Tag: Uber

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

August 24, 2017

Markets / Economy

WSJ – Mutual Funds Mark Down Uber Investments by Up to 15% – Rolfe Winkler and Greg Bensinger 8/22

  • “Vanguard Group, Principal and Hartford Funds all marked down their shares by 15% to $41.46 a share for the quarter ended June 30, according to the fund companies’ latest disclosure documents. T. Rowe Price Group Inc. cut the estimated price of its Uber shares by about 12% to $42.70 for the same period.”
  • “Uber’s shares don’t trade publicly, so the mutual-fund companies that hold them must estimate the shares’ worth each quarter. Seven mutual-fund companies had mostly maintained a $48.77 share price since the fourth quarter of 2015, when Uber first sold its shares to investors at that price.”
  • “Fidelity Investments held its estimate of $48.77 as of June 30. The one outlier is BlackRock Inc., which wrote up the shares slightly each of the past two quarters, settling at $53.88 as of June 30.”
  • “At least seven mutual-fund companies own shares in Uber, several of them first buying in during a 2014 funding around at $15.51 a share. The price has roughly tripled since then through a series of funding rounds, but Uber hasn’t raised new capital since last year at the $48.77 price.”

Finance

WSJ – Think Rates Are Going Up? Banks Don’t – Rachel Louise Ensign 8/22

  • “After years of waiting for interest rates to rise, some banks are lending as if that day will never come, loading up on a record amount of loans and securities that carry low rates for long periods.”
  • “The percentage of bank assets that won’t mature or change rates for more than five years reached a new high in the second quarter, according to Federal Deposit Insurance Corp data released Tuesday. That means banks are allowing more borrowers to lock in low rates for long periods, a potential risk should rates move sharply higher.”
  • “Across all banks, the percentage of total assets that are at a fixed rate for more than five years was 27.5% in the second quarter of 2017, its highest since the FDIC started tracking it in 1984. The metric reached 33.7% in the second quarter at banks with $1 billion to $10 billion in assets.”
  • “Commercial real-estate loans made up 31.5% of assets at those midsize and smaller banks in the quarter, up from 25.7% in the second quarter of 2012. The figure is far lower at bigger banks, at 6.4%, and has remained steady in recent years.”
  • “The growth rate for commercial real-estate loans, now around 9%, has helped banks compensate for a slowdown in general business lending, much of which is floating rate, meaning the interest rates on the loans rise and fall with market rates.”

Environment / Science

NYT – Alaska’s Permafrost is Thawing – Henry Fountain 8/23

  • “Once this ancient organic material thaws, microbes convert some of it to carbon dioxide and methane, which can flow into the atmosphere and cause even more warming. Scientists have estimated that the process of permafrost thawing could contribute as much as 1.7 degrees Fahrenheit to global warming over the next several centuries, independent of what society does to reduce emissions from burning fossil fuels and other activities.”

August 18, 2017

Perspective

FT – Over $9tn of bonds trade with negative yields – Eric Platt 8/16

  • “Along with central bank interest rate cuts — including setting unprecedented negative rates in Europe and Japan — the bond-buying programs explain why $9tn still trades with a negative yield, and why sub-zero rates are a reality that investors likely have to contend with for years to come.”

Tax Foundation – Which States Benefit Most from the Home Mortgage Interest Deduction? – Amir El-Sibaie 8/10

WSJ – Daily Shot: The New Right-Wing Extremism: Unified, Tech-Savvy and Emboldened – Dan Frosch, Cameron McWhirter and Ben Kesling 8/16

