Tag: US Shale Oil Industry

Demographics | Oil & Gas Production

FT – China’s falling birth rate threatens economic growth – Sun Yu 1/19/20

FT – Italy’s collapsing birth rate rings demographic alarm bells – Miles Johnson 1/16/20

WSJ – Daily Shot: eia – US Shale Production by Region 1/20/20

WSJ – Daily Shot: Gas Production by Country 1/20/20

Perspective on the US Shale Industry in the 2010s | Private Equity is Flush | Online Betting is on the Rise in New Jersey Train Stations

Bloomberg – Shale’s Amazing, World-Changing, Lousy Decade – Liam Denning 12/27/19

Bloomberg – Private Equity Is Starting 2020 With More Cash Than Ever Before – Melissa Karsh and Benjamin Robertson 1/1/20

Bloomberg – New Jersey Train Stations Become Draw for New York Gamblers – Christopher Palmeri 1/6/20

New Jersey has seen a surge in sports bets since the state convinced the U.S. Supreme Court to overturn a ban on such wagers in 2018. More than $4 billion in bets were placed there in 2019. But rather than going to casinos or racetracks, gamblers are making more than 80% of their bets online, often using smartphones near train stations just outside New York City. They’ve made the state the early leader.

US Shale Producer Cashflows and Debt Maturities | US Federal Debt v GDP Growth | 2019 Box Office Receipts

WSJ – Daily Shot: Quill Intelligence – Cashflow of US Shale Producers 12/18/19

WSJ – Daily Shot: Quill Intelligence – Upcoming Debt Maturities for US Shale Producers 12/18/19

WSJ – Daily Shot: Real Investment Advice – US Growth in Federal Debt vs GDP 12/18/19

WSJ – Daily Shot: statista – 2019 Worldwide Box Office Receipts 12/18/19

Slowdown in the Permian Basin & Per Capita TP Consumption

For those of you with shale stocks that have been wondering what’s going on lately. Here is a little context.

Butt first… maybe it has to do with the diet?

WSJ – Daily Shot: statista – Toilet Paper Consumption per Capita (select countries) 7/17/19

Bloomberg – America’s Hottest Shale Play Is Slowing Down – Ryan Collins 7/16/19

The almost relentless thrust that has doubled crude output from the Permian Basin in three years is showing some signs of waning. Oil flows from the formation spanning West Texas and New Mexico are set to increase by less than 1% in August from July, data from the Energy Information Administration show. So far this year, the monthly rate has only exceeded 2% once, compared with six times in 2018.

Producers are dialing back growth plans due to a manifold of problems, including pipeline jams, slower flows from wells drilled too close together and higher costs for acreage. The dilemmas are killing returns and keeping investors at bay.

Permian explorers such as Parsley Energy Inc. are cutting their 2019 growth rates by as much as 40 percentage points below last year’s. The number of rigs in the basin has dropped 10% from a peak in November to 437 last week, the least since March 2018, according to data from Baker Hughes.

Consolidation

More Permian drillers are combining after the blockbuster $38 billion Occidental Petroleum Corp. takeover of Anadarko Petroleum Corp. two months ago. Callon Petroleum Co. agreed to buy Carrizo Oil & Gas Inc. for about $1.2 billion in an all-stock deal Monday.

It’s a move many investors have demanded. Ben Dell, founder of activist investor Kimmeridge Energy Management Co., said in March that there are 20 shale drillers that should combine. Kimmeridge targeted Carrizo last year, pushing for more asset sales or an outright merger.

Beyond flat-out mergers, producers including Pioneer Natural Resources Co., Devon Energy Corp. and Apache Corp. have sold off less-important leases as they seek to tap their most productive acreage. That’s after stock offerings from the shale patch shrank last year to the lowest since at least 2006, down more than 60% from 2017.

