tesla’s famously gravity-defying stock price and faith in CEO Elon Musk.”
  • “Which is why these four charts deserve more than a glance from even the most ardent Muskovite:”

  • “We’re just over a week away from knowing whether or not Tesla has hit its (much reduced) target for producing 2,500 Model 3s per week by the end of the first quarter. The signs thus far aren’t good, which also raises doubts about the 5,000-a-week target for the end of June.”
  • “Hitting these targets matters for the Tesla money machine on three fronts.”
  • “First, reducing that risk-laden reliance on negative working capital and getting a return on the money already spent on production lines relies on producing more cars. Second, analysts currently expect Tesla to burn through $2.7 billion of cash this year — and analysts tend to be optimistic on this stuff. Third, when Moody’s rated that bond Tesla sold last August, it was assuming 300,000 Model 3 deliveries this year, which now looks far out of reach.”
  • “In other words, Tesla’s money machine will almost certainly need to raise more this year due to the Model 3’s problems — but those same problems undermine the pitch for selling more equity or debt.”
  • “This is happening against a backdrop of rising interest rates. Tesla’s debt has jumped in recent years, especially after it took on SolarCity Corp.’s obligations. Interest expense more than doubled in 2017 and reached the astounding level of one-third of gross profit in the final quarter of 2017:”
  • “At the same time, Tesla is moving closer to a maturity wall, with $3.7 billion of bonds and credit lines needing refinancing by the end of 2020.”
  • “Some $1.7 billion of that consists of three convertible bonds falling due between this coming November and the next one. Almost half of it — inherited from SolarCity — is hopelessly out of the money, with conversion prices starting at $560 (Tesla closed Thursday at $309 and change). The rest of it, a $920 million convertible due next March, sports a conversion price of just under $360; still underwater but within sight of the surface.”
  • “Converting that last one to equity would dilute Tesla’s free float by 2%. But that could be more palatable than the alternative of replacing it with a straight bond.”
  • “As of now, those three bonds pay a weighted-average coupon of just over 1%, or about $18 million a year. All else equal, assuming they were all refinanced at spreads similar to where Tesla’s 2025 bonds trade now, but factoring in the forecast increase in Treasury yields, that would jump to 7%, or $120 million. Putting that in context, Tesla’s entire interest expense last year was $471 million.”
  • “A rebound in the stock price would take much of this pain away, of course.”

Bloomberg Gadfly – Uber’s India Doom Is Written After Singapore Falls to Grab – Andy Mukherjee 3/26

Bloomberg – Airlines Are Asking the Trump Administration to Bring Back Hidden Fees – Nikki Ekstein 3/23

  • “Third-party booking platforms have made buying a plane ticket more transparent than ever. But airlines are fighting to keep data out of their hands.”

Markets / Economy

Bloomberg Businessweek – The Great Inflation Mystery – Peter Coy 3/22

Finance

WSJ – Want to Be a High-Frequency Trader? Here’s Your Chance – Alexander Osipovich 3/23

WSJ – Daily Shot: Biggest Three Banks Gobble Up $2.4 Trillion in New Deposits Since Crisis – Rachel Louise Ensign 3/22

Health / Medicine

Business Insider – What the color of your urine says about your health and hydration – Kevin Loria and Jenny Cheng 3/25

Automotive

FT – Carmakers take electric fight to the factory floor – Patrick McGee 3/18

  • “Today, established carmakers flaunt their ability to manufacture all kinds of models, from hatchbacks to sport utility vehicles, on a single production line. Their challenge is to revamp these operations to produce electric vehicles in high volumes, reinforcing barriers to entry in an industry under siege from technology companies and start-ups.”
  • “Instead of coming out with an array of unprofitable electric cars today, the incumbents are putting the bulk of resources into production facilities that will mass-produce models from 2020, once battery costs fall and economies of scale kick in. Analysts suggest this approach leaves the impression the incumbents are lagging far behind Tesla. But once the game actually starts, say experts, the carmakers will be in a strong position to dominate the market.”
  • “’None of the traditional car manufacturers will have problems scaling up electric vehicle production,’ says Klaus Stricker, co-head of the global automotive practice at Bain & Company. ‘That’s exactly what they do best’.”
  • “Yet if the stock market is any guide, investors are more skeptical. Valuations of the big carmakers are among the most depressed on the S&P 500, Germany’s DAX and Japan’s Nikkei indices, according to Bernstein. Yet Tesla is valued like its products are set to dominate the car market the way Apple conquered mobile phones.” 
  • “Tesla’s market value of $55bn is about $2.3bn more than GM’s, though for every car it built last year the latter group produced 100.”
  • “Tesla’s production troubles are a reminder that in automotive history, it is how to build cars, rather than the merits of any particular model, that is key to success. After Ford displaced craft production with mass assembly in 1908, it was overtaken by GM in the 1920s with ‘flexible mass production’ that could produce an array of models, from entry-level to luxury brands, and respond to customer preferences. In the 1980s, both companies were disrupted by Honda and Toyota’s methods of lean production. The Japanese groups outsourced a majority of tasks previously considered critical. With parts arriving ‘just in time’ on the assembly line, they largely did away with inventories.”
  • “The success of German manufacturers, whose volumes more than trebled from 4m units in 1990 to 15m last year, was largely based on ‘platform sharing’ that let multiple models use the same design underpinnings. VW Group, the world’s largest carmaker, uses common building blocks under ‘the Lego principle’ to share engines, transmissions and components across its 12 brands.”
  • “These progressive changes were all based on superior methods of producing cars, forcing rivals to adapt or die. ‘Efficiency was always the cornerstone of success in the automotive industry,’ says Oliver Zipse, head of production at BMW. ‘As soon as you were not able to produce in a particular cost frame, you were out of the market’.”