Worthy Insights / Opinion Pieces / Advice

Economist – The death of the internal combustion engine 8/12

  • “…electrification has thrown the car industry into turmoil. Its best brands are founded on their engineering heritage—especially in Germany. Compared with existing vehicles, electric cars are much simpler and have fewer parts; they are more like computers on wheels. That means they need fewer people to assemble them and fewer subsidiary systems from specialist suppliers. Car workers at factories that do not make electric cars are worried that they could be for the chop. With less to go wrong, the market for maintenance and spare parts will shrink. While today’s carmakers grapple with their costly legacy of old factories and swollen workforces, new entrants will be unencumbered. Premium brands may be able to stand out through styling and handling, but low-margin, mass-market carmakers will have to compete chiefly on cost.”
  • “Assuming, of course, that people want to own cars at all. Electric propulsion, along with ride-hailing and self-driving technology, could mean that ownership is largely replaced by “transport as a service”, in which fleets of cars offer rides on demand. On the most extreme estimates, that could shrink the industry by as much as 90%. Lots of shared, self-driving electric cars would let cities replace car parks (up to 24% of the area in some places) with new housing, and let people commute from far away as they sleep—suburbanization in reverse.”
  • “Even without a shift to safe, self-driving vehicles, electric propulsion will offer enormous environmental and health benefits. Charging car batteries from central power stations is more efficient than burning fuel in separate engines. Existing electric cars reduce carbon emissions by 54% compared with petrol-powered ones, according to America’s National Resources Defense Council. That figure will rise as electric cars become more efficient and grid-generation becomes greener. Local air pollution will fall, too. The World Health Organization says that it is the single largest environmental health risk, with outdoor air pollution contributing to 3.7m deaths a year. One study found that car emissions kill 53,000 Americans each year, against 34,000 who die in traffic accidents.”

Economist – The merits of going English – 8/10

  • “Why educationalists like the English system of tuition fees financed by loans on easy terms.”

LinkedIn – Acknowledging My Own Straight White American Male Privilege – Jim McCarthy 8/11

Markets / Economy

WSJ – Daily Shot: Bitcoin Valuation 8/16

Bloomberg – ‘Deep’ Subprime Car Loans Hit Crisis-Era Milestone – Adam Tempkin 8/15

  • “There’s a section of the auto-loan market — known in industry parlance as deep subprime — where delinquency rates have ticked up to levels last seen in 2007, according to data compiled by credit reporting bureau Equifax.”
  • “Analysts have been warning for years that subprime car loans pose a threat to lenders as delinquency rates have edged higher since reaching a post-recession low in 2012. But it wasn’t until last quarter that the least creditworthy borrowers started to show the kinds of late payment profiles that accompanied the start of the financial crisis.”
  • “’We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,’ Chief Economist Amy Crews Cutts said in an email Tuesday. ‘In deep subprime, the rise is more substantial. What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.’”
  • “The reason for the increase, she posited, is that lenders have loosened underwriting requirements as more firms tap into a declining market for car loans, not that there are more customers with worsening credit profiles.”
  • “Cutts said Equifax data show that lenders are extending repayment periods and offering longer terms, with many starting to exceed seven years.”
  • “That’s not to say a repeat of the financial crisis is nigh. There might not even be cause for major concern over the auto loan market, Cutts said. Monolines and dealer-finance lenders accounted for just 4% of new originations in the second quarter.”
  • “Meanwhile, the overall rate of late payments exceeding 60 days on all types of auto loans came in at a still-healthy 0.91%, up just eight basis points from last year. The rate on prime loans was at 0.33%, an increase of three basis points.”
  • “’Risk in auto lending is actually very balanced,’ Cutts said. More than 90% of overall auto loans are made by banks, credit unions, and captive auto finance companies, and these entities have become increasingly conservative and discerning in their underwriting.”
  • “Still, the ‘rapid rise’ in deep subprime delinquencies should not go unnoticed, Cutts said.”
  • “’As soon as lenders (and the investors behind them) get overconfident that they have better models and can make excess profits by disrespecting credit risk, they always get their hats handed to them sooner or later,’ Cutts said. ‘The mortgage market learned this lesson at the expense of the entire global financial system, and it is playing out now in a micro-level, in the ABS market for subprime auto loans.’”

Real Estate

WSJ – Daily Shot: FRED – Multifamily Housing Under Construction 8/17

  • “Multifamily housing that is already under construction will be flooding the rental market in the months to come.”

WSJ – Daily Shot: Capital Economics – US National Home Price / Income Ratios 8/17

Finance

WSJ – Sale of Once Hot High-Frequency Trading Frim Reflects Industry Troubles – Alexander Osipovich 8/16

  • “These upstart firms use sophisticated computer algorithms to move in and out of stocks, futures and other positions in fractions of a second. Known as high-frequency traders, or HFT, they thrived in the years following the financial crisis by exploiting the markets’ big price swings.”
  • “But more recently, there have been fewer dramatic swings in stocks, commodities and other markets. The CBOE Volatility Index, a widely followed measure of expected U.S. stock-market volatility, has hovered near historic lows this year.”
  • “Now, one electronic trading firm’s deal to acquire a struggling rival shows how this persistently low volatility is upending the HFT world and forcing out weaker players.”