Plastics

Meanwhile, a wave of multibillion-dollar petrochemical plants are being built along the U.S. Gulf Coast to take advantage of cheap feedstock from the Permian to make plastic raw materials. The latest one to be announced is an $8 billion partnership between Qatar Petroleum and a Chevron Corp.-Phillips 66 joint venture.

That follows Exxon Mobil Corp. and Saudi Arabia’s state-controlled petrochemicals company formally approving construction of a new chemical complex in Texas last month. Demand for plastics is growing more than 4% a year, Chevron Phillips Chemical Chief Executive Officer Mark Lashier said.

Mexico Connection

A dispute between Mexico and pipeline companies threatens the much-needed relief valve for natural gas from the Permian, where the fuel is a byproduct of oil output. The country’s state-run power utility is considering about $3 billion in arbitration against pipeline operators in a tussle that could discourage investments.

That’s bad news for American drillers, who have looked forward to conduits coming online on time to haul stranded gas south of the border. Prices in the Permian have dipped into negative territory multiple times this year, meaning producers were paying customers to take their gas so they could keep the oil spewing.

July 18, 2018

If you were only to read one thing…

FT – Why millennials are driving cashless revolution in China – Yuan Yang 7/16

  • “The mobile payments revolution in China has happened with breathtaking speed and scale. In only five years it has transformed daily life in Chinese cities and also laid the foundations for the country’s mammoth financial tech industry, which last year generated revenues of Rmb654bn ($98bn), according to iResearch. Last year, the value of mobile payments in China overtook the worldwide totals of both Visa and Mastercard.”
  • “Almost half the world’s digital payments in 2017 were made in China, through apps such as Alipay (owned by Ant Financial, an affiliate of e-commerce juggernaut Alibaba) and WeChat (owned by Tencent), according to PwC research. Alipay and Tencent have now also outstripped PayPal, the US’s biggest online payments operator. They each handled more payments in one month this year than Paypal’s $451bn for the whole of 2017, according to market research firm Analysys.”
  • “This transformation has been spearheaded by millennials, who were the early adopters of mobile payments, but it has rapidly spread across generations…A survey by research company Ipsos, commissioned by Tencent, shows that the average person born in the 1990s now carries Rmb172 of cash ($26) compared with Rmb557 by those born in the 1960s.”
  • “China’s mobile payments revolution was partly spurred by the inconvenience felt by many of using traditional banks, from having to travel long distances for rural customers to having to queue in branches in the cities. But it was the unique formula offered by China’s tech giants that generated the explosion: by blending social, e-commerce and payment functions into single apps, customers could manage their finances at the same time as managing their social lives.”
  • “The revolution was enabled by the dominance of Tencent and Alibaba, along with the latter’s sister fintech company Ant Financial (recently valued at more than $150bn). Together they have created an interlocking network, or ‘ecosystem’, of services that complement each other and can be accessed via a few ‘killer apps’. These have become the natural playground of millennials. Imagine Facebook bolted on to email with a built-in payment platform for splitting bills among friends: that is Tencent’s WeChat. Or Amazon, with its own payment system that lets you send money to friends using only their phone number: that is Ant Financial’s Alipay. The network effect of such platforms is vast; if all your friends are using them, it is difficult to opt out.”