China

Bloomberg Businessweek – The New Head of China’s Money Machine Faces a Delicate Balancing Act – Enda Curran 3/19

March 8, 2018

If you were only to read one thing…

FT Alphaville – China’s household debt problem – Matthew C Klein 3/6

  • “The rapidity and size of China’s debt boom in the past decade has been almost entirely without precedent. The few precedents that do exist — Japan in the 1980s, the US in the 1920s — are not encouraging.”
  • “Most coverage has rightly focused on China’s corporate sector, particularly the debts that state-owned enterprises owe to the big four state-owned banks. After all, these liabilities constitute the biggest bulk of the total debt outstanding, and also explain most of the total growth in Chinese debt since the mid-2000s.”
  • “Chinese households, however, are quickly catching up. This is bad news.”
  • “The simple story of China’s debt boom is that government-backed companies borrow from government-controlled banks to pay for wasteful investments to support jobs and other political objectives. This creates lots of problems for China today and in the future, but it does have one virtue: the losses from centralized credit allocation can be distributed over a broad population over a long period of time.”
  • “Household debt is different. Borrowers are widely dispersed and lack political power. The lenders are often newer finance companies or loan sharks. Worst of all, there is essentially zero chance that additional household borrowing pays for productive investment. Some of China’s additional infrastructure and manufacturing capacity may prove valuable one day. Household debt probably won’t. Atif Mian and Amir Sufi have ably shown that increases in household borrowing tend to predict slower income growth and higher joblessness.”
  • “This chart is therefore cause for concern:”
  • “As of mid-2017, Chinese households had debts worth about 106% of their disposable incomes. For perspective, Americans currently have debts worth about 105% of their disposable incomes, on average. The difference is that American indebtedness has been basically flat the past few years after steady declines since 2007.”
  • “Chinese households have been experiencing rapid income growth by rich-country standards for a long time, but their debts have grown far faster:”
  • “Since the start of 2007, Chinese disposable household income has grown about 12% each year on average, while Chinese household debt has grown about 23% each year on average. The cumulative effect is that (nominal) income has slightly more than tripled but debts have grown by nearly a factor of nine. The mismatch has been getting worse recently, as can be seen in the kink in the pink line towards the end.”
  • “All this is finally starting to affect the aggregate debt numbers. Household debt in China is still small relative to the total — about 18% as of mid-2017 — but household borrowers are now responsible for about one third of the growth in total nonfinancial debt:”
  • “The problem is that households cannot service their debts out of GDP. Instead they have to rely on their meagre incomes. Since 2007 the share of Chinese national output going to households has ranged from as high as 46% to as low as 42% of GDP. (The rest of China’s national income is mostly captured by government-controlled enterprises and their elite managers.) The household share of income has dropped by about 1 percentage point just in 2017:”
  • “For comparison, disposable income in the US has tended to hover between 71% and 76% of GDP over the past few decades.”
  • “The trick for Beijing now is to bring non-productive investment down as rapidly as it can without causing unemployment to rise to dangerous levels. Because it has proven difficult to replace non-productive investment with productive investment (and, I have long argued, unrealistic even to expect it could happen), the only way to do so is to replace it with consumption. But levered consumption obviously cannot solve the problem of rapid debt growth, so rising consumption must be driven by rising household income, even as declining investment causes workers on investment projects to be fired. In the end this may be politically a difficult problem, but economically it is just an arithmetic problem about wealth reallocation.” – Michael Pettis

Perspective

CNBC – 42% of Americans are at risk of retiring broke – Jessica Dickler 3/6

© GOBankingRates

US Census Bureau – Irish-American Heritage Month and St. Patrick’s Day 2/6

Worthy Insights / Opinion Pieces / Advice

Business Insider – Underpaying drivers is ‘essential’ to Uber’s business model, according to a new study on low wages – Shona Ghosh 3/7

Economist – How the West got China wrong – Leaders 3/1

  • “It bet that China would head towards democracy and the market economy. The gamble has failed.”

FT – Forget flu, it’s time for your fake-news jab – Hannah Kuchler 3/6

  • “News literacy should be taught like sex and drugs education, to protect individuals and society as a whole.”

Medium – A Lack of Clarity is The Biggest Inhibitor of Progress Towards Your Goals – Srinivas Rao 3/5

Real Estate

WSJ – Daily Shot: Cresset Wealth Advisors – US Housing Price Change from Pre-Crisis Peak 3/7

WSJ – New York Housing Is Getting (Gasp!) More Affordable – Josh Barbanel 3/7

  • “Housing costs are taking a smaller bite out of the typical household’s monthly budget, according to a new U.S. Census Bureau survey that is conducted every three years. The survey also shows a record amount of new housing and the third-highest rental-vacancy rate since the bureau’s first survey in 1965.”

WSJ – That Much Prophesied Commercial Property Bust Still Hasn’t Happened – Esther Fung 3/6

  • “The delinquency rate for securitized loans in the commercial real-estate industry has dropped for eight consecutive months, defying expectations in recent years of a wave of defaults.”
  • “According to real-estate data provider Trepp LLC, the delinquency rate for real-estate loans in commercial mortgage-backed securities clocked in at 4.51% in February, down from 5.31% in the same period a year earlier. The rate hit an all-time high of 10.34% in July 2012.”
  • “Investors had been expecting an increase in defaults in 2016 and 2017 as the large volume of CMBS packaged during the 2006 to 2007 period reached maturity. But rising real-estate values, low interest rates and a surge of debt capital from insurers and other sources have allowed property owners to refinance or restructure their debts.”

Yahoo Finance – Foursquare CEO: There are 2 types of malls that are seeing growth – Melody Hahm 3/6

  • “While consumers are getting lured online by cost savings and the convenience factor, there’s still ample data on foot traffic into physical stores, said Foursquare CEO Jeff Glueck. In fact, he’s found that the rise in online shopping has largely affected middle-market malls. Malls serving high-end and low-end customers are actually seeing growth.”

Finance

WSJ – The New ID Theft: Millions of Credit Applicants Who Don’t Exist – Peter Rudegeair and AnnaMaria Andriotis 3/6

Cryptocurrency / ICOs

Bloomberg – Bitcoin Dives After SEC Says Crypto Platforms Must Be Registered – Camila Russo and Lily Katz 3/7

Construction

WSJ – Daily Shot: Change in Construction Producer Price Index 3/7

  • “US construction firms continue to struggle with rising materials costs. Higher steel prices will exacerbate the problem, especially for commercial property developers.”