FT – Private equity fundraising hits post-crisis high – Attracta Mooney 8/16

  • “Private equity fundraising is at its highest level since the boom years in the run-up to the financial crisis, leaving companies in a ‘precarious position’ as they struggle to invest record sums.”
  • “More than $240bn has been raised across private equity and venture capital funds in North America and Europe in the seven months to the start of August, according to a report from Pitchbook, a data provider.”
  • “The company believes private market fundraising in 2017 could eclipse last year, when $344.8bn was raised. The last time private equity did this well was 2007, when managers attracted $419bn.”
  • “According to Pitchbook’s research, private equity funds are sitting on record ‘dry powder’ — sums that have yet to be invested — as managers struggle to find suitable businesses. Pitchbook estimates that the amounts were $739bn at the end of 2016, higher than in 2007-08.”

Tech

FT – Uber crafts share sale plan to prop up valuation – Richard Waters 8/16

  • “Uber is planning a new round of fundraising that would at least match the $68bn peak valuation it reached before this year’s round of scandals — though investors who take part would be able to buy into the ride hailing company at a lower overall price than the headline number suggests.”
  • “The plan would include a secondary sale of shares by existing investors at a current market valuation that is likely to be some way below $68bn.”
  • “The fundraising plan is part of an attempt by Uber’s board to bring more stability to the company’s shareholder base as it tries to recover from the departure of founder Travis Kalanick as chief executive officer.”
  • “Pairing it with a secondary share sale would also give existing investors, including employees, a chance to cash in part of their holdings at a time when the chances of an initial public offering in the near-term appear to be receding.”
  • “It could also reduce the influence of venture capital firm Benchmark, which owns 13% of Uber’s stock and earlier this month mounted a high-profile lawsuit against Mr. Kalanick.”
  • “The sale by Uber itself would raise about $1bn and be set at or above the valuation Uber achieved in June last year, when it sold a 5% stake to Saudi Arabia for $3.5bn. The secondary share sale, on the other hand, would be for as much as $10bn, and would reflect a market price that took into account the company’s struggles this year.”
  • “To enable Uber to sell the higher-priced shares, investors who bought in would be offered the chance to buy the secondary stock on a pro-rata basis, resulting in an average price per share at a discount to the headline valuation.”
  • “The arrangement — showing that Uber itself could still raise some money at the $68bn valuation — would save face for Saudi Arabia, which otherwise would be seen as having overpaid for its stake in the company last year, according to one person familiar with the plan.”
  • “Another person said the structure would also save other Uber investors from being forced to write down the value of their existing holdings.”