  • “’The way Beijing is developing, living without a smartphone will be difficult because of all the places that are starting not to take cash,’ says Chauncey Zhang, a 23-year-old tech company employee. In large cities some stores, markets and food stalls now only accept mobile payments.”
  • “Not only is a smartphone necessary for shopping, it has also become indispensable for hailing and paying for taxis. Beijingers joke that it is now more important to carry a phone charger than a physical wallet.”
  • “Familiarity with mobile payments has also made customers more comfortable with other new fintech innovations, in areas such as peer-to-peer lending, investing in money market funds, and consumer loans.”
  • “On the surface, China looks an unlikely place for this to happen. Saving, rather than borrowing, is what Chinese people typically do to afford big purchases. The country has one of the highest household savings rates in the world. When it comes to investment, property is viewed as the safest asset.”
  • “However, many citizens and small businesses are still under-served by traditional banks, and fintech companies have seen the opportunity for mobile platforms to leapfrog the old lenders.”
  • “Feidee, a company that makes personal financial management apps, says that 93% of its users are young customers born after the 1980s, and 42% of these were born after the 1990s.”
  • “China’s government has become worried by this surge in access to credit. Regulators as well as companies are now cracking down on opportunistic lending and high-interest rate loans. Policymakers are particularly concerned about young people falling prey to bad lenders, and last year launched a push to stop such companies advertising scams on university campuses dressed up as ‘entrepreneur loans’, ‘trainee loans’ and ‘jobseeker loans’.”
  • “Investment, too, has been normalized by being bundled up with Alipay and Tencent’s apps: in a couple of taps a user can deposit leftover money from their mobile wallet balance into a fixed-term investment. As a result, Ant Financial’s Yu’E Bao, meaning ‘leftover treasure’, became the world’s biggest money market fund just four years after launch.”
  • “The rapid uptake of fintech in China means customers, investors and entrepreneurs are asking whether the same tools can succeed abroad. ‘When I leave China, I feel I’ve gone back 10 years . . . Tencent, why don’t you launch [WeChat Pay] here?’ complained a young French man in a video that went viral in China.”
  • “Tencent and Ant Financial have expanded internationally by following the surge of Chinese tourists travelling abroad, and are considering how best to serve local customers. WeChat Pay is starting to expand partnerships with shopping malls in Paris and Japan’s Hokkaido. The company applied for a third-party payments license in Malaysia ‘but when we got it, we found basic infrastructure was lacking,’ says Mr Ma. It took Ant Financial and Tencent years to build the links with hundreds of Chinese banks that makes their services possible.”
  • “China’s revolution leaves one great question unresolved. How will data regulators across the globe respond to the rise of fintech companies that could, as they already do in China, track every commercial decision in a person’s life?”