Asia – excluding China and Japan

WSJ – In China’s Shadow, Communist Vietnam Links Arms With Old Enemy, the U.S. – Jake Maxwell Watts 3/2

China

WSJ – China’s Financial Reach Leaves Eight Countries Vulnerable, Study Finds – Josh Zumbrum and Jon Emont 3/4

Europe

WSJ – Daily Shot: FRED – European Central Bank Balance Sheet 3/7

Puerto Rico

WP – Exodus from Puerto Rico grows as island struggles to rebound from Hurricane Maria – Arelis R. Hernandez 3/6

January 5, 2018

Happy New Year!

I hope that you had a safe and enjoyable transition and I wish you a prosperous 2018.

While I wasn’t planning a post today, I don’t want to deluge you with too much content first thing Monday, so here is a mid-day post.

Cheers,

Duff

Perspective

NYT – Rise of Bitcoin Competitor Ripple Creates Wealth to Rival Zuckerberg – Nathaniel Popper 1/4

  • “The virtual currency boom has gotten so heated that it is throwing the list of the world’s richest people into disarray.”
  • “Consider what has happened to the founders of an upstart virtual currency known as Ripple, which has seen its value skyrocket in recent weeks.”
  • At one point on Thursday, Chris Larsen, a Ripple co-founder who is also the largest holder of Ripple tokens, was worth more than $59 billion, according to figures from Forbes. That would have briefly vaulted Mr. Larsen ahead of Facebook chief executive Mark Zuckerberg into fifth place on the Forbes list of the world’s richest people.”
  • “Other top Ripple holders would have also zoomed up that list as the value of their tokens soared more than 100% during the last week — and more than 30,000% in the last year. The boom has turned Ripple into the second largest virtual currency, within striking distance of the original behemoth, Bitcoin.”
  • “While most of these currencies were worth nearly nothing a year ago, many are now responsible for creating billionaires — albeit with rapidly fluctuating fortunes. If this is a tulip fever, the fever has spread to chrysanthemums and poppies.”
  • “Ripple, whose tokens are known as XRP, is far from the only virtual currency being fueled by the hysteria. In 2017, there were 29 tokens — including Einsteinium and Byteball — that rose more than Bitcoin’s remarkable 1,600% jump, according to OnChainFx, a data provider.”
  • “Nearly 40 virtual currencies are worth more than $1 billion — when all the outstanding tokens are counted at their current value — despite many of them not having been used in any sort of transaction other than speculative trading.”
  • For perspective, “… all the outstanding Ripple tokens were worth $140 billion on Thursday, while all Bitcoin were worth $250 billion.”
  • “Mr. Larsen was Ripple’s chief executive from 2012 until he stepped down last year to become the company’s executive chairman. During his tenure, Ripple focused on helping banks use its software to shift money between different foreign currencies, something that most banks currently do through a cumbersome process involving separate accounts in every country where they operate.”
  • “Ripple has said it has signed up more than 100 banks to use the company’s technology, including American Express and Banco Santander.”
  • “But banks do not need to use Ripple tokens for Ripple’s software to transfer dollars, euros and yen. That point appears to be lost on many small time investors who are buying Ripple tokens.”
  • “Most of the buying and selling of Ripple tokens is happening in South Korea, according to data providers that track virtual currency exchanges, where ordinary investors have thrown money at a wide array of virtual currencies.”
  • “…Even virtual currency analysts who believe in Ripple’s software have said there is a big difference between Ripple the company being successful, and Ripple the token gaining enough traction to justify current prices.”
  • “’An impossibly long list of things already needs to go right for XRP to become a reserve currency for banks,’ Ryan Selkis, a virtual currency analyst, wrote in a post on Thursday.”
  • “But, Mr. Selkis added, that doesn’t mean Ripple’s price won’t keep ascending. Why? ‘Because this is crypto, and everyone in the industry is now slinging crack crypto cocaine to retail addicts,’ he wrote.”

WSJ – The Cashless Society Has Arrived – Only It’s in China – Alyssa Abkowitz 1/4

  • “Though the U.S. saw $112 billion of mobile payments in 2016, by a Forrester Research estimate, such payments in China totaled $9 trillion, according to iResearch Consulting Group, a Chinese firm.”
  • “For Alibaba and Tencent, the payoff isn’t just the transaction fees they make from merchants, typically 0.6%. It’s also the consumer data collected, which can transform their apps into marketing platforms for an expanding array of services, from bike sharing to travel.”
  • “Conditions in China made it ripe for this innovation. Credit cards never caught on in a big way. Discretionary spending wasn’t an option for most people until recent years, and there has long been a cultural aversion to debt in China. On top of that, the government made it tough for Visa Inc. and Mastercard Inc. to set up shop.”
  • “The rise of tech companies as financial powers has dealt a blow to traditional banks. China’s state-owned banks lost nearly $23 billion in fees in 2015 they might have collected from card fees, according to a November 2016 report from EY (formerly Ernst & Young) and Singapore’s DBS Bank. The report projected the annual fee loss could widen to $60 billion by 2020.”
  • “The larger problem for banks might be that Alibaba and Tencent often know more about their customers than they do. If a Beijing car dealer uses a bank debit card for a business trip to Shanghai, the bank knows what airline he or she flew, as well as the hotel and restaurants patronized. ‘But if the ‘customer interface’ is happening elsewhere, the bank has zero visibility over transactions,’ said James Lloyd, Asia-Pacific FinTech Leader at EY. ‘That’s not a good situation to find yourself in’.”
  • “Tencent and Alibaba say they have no plans to push their payment platforms to U.S. consumers. Many Americans don’t see the need for mobile payments, since their plastic cards and cash are welcomed and some merchants still accept checks.”
  • “’Any new way of paying has to prove itself to be incrementally better than any other options you have,’ said James Wester of research firm IDC Financial Insights. In the U.S., ‘plastic is convenient, widely accepted and understood by the customer’.”