Construction

Economist – Efficiency eludes the construction industry – 8/17

  • “The global market is worth $10trn. Euler Hermes, an insurer, expects 3.5% growth this year. Yet more than 90% of the world’s infrastructure projects are either late or over-budget, says Bent Flyvbjerg of Saïd Business School at Oxford University. Even the sharpest of tech firms suffer. Apple’s new headquarters in Silicon Valley opened two years behind schedule and cost $2bn more than budgeted. Smaller projects have similar woes. One survey of British architects found that 60% of their buildings were late.”
  • “Construction holds the dubious honor of having the lowest productivity gains of any industry, according to McKinsey, a consultancy. In the past 20 years the global average for the value-added per hour has inched up by 1% a year, about one-quarter the rate of growth in manufacturing. Trends in rich countries are especially bad. Over the same period Germany and Japan, paragons of industrial efficiency, have seen nearly no growth in construction productivity. In France and Italy productivity has fallen by one-sixth. In America, astonishingly, it has plunged by half since the late 1960s.”
  • “Prices for building materials are not to blame. They are subtracted from measures of value-added (and have not risen in any case). The burden over time of complying with regulation—applying for permits, for instance—is only partly responsible. In America such rules account for one-eighth of the productivity lost since 1987, according to the Bureau of Labor Statistics.”
  • More culpable are two broader structural trends. First, the industry has become less capital-intensive, with workers replacing machinery. This shift is more understandable in countries with access to inexpensive labor. In Saudi Arabia, for example, it is cheaper to import workers from India or Pakistan than to buy machinery. In many countries, however, labor costs might be expected to spur firms to substitute workers with capital.”
  • Instead, volatility in demand for construction has trained builders to curb investment. ‘The industry has learned through bitter experience to prepare for the next recession,’ says Luc Luyten of Bain & Company, a consultancy. Capital-heavy approaches to construction bring high fixed costs that are difficult to cut in downturns. Workers, in contrast, can be fired.
  • The second big problem is that the industry has, for the most part, failed to consolidate. Efficient firms should theoretically squash laggards, yielding bigger, more productive companies. ‘But construction is an industry that appears to have defied Adam Smith,’ says Mr Luyten. That is partly because building codes differ not just between countries but within them, which makes it harder to reap the benefits of scale. The customized nature of most projects further limits the usual advantages of size. Because the designs of most projects differ, contractors have to start from scratch for each one.”
  • “America now has about 730,000 building outfits, with an average of ten employees each. In Europe there are 3.3m with an average of just four workers. Competition is fierce and profit margins are thinner than for any industry except retail. This fragmentation creates its own problems. Slim margins make investment even less likely. Often projects have more than a dozen subcontractors, each keen to maximize profit rather than collaborate to contain costs, says Thijs Asselbergs, a professor at Delft University of Technology.”
  • “The result is an industry that raises prices for clients and mostly ignores tools that might improve productivity. ‘While we are all using iPhones, construction is still in the Walkman phase,’ says Ben van Berkel, a Dutch architect. Many building professionals use hand-drawn plans riddled with errors. A builder of concrete-framed towers from the 1960s would find little has changed on building sites today, except for better safety standards.”
  • “Examples of how the industry might move forward are not hard to find. More builders could use computer-aided design, as is standard among architects. Other methods are in earlier stages, but show promise, such as remote-controlled cranes and self-driving bulldozers (Komatsu, a Japanese equipment-maker, is developing the latter). A few niches, such as maritime construction, have shown how investments in technology and mass production can boost efficiency.”
  • “On land, a few firms are mass-producing homes. BoKlok, a spin-off from IKEA, a Swedish flat-pack-furniture seller, does only one-fifth of its construction work on site; the rest is done in factories. Parts can be standardized and costs cut as a result. BoKlok reckons that it builds twice as quickly as the industry norm. An American firm called Katerra also builds prefabricated sections of apartments at a factory in Arizona. It helps that each firm does every stage of construction itself, rather than relying on a tangle of subcontractors.”
  • “However, such techniques remain unusual. For most firms, slim margins and the specter of future downturns continue to restrain investment. Even for companies that do adopt new methods, growth may be limited by doubts about the quality of new techniques. A few modular towers in China have seen water seep between units. In Britain, past attempts at mass-produced housing are a sour memory: poorly built modular social housing from the 1960s has been demolished. British mortgage lenders shun homes built with ‘non-traditional construction methods’. BoKlok and Katerra hope their buildings will last a century. But perceptions, like so much else in construction, can be slow to change.”

China

FT – Prominent China debt bear warns of $6.8tn in hidden losses – Gabriel Wildau 8/16

  • “One of the most influential analysts of China’s financial system believes that bad debt is $6.8tn above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked.”
  • “In her latest report, Ms. (Charlene) Chu (with Autonomous Research) estimates that bad debt in China’s financial system will reach as much as Rmb51tn ($7.6tn) by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above. That estimate implies a bad-debt ratio of 34%, well above the official 5.3% ratio for those two categories at the end of June.”
  • “But Chen Long, China economist at Gavekal Dragonomics in Beijing, said this methodology implicitly assumes that an economic crash will eventually occur in China.”
  • “Mr. Chen argues that credit losses are highly correlated with economic performance: bad loans rise when growth slows. If China can prevent a sharp downturn, credit losses will be much smaller, despite the extraordinary increase in leverage.”
  • “Ms. Chu acknowledges that an acute crisis does not appear imminent. Government influence over both borrowers and lenders has allowed Beijing to delay problems much longer than would be possible in a more market-driven system.” 
  • “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities. The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.” – Charlene Chu

WSJ – Cleaning Up China With a Mountain of Debt – Nathaniel Taplin 8/16

Economist – The Communist Party is redefining what it means to be Chinese 8/17

  • “For most of its history the Communist Party wanted to smash China’s past, not celebrate it. During the Cultural Revolution in the 1960s and 1970s it sought to overturn the ‘four olds’: old customs, old culture, old habits and old ideas. Temples, mansions and tombstones were ravaged, along with any artefacts or people associated with the bourgeois way of life. Small wonder that Communist ideology lost its appeal. The blistering pace of change in recent decades has kindled an anxiety that China is suffering from moral decay and a concomitant yearning for a revival of ancient values. The government is harnessing those feelings, using ancient rites and customs to spread favored values.”

India

WSJ – How India’s Debt Could Kill Its Growth – Daniel Stacey, Kara Dapena and Jessica Kuronen 8/17