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Four Reasons Taxpayers Should Never Subsidize Stadiums – Barry Ritholtz 7/16

  • “Elected officials have been played by team owners and sports leagues.”

Bloomberg – Warnings of Market Complacency Are Growing Louder – Liz McCormick and Lu Wang 7/16

Economist – American democracy built-in bias towards rural Republicans – Leaders 7/12

Economist – Mini-grids may be the best way to illuminate the “bottom billion” – Leaders 7/12

NYT – I Was a White House Stenographer. Trump Wasn’t a Fan. – Beck Dorey-Stein 7/17

WSJ – How an Economic Boom Can Run Out the Clock – James Glynn 7/15

  • “Australia’s 27-year stretch of growth offers lessons for U.S. policy makers.”

WSJ – Why Tapping the U.S. Oil Reserve Is an Awful Idea – Spencer Jakab 7/16

  • “Using the reserve to curb summer pump prices at a time the economy is booming and midterm elections loom would be a strategic blunder, leaving the country exposed in the event of an actual oil shortage.”

Markets / Economy

WSJ – Whirlpool Wanted Washer Tariffs. It Wasn’t Ready for a Trade Showdown. – Andrew Tangel and Josh Zumbrun 7/16

  • “Put into practice, tariffs are a complex economic weapon that can ricochet through an economy in ways even proponents don’t expect. That’s what happened with washing machines, which were among the first consumer products targeted by the Trump administration.”
  • “In the months since washing machine tariffs took effect in February, LG and Samsung have pressed on with investments in the U.S., given that they now face the higher cost of shipping goods in from abroad. The overseas companies and Whirlpool have also increased hiring in the U.S. But appliance prices have risen for consumers, and there are signs of waning demand.”
  • “Last year, Whirlpool sought protection from South Korean competition under a provision known as the safeguard law, which required the company to establish it suffered serious injury from surging imports. The law, or section 201 of the 1974 trade act, was previously invoked in 2002 when then-President George W. Bush moved to protect steelmakers.”
  • “The resulting tariffs apply a 20% duty on the first 1.2 million washing machines brought into the country each year, and a 50% duty on quantities above that threshold. The barriers are expected to remain in place for at least three years.”
  • “The U.S. imported 4.2 million large residential washers in 2017, for a monthly average of 350,000, according to Christopher Rogers, an analyst at Panjiva, a firm that tracks global trade data. This year, imports have fallen to an average of 161,000 each month through April.”
  • “Washer and dryer prices climbed 20% in the three months through June, the steepest rise in at least 12 years, according to Labor Department estimates.”
  • “Washer shipments, a proxy for sales, to U.S. dealers dropped 18% in May compared with the previous year, the steepest monthly decline since March 2012, according to data compiled by the Association of Home Appliance Manufacturers, a trade group. Analysts said shipments likely dropped because dealers had stocked up on washers before prices rose. LG blamed post-tariff price increases, too, a spokesman for the manufacturer said.”

WSJ – GE Still Wrestles With a Big Problem – Thomas Gryta 7/17

  • “Lending unit GE Capital nearly toppled whole company as the source of ‘nasty surprises’.”

Energy

WSJ – Daily Shot: Princeton Energy Advisors – US Shale Oil Production 7/17

Finance

FT – PE firms raise money at fastest pace since 2006 – Javier Espinoza 7/16

  • “Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction.”
  • “The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months — from almost two years in 2010 — the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider.”
  • “But the figures also show there are fewer funds raising cash from investors in the US — from 328 in 2014 to 271 last year and 111 by the end of June this year.”
  • “Last year was still marginally up from a decade ago, but large institutional investors have been concentrating their allocations to larger and more established managers, which is partly driving the decline in funds looking to raise money.”
  • “PE funds have been one of the winners of the era of low interest rates, as investors such as pension funds chase higher returns.”
  • “However, with the PE industry already having an estimated $3tn in cash to invest, there is concern that buyout funds may end up overpaying for assets and eroding the potential returns for their investors.”

Canada

Bloomberg – Vancouver’s One-Two Punch Is Expensive Homes and Low Wages – Natalie Obiko Pearson 7/13

  • “Want to pay San Francisco housing prices on a Columbus, Ohio income? Move to Vancouver.”

South America

Economist – Venezuelan cash is almost worthless, but also scarce 7/12

  • “The worthlessness of Venezuela’s currency is the result of inflation, 46,000% a year, which in turn is largely caused by the printing of money to finance the government’s deficit of 30% of GDP. But there is also a shortage of banknotes. In the looking-glass world of Venezuela’s economy, cash itself trades at a premium to its face value, making it slightly less worthless than bolívares in other forms.”

Economist – Daniel Ortega is causing a bloodbath in Nicaragua 7/12

Other Interesting Links

WSJ – Daily Shot: Cresset Wealth Advisors – Money and Baseball 7/17

June 27, 2018

Perspective

WSJ – Marriage Is Out of Fashion. So Why Is Tiffany Selling More Engagement Rings? – Suzanne Kapner 6/20

  • Please note that the Y-axis base is 45% (still meaningful).

Tax Foundation – To What Extent Does Your State Rely on Property Taxes? – Ben Strachman and Katherine Loughead 6/20

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – The Best Free Investing Tools on the Web – Ben Carlson 6/25

Bloomberg – U.S. Housing Will Get Even Less Affordable – A. Gary Shilling 6/26

  • “More investor-owned properties and rising construction costs are just two reasons homes are out of reach for many.”

Bloomberg – The ‘Deep Fake’ Threat – The Editors 6/13

  • “High-tech forged videos could wreak havoc on politics. Policy makers must be ready.”

FT – Issues beyond Opec will drive oil prices in coming years – Nick Butler 6/24

  • “US shale oil production is set to have a dramatic effect on the global market.”