Visual Capitalist – China’s Digital Wallets Offer a Glimpse at the Future of Payments – Nick Routley 12/30

NYT – Three Months After Maria, Roughly Half of Puerto Ricans Still Without Power – Frances Robles and Jess Bidgood 12/29

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – When Things Don’t Make Any Sense – Ben Carlson 1/4

  • Some perspective on the cryptocurrency boom.

FT – Fed risks massive hangover as it begins ‘great unwind’ – Michael Hassenstab (CIO – Templeton Global Macro) 12/27

  • “Only a strong economy can stop damage in Treasuries spreading to equities and credit.”

FT View – A healthy economy is a risk for stock markets 12/29

  • “If the big US tax cut that brought 2017 to a conclusion has its intended consequences, then capital expenditures will start to rise in the next year, as will wages. With consumer confidence high, that should lead to higher consumption. It would also lead to monetary policy at the tightest end of what currently seems probable. The European Central Bank and Bank of Japan would indeed desist from their asset purchases, the Federal Reserve would reduce its balance sheet, and liquidity would flow out of world markets. The Fed could be expected to raise rates four times.”
  • “This would be a consummation devoutly to be wished, vindicating both the belated fiscal stimulus that the US has just administered and the desperate muddle-through strategy that preceded it. But significantly higher rates and lower liquidity would be bad news for equity markets, which look historically expensive. High valuations can be justified while rates are historically low. Future earnings can be discounted at a low rate and the cash yields on stocks look attractive. But if all goes according to the US Republican party’s plan, interest rates will need to be significantly higher a year from now, and valuations will come under pressure.”
  • “The alternative scenario is that the tax cut achieves no meaningful stimulus, and is merely put towards higher corporate dividends and expensive mergers and acquisitions. The synchronized global economic recovery of the past year peters out, as other brief post-crisis recoveries have done. In this situation, the Fed tightens far less aggressively, other central banks blink and keep buying assets, and bond yields stay where they are, or even fall. On this gloomy prognosis, the legacy of the tax cut would be no more than greater inequality. But equity markets would enjoy much the same benign conditions they have had this year.”
  • “Amid Wall Street’s bullish prognoses for 2018, an inverse relationship is becoming clear. Those who are more optimistic for the economy tend to be more pessimistic about the prospects for risk assets. Some say they are so bullish they are bearish.”
  • “This is realistic. If monetary stimulus really does give way to a successful fiscal stimulus, investors should expect much higher volatility, and probably outright price falls, from equity markets.”

The Guardian – The sugar conspiracy – Ian Leslie 4/7/16

WSJ – China’s Bid to Dominate Oil Pricing Will Fail – Nathaniel Taplin 12/26

Markets / Economy

Bloomberg Quint – World’s Wealthiest Gain $1 Trillion in ’17 on Market Exuberance – Tom Metcalf and Jack Witzig 12/28

FT – Uber’s rise triggers financial crisis at taxi lenders – Alistair Gray 12/30

  • “Credit unions at risk of failure as loan losses mount.”

Real Estate

WSJ – Daily Shot: UBS Estimates – US Retail Store Closures 2017 – 1/5

FT – Brookfield moves into private rented sector for fresh profit – Aime Williams 12/29

  • “Fund manager to keep 1m sq ft space in Canary Wharf Group towers.”
  • “Brian Kingston, chief executive of Brookfield Property Partners, said property prices in London had ‘always been high’, but were now ‘very high’.”
  • “’You would always have people starting out renting, but they would graduate to owning,’ said Mr Kingston. ‘But in New York and London, you could be a fairly well-compensated individual and you could still not afford to buy’.”

Tech

FT – Travis Kalanick to sell part of his Uber stake for first time – Tim Bradshaw 1/4

  • “Deal will earn ousted chief over $1bn in sale to SoftBank as part of their tender offer.”

Entertainment

FT – China’s Hollywood romance turns sour – Matthew Garrahan and Charles Clover 12/26

China

NYT – China’s New Lenders Collect Invasive Data and Offer Billions. Beijing Is Worried. – Alexandra Stevenson and Cao Li 12/25

FT – China share pledges soar as founders seek new borrowing tools – Gabriel Wildau and Yizhen Jia 12/26

  • “Chinese stockholders are ramping up borrowing against shares, driving revenue for securities houses but creating risk of a chain reaction in the event of a sharp market downturn.”
  • “Shareholders in 317 Shanghai and Shenzhen-listed companies had pledged shares worth at least 40% of those companies by December 18, up from 224 companies on the same date a year earlier, according to Wind Info.”
  • “Share-pledging is especially common for small and mid-cap companies, where a single shareholder often owns a large stake. Controlling shareholders sometimes reinvest the proceeds into company projects or buy additional company shares on the secondary market to boost the share price.”
  • “In September China’s two main bourses published draft rules that would tighten regulation on share pledging. One provision caps the value of loans secured by shares at 60% of the market value of the pledged shares, ensuring a buffer that will protect the lender in case a share price falls.”
  • At least the mainland exchanges require that such pledges be disclosed, unlike the Hong Kong exchange, where other shareholders can be surprised.

Reuters – China’s lenders fret over debts lurking in shadow banking system – Engen Tham, Matthew Miller and David Lague 12/28

November 30, 2017

Perspective

WSJ – Daily Shot: BMO Wealth Management – How I met your Mother 11/28

Worthy Insights / Opinion Pieces / Advice

Business Insider – It takes $1.7 million to get your kid into an elite college, according to rich people – Abby Jackson 11/28

  • Clearly this is not the only, or even necessarily the best way. But some people take it to this level.
  • “American families pay more to send their kids to college than anywhere else in the world. “
  • “But for wealthy families, the costs start long before that very first college-tuition payment, according to Town & Country.” 
  • “T&C published a list of expenses for getting a child from birth through college based on education costs. The story was a refresh of a 1973 article where the magazine conducted the same analysis and came to a figure of  $300,000.”
  • “The 2017 version tallied to an eye-popping $1.7 million per child. The analysis aimed to show how wealthy families approach the competition to get their kids into the Ivy League.”