WSJ – Has the Big Yuan Short Finally Arrived? – Nathaniel Taplin 6/26

  • “As long as Chinese investors can make money gambling on housing – and companies can make money building or selling them – weakness in the stock and bond markets may not be enough to trigger a full-scale stampede out of the yuan.”
  • “Panic or no panic, a weaker Chinese currency in the months ahead still seems likely.”

Real Estate

Bloomberg Businessweek – The Modular-Home Maker That Could Make Housing Cheaper – Dina Bass 6/21

  • “Katerra saves money by buying everything from wood to toilets in bulk and using software and sensors to closely track materials, factory output, and construction speed. Its architects use software to build a catalog of standard buildings, rather than starting from scratch on each project, and to ensure contractors aren’t making impulsive structural decisions. Each generation of buildings has become steadily more prefab, requiring less work on-site and speeding construction.”
  • “…but Katerra has a lot of serious worries. While there are only a few standard models of iMac or Xbox, apartments are beholden to 110,000 U.S. municipalities’ building codes, each with its own idiosyncrasies. Regional seismic and weather needs can vary widely. And Katerra’s aim to steadily cut labor costs, meaning jobs, won’t exactly endear it to the industry.”

WSJ – Luxury Real Estate Comes to Urban Chinatowns – Katy McLaughlin 5/31

  • “High-end developments are appearing, attracting new residents as well as concerns about the displacement of the existing working-class.”

Energy

Bloomberg – Oil-Sands Outage Upends Global Oil Market, Overshadowing OPEC – Robert Tuttle and Kevin Orland 6/25

  • “The shutdown of a key oil-sands facility in Canada is flipping the global oil market on its head and slamming shares of producers that depend on the plant.”
  • “Just as OPEC and allied producers agreed to pour more oil into global markets, a transformer blast first reported by Bloomberg News last week cut power to Alberta’s giant Syncrude plant, which turns heavy crude into synthetic light oil for U.S. markets.”
  • “As less oil flows from up north, traders are paying a record premium for crude at America’s biggest distribution hub in Cushing, Oklahoma. Globally, the gap between Brent crude and West Texas Intermediate is narrowing rapidly after widening for months. Goldman Sachs Group Inc. called the shutdown the most dramatic event in the oil market last week, as opposed to OPEC’s meeting in Vienna. Shares of Suncor Energy Inc., which controls the plant, plunged the most in more than two years.”
  • “The 350,000-barrel-a-day facility, one of the biggest of its kind in the world, is going to be out of commission until the end of July, the company said.”
  • “While Saudi Arabia’s push to make sure OPEC boosts supplies by close to 1 million barrels a day is strongly weighing down on Brent crude futures in London, the shortage in Canada is supporting U.S. prices. That’s helping narrow the gap between the two benchmarks, reversing months of widening when the focus was on record production from shale fields. It has global implications because the premium helps buyers around the world decide whether to ship crude from the U.S. or elsewhere.”

Tech

CNN – It’s true: Teens are ditching Facebook – Jordan Valinsky 5/31

  • “A new study has confirmed what we’ve long expected: Facebook is no longer the most popular social media site among teens ages 13 to 17.”
  • “The Pew Research Center revealed on Thursday that only 51% of US teens use Facebook. That’s a 20% drop since 2015, the last time the firm surveyed teens’ social media habits.”
  • “Now, YouTube is the most popular platform among teens — about 85% say they use it. Not surprisingly, teens are also active on Instagram (72%) and Snapchat (69%). Meanwhile, Twitter (TWTR) followed at 32%, and Tumblr’s popularity (14%) remained the same since the 2015 survey.”
  • “When it comes to the platform they access most frequently throughout the day, Snapchat is king.”
  • “Although the study was only conducted among nearly 750 teens in a one month period starting this spring, the new numbers might be worrying for Facebook. The company recently rebounded from its first-ever decline in users in the US and Canada. But overall, its global growth has slowed. The two countries account for 185 million daily users.”
  • “But Daniel Ives, chief strategy officer and head of technology research at GBH Insights, argues Facebook-owned Instagram-owned is more important to the parent company than Facebook itself when it comes to younger users.”
  • “‘Instagram has captured that demographic better than anyone could have expected,’ Ives said. The numbers highlight ‘why Instagram is one of the best tech acquisitions done in the past 15 years.'”

Entertainment

WSJ – Comedies’ Misfortunes Are No Laughing Matter for Hollywood – Ben Fritz 6/25

  • “Last year’s most successful adult comedy, Girls Trip, took in $117 million in the U.S. and Canada. The last time the year’s highest-grossing comedy grossed so little was 1995, when tickets cost 52% less on average.”
  • “It wasn’t an anomaly. The five most successful adult comedies grossed an average of $141 million in 2013, $109 million in 2015 and just $85 million last year.”
  • “So far in 2018, the biggest live-action comedy has been Game Night, which took in just $69 million. Melissa McCarthy’s Life of the Party, has grossed $52 million, her lowest-grossing comedy ever. Amy Schumer’s I Feel Pretty is finishing its box office run with $49 million, less than half of her debut hit Trainwreck. Action Point, from the producer and star of Jackass, has grossed just $5 million, compared with $117 million for Jackass 3-D in 2010.”
  • “Just five years ago, things were quite different. In 2013, Ms. McCarthy and Sandra Bullock’s The Heat and the raucous R-rated We’re the Millers each grossed more than $150 million domestically. Another movie with Ms. McCarthy, Identity Thief, was close behind with $135 million. Grown Ups 2, Anchorman 2, Bad Grandpa, This is the End and even the widely maligned Hangover Part III all exceeded $100 million in domestic ticket sales.”
  • “Now, the only major comedy hits are those made for children. Peter Rabbit, featuring computer-generated critters that outsmart real-life adults, grossed a healthy $115 million in February, and animated comedies like Despicable Me 3 and The Boss Baby were top grossers last year.”
  • “The Incredibles 2, which mixes family-friendly action, comedy and drama, scored a massive $182.7 million in its opening weekend.”
  • “Though certain subgenres like romantic comedy have nearly disappeared, most studios aren’t yet abandoning adult comedy. They have, however, slashed spending on them so that they can potentially become profitable on lower grosses than were needed in the past. No comedy stars earn the $20 million per picture that Messrs. Carrey and Sandler and Ms. Roberts sometimes did in the past.”
  • “Tag is a recent example of the new approach. Made for just $28 million, it features no major comedy stars and was sold primarily on its concept, a real-life story about grown friends in a decades long game of tag that was based on a Wall Street Journal article.”
  • “’There was a time when comedies were being made for $70 million. Then $45 million. Now the sweet spot is in the 20s,’ said Todd Garner, a producer of Tag who previously produced comedies starring Mr. Sandler.”