Real Estate

WSJ – Daily Shot: BMO Wealth Management – US Cities Housing Price Change from Pre-Crisis Peak 11/29

Tech

FT – Uber accused of running secret competitive intelligence unit – Chloe Cornish and Leslie Hook 11/28

  • “Judge says ride-hailing group withheld evidence in Waymo trial.”

South America

FT – Venezuela accused of ‘systematic’ abuse of prisoners – Gideon Long 11/28

  • “Human Rights Watch says severity of crackdown under Maduro is unprecedented.”

November 29, 2017

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Rage Against The Fee Machine – Anthony Isola 11/27

CNBC – Chance of US stock market correction now at 70 percent: Vanguard Group – Eric Rosenbaum 11/27

  • “Don’t panic, but there is now a 70% chance of a U.S. stock market correction, according to research conducted by fund giant Vanguard Group. There is always the risk of a correction in stocks, but the Vanguard research shows that the current probability is 30% higher than what has been typical over the past six decades.”
  • “‘It’s about having reasonable expectations,’ Davis (Joe Davis, Vanguard chief economist)  said of the research, which attempts to provide investors with a view of what can occur in the markets in the next five years. ‘Having a 10% negative return in the U.S. market in a calendar year [within a five-year forward period] has happened 40% of the time since 1960. That goes with the territory of being a stock investor.’ He added, ‘It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.'”
  • “In its annual economic and investing outlook published last week, Vanguard told investors to expect no better than 4% to 6% returns from stocks in the next five years, its least bullish outlook since the post-financial crisis recovery began.”
  • “For Vanguard the research is a chance to remind investors that overreaching is no better a solution for a lower-return environment than getting out of the market entirely. Davis worries some investors will hear ‘lower returns’ and view it as a catalyst to become more aggressive as a way to generate the returns they have been used to in recent years.”
  • “As long as an investor is in a financial situation in which they can cope with a single down year, ‘you need to stay invested, because of lower expected returns,’ Davis said. But he added, ‘Don’t become overly aggressive. The next five years will be challenging, and investors need to have their eyes wide open.'”

Economist – A more perfect union – Leaders 11/23

  • “Marriage is more rewarding – but also more upmarket. That is a problem.”

Economist – Teenagers are growing more anxious and depressed 11/23

  • “Could they hold the culprit in their hands?”

FT – Made in China – the world energy market of the future – Nick Butler 11/26

FT – Let the 5G battles begin – Rana Foroohar 11/26

FT – HNA planned 2012 bond deal shows tolerance for expensive debt – Robert Smith 11/26

FT – Venezuela stakes claim as Schrodinger’s cat of the debt world – Jonathan Wheatley 11/27

Pragmatic Capitalism – How to Manage an Asset Price Mania (Like Bitcoin) – Cullen Roche 11/27

  • “One of the main reasons why millions of people jump on investment manias and get crushed by them is because of a simple Fear Of Missing Out. Your co-worker made $10,000 investing in Fidget Spinners and now you feel like you weren’t enough of a dumbass with your dumbass money so you invest your dumbass money in something that is truly for dumbasses and you lose your (dumb) ass.”

The Registry – Murder on the Retail Express? – John McNellis 11/28

Markets / Economy

Fast Company – Cord-cutting is speeding up: Here’s how many people ditched cable TV this quarter 11/15

  • I’m sure this number would be higher if people had heard of YouTube TV…

Tech

Bloomberg Quint – SoftBank Is Said to Seek Uber Stock at $48 Billion Valuation – Eric Newcomer 11/28

Middle East

FT – Saudi crown prince pledges to rid world of Islamist terror – Simeon Kerr 11/26

  • “Saudi Arabia’s crown prince has pledged to rid the world of Islamist terrorism as he launched a military alliance that critics fear will deepen rifts between the kingdom and its arch-rival Iran.”
  • “Prince Mohammed has vowed to restore moderate Islam in the kingdom, where puritanical strains of the faith that encouraged violence have been promoted for decades. The launch of the alliance follows Friday’s jihadist attack on a mosque in Egypt that left more than 300 people dead. ‘The greatest danger of extremist terrorism is in distorting the reputation of our tolerant religion,’ the prince said.”

 

November 14, 2017

Perspective

NYT – China Spreads Propaganda to U.S. on Facebook, a Platform It Bans at Home – Paul Mozur 11/8

  • Another example of how easy it is to manipulate people. Seemingly the spread of the internet was meant to give people access to factual information to make better decisions and to be better informed. Rather it seems that while more information is available, the habit of selection bias has only amplified.

Worthy Insights / Opinion Pieces / Advice

FT – Does the oil market expect a new Mideast war? – Nick Butler 11/12

  • “The oil price has risen by almost 20% over the last four weeks. Does anything in the market justify such an increase, or is the change driven simply by speculation about the dangers of a direct conflict between Saudi Arabia and Iran?”
  • “The real explanation for the rise in prices clearly lies not in the physical balance of supply and demand but in speculation. Once again traders have been bidding up prices on the basis of fears about what could happen next.”
  • “An open conflict between Saudi Arabia and Iran would expose numerous oil fields and installations on both sides of the Gulf to attack. The Straits of Hormuz are still a potential choke point for the global flow of oil. Some 17m barrels a day – almost a quarter of world traded oil – goes through the straits.”
  • “War would be an illogical step, but since when has logic been the ruling force in the Middle East? If the risk of conflict recedes so will the oil price – there is nothing in the fundamentals to justify a price much over $50 or $55 a barrel. But if open war between the two major Gulf powers did break out the price rise we have seen so far would look trivial.”

FT – The tax reform the US really needs – Rana Foroohar 11/12

  • “America’s taxation system is fundamentally unsuited to the digital economy.”