Environment / Science

Economist – Climate change is making the Arab world more miserable 5/31

  • “Apathy towards climate change is common across the Middle East and north Africa, even as the problems associated with it get worse. Longer droughts, hotter heatwaves and more frequent dust storms will occur from Rabat to Tehran, according to Germany’s Max Planck Institute for Chemistry. Already-long dry seasons are growing longer and drier, withering crops. Heat spikes are a growing problem too, with countries regularly notching lethal summer temperatures. Stretch such trends out a few years and they seem frightening—a few decades and they seem apocalyptic.”
  • “The institute forecasts that summer temperatures in the Middle East and north Africa will rise over twice as fast as the global average. Extreme temperatures of 46°C (115°F) or more will be about five times more likely by 2050 than they were at the beginning of the century, when similar peaks were reached, on average, 16 days per year. By 2100 ‘wet-bulb temperatures’—a measure of humidity and heat—could rise so high in the Gulf as to make it all but uninhabitable, according to a study in Nature (though its most catastrophic predictions are based on the assumption that emissions are not abated). Last year Iran came close to breaking the highest reliably recorded temperature of 54°C (129°F), which Kuwait reached the year before.”
  • “Water presents another problem. The Middle East and north Africa have little of it to begin with, and rainfall is expected to decline because of climate change. In some areas, such as the Moroccan highlands, it could drop by up to 40%. (Climate change might bring extra rain to coastal countries, such as Yemen, but that will probably be offset by higher evaporation.) Farmers struggling to nourish thirsty crops are digging more wells, draining centuries-old aquifers. A study using NASA satellites found that the Tigris and Euphrates basins lost 144 cubic kilometers (about the volume of the Dead Sea) of fresh water from 2003 to 2010. Most of this reduction was caused by the pumping of groundwater to make up for reduced rainfall.”
  • “Climate change is making the region even more volatile politically. When eastern Syria was ravaged by drought from 2007 to 2010, 1.5m people fled to cities, where many struggled. In Iran, a cycle of extreme droughts since the 1990s caused thousands of frustrated farmers to abandon the countryside. Exactly how much these events fueled the war that broke out in Syria in 2011 and recent unrest in Iran is a topic of considerable debate. They have certainly added to the grievances that many in both countries feel.”
  • “The mere prospect of shortages can lead to conflicts, as states race to secure water supplies at the expense of downstream neighbors. When Ethiopia started building an enormous dam on the Nile, potentially limiting the flow, Egypt, which relies on the river for nearly all of its water, threatened war. Turkish and Iranian dams along the Tigris, Euphrates and other rivers have raised similar ire in Iraq, which is beset by droughts.”
  • “Politics often gets in the way of problem-solving. Countries are rarely able to agree on how to share rivers and aquifers. In Gaza, where the seepage of saltwater and sewage into an overused aquifer raises the risk of disease, a blockade by Israel and Egypt has made it harder to build and run desalination plants. In Lebanon there is little hope that the government, divided along sectarian lines, will do anything to forestall the decline in the water supply predicted by the environment ministry. Countries such as Iraq and Syria, where war has devastated infrastructure, will struggle to prepare for a hotter, drier future.”

FT – China’s carbon emissions set for fastest growth in 7 years – Lucy Hornby and Leslie Hook 5/29

  • “China’s carbon emissions are on track to rise at their fastest pace in more than seven years during 2018, casting further doubt on the ability of the Paris climate change agreement to curb dangerous greenhouse gas increases, according to a Greenpeace analysis based on Beijing’s own data.”
  • “The latest finding comes as climate researchers express concern over rising emissions in China, which accounts for more than a quarter of global carbon dioxide output.”
  • “Global emissions were flat from 2014-16 but began rising again in 2017 as the Chinese economy recovered and as emission grew in the EU and the rest of Asia. Scientists are concerned the trend in China will continue this year.”
  • “Although China has invested heavily in renewable energy such as wind and solar, a key reason for its emissions growth is rising demand for oil and gas due to increased car ownership and electricity demand.”

Agriculture

WSJ – Daily Shot: CBOT Corn (Dec) Futures 6/25

WSJ – Daily Shot: CBOT Soybean Futures (Nov) 6/25

Asia – excluding China and Japan

FT – 1MDB says audits labelled unreliable by KPMG – Stefania Palma, Edward White and Michael Peel 6/25

  • “KPMG has said its annual audits of 1Malaysia Development Berhad from 2010 to 2012 were unreliable after information was withheld by former 1MDB managers, the scandal-hit fund said.”
  • “’If the documents had been disclosed to the auditors, KPMG believed the information would have materially impacted the financial statements and the relevant audit reports,’ the fund said in a statement on Tuesday.”
  • “The wealth fund, which was established in 2009 under then-prime minister Najib Razak, is the focus of a global corruption investigation, with authorities alleging that $4.5bn has gone missing.”
  • “The allegedly omitted audit details came to light after the new government of Mahathir Mohamad — which won power in a stunning election victory in May — released an auditor-general’s report into 1MDB that had been classified under the previous administration.”
  • “KPMG was sacked as 1MDB auditor at the end of 2013 after raising concerns about more than $2.3bn said to have been held in the Cayman Islands on behalf of the fund, according to an auditor-general draft report seen by the Financial Times in 2015.”
  • “The accounting firm was unhappy because 1MDB would not share documents KPMG wanted to help it assess the fund’s financial activities linked to the Caribbean islands.”