FT – Saudi Arabia confronts legacy of corruption – Ahmed Al Omran and Simeon Kerr 11/12

  • “When Saudi Crown Prince Mohammed bin Salman spoke to his nation six months ago, he pledged to crack down on corruption. ‘I assure you that nobody who is involved in corruption will escape, regardless if he was minister or a prince or anyone,’ he said.”
  • “But few people could have expected the sudden storm this month when a new anti-graft committee ordered the arrest of more than 200 suspects, including princes, prominent businessmen and former senior officials, on allegations related to at least $100bn in corruption.”
  • “The arrest of so many big names has been hailed within the country as proof ‘no one is above the law’. But others have raised questions about the motivations behind a probe that also targeted a member of the royal family once seen as a contender for the throne.”
  • “Executives estimate that anywhere between 10% and 25% of the value of government contracts is routinely skimmed, with the proceeds used to fund lavish regal lifestyles, channel money to loyal tribes and grease the palms of favored functionaries. ‘This is how the kingdom of Saudi Arabia has balanced power historically,’ said one executive.”
  • “While fully eliminating corruption is unlikely, experts say limiting the presence of princes in government could help. King Salman has significantly decreased the number of family members in cabinet — today only the ministers of defense, the interior and the national guard are royals.”
  • “Some suggest that, even if corruption by the royals continues, the crackdown could still bring important dividends.”
  • “’Centralized corruption is better because you have one rent-seeker on top.’ said Steffen Hertog, an expert on Saudi political economy at the London School of Economics. ‘That actor has an interest in keeping the whole system efficient and stable, and keeping it from collapsing.’”

WSJ – SoftBank’s Uber Deal Shows Doubts About Ride-Hailing – Jacky Wong 11/13

Markets / Economy

Bloomberg Quint – Bitcoin’s Roller-Coaster Ride Cuts $38 Billion Before Reversal – Justina Lee and Yuji Nakamura 11/13

  • “After plunging as much as 29% from a record high following the cancellation of a technology upgrade on Nov. 8, the largest cryptocurrency came roaring back in early trading Monday before fluctuating between gains and losses.”
  • “While multiple reasons are being cited for the price volatility, one of the more viable is that some investors are switching to alternative coins. Bitcoin cash, an offshoot of bitcoin that includes many of the technical upgrades being debated by developers, has more than doubled in the same period.”
  • “The resulting volatility has been extreme even by bitcoin’s wild standards and comes amid growing interest in cryptocurrencies among regulators, banks and fund managers. While skeptics have called its rapid advance a bubble, the asset has become too big for many on Wall Street to ignore. Even after shrinking as much as $38 billion since Nov. 8, bitcoin boasts a market value of about $110 billion.”

Real Estate

WSJ – Daily Shot: Homeownership and Apartment Vacancy Rates by US Region 11/12

Finance

WSJ – ETF Heyday Is No Bonanza for Wall Street – Asjylyn Loder 11/6

Environment / Science

FT – China recovery pushes greenhouse emissions to global record – Tobias Buck and Lucy Hornby 11/13

  • “Stronger Chinese economic growth will push global greenhouse gas emissions to a record high in 2017 after remaining flat for three years, dashing tentative hopes of a turning point in the world’s efforts to curb climate change.”
  • “A new report by the Global Carbon Project, an international research consortium, predicts that carbon dioxide emissions from fossil fuels and industry will rise 2% this year. The report was released at the UN climate change meeting in Bonn on Monday.”
  • “The increase — which is largely caused by China and developing countries — suggests the world is straying further from the course set at the landmark UN conference in Paris two years ago.”
  • “This year’s rise is especially disappointing as it follows three years of almost no growth in emissions despite a world economy expanding at a steady clip. In 2016, emissions were flat even though the world economy grew 3.2%. One explanation for the uptick is that China’s economic slowdown in the middle part of this decade was more pronounced than official figures suggested.”
  • “The GPC report concludes: ‘The world has not reached peak emissions yet.’”
  • “It finds that carbon dioxide emissions decreased in 22 countries accounting for 20% of global emissions, but rose in 101 countries that together represent 50% of pollution. China is predicted to see a 3.5% jump in emissions in 2017. As the biggest producer of carbon dioxide in the world, China plays a crucial role in shifting the global trend.”

Europe

FT – Italian emigration continues despite strong economic recovery – Valentina Romei 11/12

  • “Italy’s economy is doing its best for years, but Italians are still pouring out of the country.
  • Gross domestic product is growing faster than at any point since 2010, employment is back to pre-crisis levels and the labor inactivity rate is close to an all-time low.”
  • “So why has the number of Italians living outside the country reached 5.4m — a figure that represents almost 10% of the population and which grew 3.5% last year?”
  • “The data highlight a story of a dysfunctional labor market, a society in which young, ambitious people often feel unfairly treated, and an economic recovery from which, in large part, they have yet to benefit.”
  • Overall, the official figures show that 1.5m people have moved abroad since the crisis broke in 2008.
  • “Nor is that the end of it. Foreigners are also leaving: 45,000 non-Italians left the country in 2015, more than three times as many as the figure for 2007.”
  • “The consequences of the phenomenon could be grave, despite Italy’s recent economic good news.”
  • “Since the country has long contended with low fertility rates, emigration is a particular threat to Italy’s workforce. Italy is second only to Japan in terms of the proportion of the population accounted for by people aged 65 and over, and in the 25 years to 2015 the working age population as a share of the total population dropped 5 percentage points.”
  • “In the past five years alone, the number of those aged between 18 and 44 contracted 6%, while the overall population rose 2%.”
  • “Both the Italian and the British data also show that young people account for the bulk of Italian emigration. The UK National Insurance statistics show that since 2002 more than 90% of Italians registering to work in Britain were under 44 years old. Some 77% were aged between 18 and 34 years old.”
  • Italian emigrants are also more highly educated than the overall Italian population and university trained people are leaving in increasing numbers. Graduates make up about 30% of emigrants from Italy, up from 12% in 2002, according to official statistics.”
  • “The causes of this brain drain are deep-set, writes Guido Tintori, Research Associate at Fieri — International and European Forum on Migration Research, in a forthcoming academic paper on the issue.”
  • “He argues that skilled young Italian graduates ‘not only are underemployed and underpaid, but constantly frustrated by a society and a labor market that hinge on relationships and seniority over competence’.”
  • “Furthermore, the economic recovery has yet to touch them. The proportion of young people who are unemployed in Italy is a daunting 35% and has barely changed over the past year.”
  • “The share of under-34s who are neither in employment nor in education is the highest in the EU and more than half of under-25s in employment are working under temporary contracts. Nearly one in four is working part time because of the unavailability of a full-time job — a higher proportion than in any other high-income economy.”

October 12, 2017

Perspective

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

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

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

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

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

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

Markets / Economy

Economist – From Uber to kinder 10/7

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

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

Real Estate

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

Health / Medicine

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

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

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

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

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

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

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

Shipping

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

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

Africa

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

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

October 5, 2017

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Financial News Doesn’t Rhyme But It Does Repeat Itself – Ben Carlson 10/3

  • “It’s important for investors to remember that investing based on the headlines is a bad idea. The fact that we have access to more information than ever these days is a great thing, assuming you have the correct filters in place. Most people don’t, so they become consumed by every little snippet or viral headline they glance at.”
  • “One of these days one of these warnings will seem prescient. More likely than not, the next person or firm to ‘call’ the next bubble or crash will be more lucky than good.”

Project Syndicate – Deja Voodoo – Joseph Stiglitz 10/4

FT – Uber: The uncomfortable view from the driving seat – Leslie Hook 10/4

  • “The ride-sharing group faces its biggest challenge: keeping its drivers, some of whom sleep in their cars to make ends meet.”

Markets / Economy

BlackRock – Economic Cycles in Context 10/4

Real Estate

WSJ – Retail Real Estate Holds Steady Despite Store Closures – Esther Fung 10/3

  • “Overall, the retail vacancy rate across different types of malls and retail centers stayed flat at 10% in the third quarter from the second quarter, with asking rents rising 0.4% to $20.74 a square foot from the previous quarter and up 1.8% year-over-year.”
  • “Lower construction activity helped to rein in supply and support occupancy levels. The volume of property completions, or properties that are developed and ready to be leased out, stood at 1.6 million square feet in the third quarter, which was the lowest level since 2014. The change in occupied retail space, or so-called net absorption, stood at 578,000 square feet, the lowest level since 2010.”
  • “While the retail industry is facing headwinds from e-commerce, an oversupply of stores and fast-changing consumer tastes, the restaurant sector as well as grocery stores and fitness centers are continuing to expand, helping to cushion the blow, landlords say.”
  • “In an August report, research and advisory firm IHL Group estimated there will be roughly 4,080 net store openings this year after taking into account 10,168 store closures. Apart from fast-food restaurants and beauty retailers, discount stores such as Dollar General and Dollar Tree are opening almost 2,000 new stores this year, the report added. Many of these dollar stores, however, will be in new build-to-suit locations rather than taking up existing retail space.”

Finance

Bloomberg – Trump Speaks and a $3.8 Trillion Market Hears an Existential Threat – Brian Chappatta 10/4

  • You can imagine that every holder and seller of municipal debt heard it when President Trump indicated that Puerto Rico’s $74 billion in debt would be wiped out.
  • The administration has since walked back from that ledge.

China

FT – Bond investors start to ask questions about Chinese takeovers – Robert Smith 10/3

  • “More than 18 months after ChemChina’s $44bn agreement to purchase Swiss agribusiness Syngenta capped a buying spree by Chinese companies across Europe, debt investors and rating agencies are starting to ask tough questions.”
  • “Their heightened scrutiny has left Syngenta’s investment grade rating in jeopardy, after Standard & Poor’s late on Monday put the company on review for a potential downgrade because of confusion over its support from the Chinese state.”
  • “The Swiss seeds company was last week forced to postpone a $7bn bond deal, intended to refinance bridge loans backing ChemChina’s takeover, as investors questioned its ability to settle class-action litigation in the US while maintaining an investment grade rating.”
  • Essentially, do they have State support or do they not? Who has priority to cash flows? And how much debt do they really have?
  • “Before ChemChina’s acquisition, Syngenta carried strong single-A credit ratings, but Standard & Poor’s now pegs the company at the lowest rung of investment grade.”
  • “Investors’ willingness to subject ChemChina’s financing to a more rigorous examination comes after China’s bank regulator earlier this year ordered domestic lenders to check the ‘systemic risk’ presented by ‘some large enterprises’ that have been acquiring companies overseas.”
  • “That has caused tension for bondholders in European companies owned by private Chinese groups such as HNA and Anbang.”
  • “’If you have implied support from the Chinese government, the ‘when’ and the ‘how’ are very important,’ Andrew Brady, an analyst at credit research firm CreditSights, says of state-owned ChemChina.”
  • “’In Syngenta’s case, we have to now assume it won’t come to protect an investment grade rating. And if support comes in the form of a loan, weak protections in the bond’s documentation mean that they could get layered with secured debt, meaning the exact mechanism of support could damage bondholders.’”
  • “As recently as August, S&P said in a report that ChemChina indicated that both it and China’s state-owned Assets Supervision and Administration Commission (Sasac) ‘remain committed’ to maintaining Syngenta’s investment grade rating ‘under all scenarios’.”
  • “Crucially, the rating agency said that Sasac would need to provide support to mitigate litigation liabilities with equity, to ensure there is ‘no additional debt imposed on Syngenta or ChemChina’.”
  • “A bond investor who looked at Syngenta’s proposed deal says that one of his biggest concerns was that it placed ‘absolutely no restrictions’ on the company’s ability to pay dividends to the heavily indebted ChemChina. S&P has projected that ChemChina will have a 10 to 13 times debt-to-ebitda ratio in 2017 and 2018.”
  • “’Let’s not kid ourselves, you wouldn’t freely put money into any other 13 times levered chemicals company,’ the investor says.”
  • “Lenders to European companies owned by large Chinese conglomerates have become increasingly focused on their ability to take cash out of the groups, with Swissport bondholders recently raising concerns after the airline services group started providing short-term loans to owner HNA.”
  • “A second bond investor says that he is increasingly wary of having exposure to European businesses owned by highly levered Chinese companies, describing them as ‘black boxes’.”
  • “’Nobody can be sure how much debt they have, or who really runs these businesses,’ he says.”

September 29, 2017

Perspective

NYT – Why Aren’t Paychecks Growing? A Burger-Joint Clause Offers a Clue – Rachel Abrams 9/27

  • “As economists try to understand why wages have stagnated across the country’s economy, they are examining the cheap labor part of the equation closely. A few have zeroed in on an obscure clause buried in many fast-food franchise agreements as a possible contributor to the problem.”
  • “Some of fast-food’s biggest names, including Burger King, Carl’s Jr., Pizza Hut and, until recently, McDonald’s, prohibited franchisees from hiring workers away from one another, preventing, for example, one Pizza Hut from hiring employees from another.”
  • “The restrictions do not appear in a contract that employees sign, or even see. They are typically included in a paragraph buried in lengthy contracts that owners of fast-food outlets sign with corporate headquarters.”
  • “Yet the provisions can keep employees tied to one spot, unable to switch jobs or negotiate higher pay. A lack of worker mobility has long been viewed as contributing to wage stagnation because switching jobs is one of the most reliable ways to get a raise.”
  • “Defenders of the practice argue that the restaurants spend time and money training workers and want to protect their investment. But two lawsuits, filed this year against McDonald’s and Carl’s Jr.’s parent company, CKE Restaurants Holdings, contend that such no-hire rules violate antitrust and labor laws.”
  • “The no-hire rules affect more than 70,000 restaurants — or more than a quarter of the fast-food outlets in the United States — according to Alan B. Krueger, an economist at Princeton University and a chairman of the Council of Economic Advisers in the Obama administration who examined agreements for 40 of the nation’s largest fast-food companies.”
  • “The provisions, he said, were ‘ubiquitous’ among the companies and appeared to exist mainly to limit both competition and turnover, which can keep labor costs low.”
  • “The restrictions are different from what are known as noncompete agreements — clauses in employee contracts that keep an employee from jumping to a rival. Such agreements are typically described as a means of preventing employees from bringing trade secrets to a competitor.”
  • “’I think it’s very hard to make the argument that noncompetitive agreements are necessary for low-educated, low-wage workers because they have trade secrets,’ Professor Krueger said. ‘This practice does have the potential to restrict competition and significantly influence pay.’”

Worthy Insights / Opinion Pieces / Advice

FT – Uber: the triumph of wallet over spirit – Robert Shrimsley 9/27

  • “I am quietly pleased London has taken a stand because, frankly, I wasn’t going to…”
  • “Free markets are a general good but they need someone looking beyond instant gratification to the wider consequences because the bottom line is consumers are like children. We need to be told that convenience is not the only issue. We need to be told to eat our greens.”

NYT – With Tax Cuts on the Table, Once-Mighty Deficit Hawks Hardly Chirp – Thomas Kaplan 9/28

Economist – How China is battling ever more intensely in world markets 9/23

Economist – How the use of antibiotics in poultry farming changed the way America eats 9/21

Markets / Economy

Bloomberg Businessweek – Midsize U.S. Sedan Demand Stalls Out to Lowest on Record – Anne Riley Moffat 9/27

  • “Only about one in 10 new cars sold in the U.S. is a midsize sedan, a sharp decline for the best-selling vehicle segment in 20 of the last 27 years, according to data from car-shopping website Edmunds.”

Real Estate

Fortune – The U.S. Housing Market Is Getting Squeezed. See Where Prices Are Spiking the Highest – Nicolas Rapp and Brian O’Keefe 9/15

WSJ – Blame Canada? Toronto, Vancouver Top Housing  Bubble Risks – Brian Blackstone 9/28

  • “Blame Canada?”
  • “It isn’t just the tune made famous by the South Park movie. It may become a motto among economists if frothy housing values around the world turn into a destabilizing bubble.”
  • “UBS published its latest global real estate ‘bubble index’ on Thursday, listing the major cities most at risk of housing bubbles. Canada took two of the top four spots, with Toronto on top and Vancouver at number four, and Northern Europe’s Munich and Stockholm sandwiched between.”
  • “U.S. cities featured pretty highly, with San Francisco and Los Angeles in ‘overvalued,’ but not bubble territory. New York was deemed fairly valued, and Chicago was the only city in the 20 listed that was undervalued.”
  • “UBS lists Boston’s real-estate market as fair-valued. Its uses sub-indexes such as price-to-income and mortgage-to-gross domestic product ratios to construct an overall index. Index readings above 1.5 are in bubble territory and the overvaluation scale slides down from there.”
  • “UBS noted that Toronto and Vancouver weren’t ‘dragged down’ by the global financial crisis, as a weaker Canadian dollar cushioned the blow. ‘Overly loose monetary policy, for too long, in addition to buoyant foreign demand, unmoored their housing markets from economic fundamentals—and both markets are now in bubble risk territory.’”
  • “’A strengthening Canadian dollar and further interest rate hikes would end the party,’ the report added.”
  • “In the U.S., housing prices in cities are still below their 2008 peak in inflation-adjusted terms, UBS said, except for San Francisco which ‘shows signs of overvaluation but no bubble risk, given its strong economic fundamentals amid the astonishing boom of tech companies.’”
  • “Turning to Europe, UBS said that ‘improving economic sentiment, partly accompanied by robust income growth in the key cities, has conspired with excessively low borrowing rates to spur vigorous demand for urban housing.’”
  • “In the Asia-Pacific region, Tokyo shows ‘moderate signs of overheating’ since the Bank of Japan launched its quantitative easing program in 2013, while residential prices in Hong Kong reached all-time highs mid-year ‘thanks to insatiable investor demand and speculative price expectations.’”

Finance

WSJ – Daily Shot: Danske Bank – S&P 500 Volatility 9/28

  • “For the first time since 2005, there hasn’t been a 2% daily move in the S&P 500.”

WSJ – Daily Shot: Reformed Broker – S&P 500 Maximum Drawdowns 9/28

China

Economist – China’s demographic divisions are getting deeper 9/21