Russia

Economist – Russia’s role in shooting down an airliner becomes official 5/30

  • “It was an important demand, if one with little hope of success. On May 29th the Netherlands’ foreign minister, Stef Blok, insisted at the UN Security Council in New York that Russia ‘accept its responsibility’ in the downing of Malaysian Airlines flight MH17. The airliner was shot down by an anti-aircraft missile over Ukraine in 2014, killing 196 Dutch nationals, 38 Australians and 64 others. Last week a UN-mandated Joint Investigation Team (JIT), led by Dutch prosecutors, announced it had determined that the missile belonged to a unit deployed to the area by the Russian Army’s 53rd anti-aircraft brigade, presumably to help Russian-backed secessionists fighting the Ukrainian army.”
  • “The Kremlin has always denied any involvement in the downing of MH17 or the war in Ukraine. (Asked about the JIT’s findings, Mr Putin responded, ‘Which plane are you talking about?’) Instead it has spread conflicting alternative theories blaming the Ukrainians, often backed up with demonstrably fake evidence. But the investigators’ dossier is voluminous. It includes photos and video taken by passers-by that track the convoy carrying the missile from its base near Kursk, in Russia, to the Ukraine border. The JIT also has the fuselage of what appears to be the missile itself, recovered near the crash site. The Netherlands and Australia now say they will hold Russia accountable for its role, and want negotiations on a settlement.”

June 19, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Watch the Fed’s balance sheet, not interest rates – Gillian Tett 6/7

  • “The US central bank’s unwinding has contributed to turmoil in emerging markets.”

FT – China is winning the global tech race – Michael Moritz 6/17

FT – Donald Trump’s trade tirade shows his mastery of the message – Rana Foroohar 6/17

Polygon – What if Star Wars never happened? – Kevin Lincoln 6/7

  • “Imagining a world where George Lucas’ space fantasy didn’t revolutionize Hollywood.”

Markets / Economy

WSJ – Daily Shot: indeed – Older workers are the gig economy 6/18

Energy

FT Energy Source: BP – World Fuel Sources by proportionate share – Ed Crooks 6/17

LA Times – Shale country is out of workers. That means $140,000 for a truck driver and 100% pay hikes – David Wethe 6/8

Finance

WSJ – The Finance Industry’s Incredible Ability to Keep the Money Rolling In – Paul J. Davies 6/15

  • “Banks, brokers and money managers have kept their revenue steady for 130 years.”

Cryptocurrency / ICOs

FT – Who really owns bitcoin now? – Hannah Murphy 6/7

  • “Initially in the crypto space, you had people who really understood the technology. Then there was a typical bandwagon investor situation and you know how it ends — and it did.” – Campbell Harvey, finance professor at Duke University and an investment strategy adviser for Man Group.
  • “But how many have gained — and lost — from the bitcoin bubble? Exclusive data from blockchain research company Chainalysis seen by the FT provides some tantalizing answers.”
  • “The Chainalysis data quantifies this distinct shift in the make-up of bitcoin owners from longer-term investors — those who held the asset for more than a year — to short-term investors who have traded more recently, by analyzing how regularly coins have changed hands.”
  • “Last November — before December’s pricing peak — the amount of bitcoin held for investment was roughly three times that held by traders.”
  • “However, by April 2018, the data show the amount held by investors — about 6m bitcoin — was much closer to the amount held by short-term speculators, with 5.1m bitcoin.”
  • “Indeed, Chainalysis estimates that longer-term holders sold at least $30bn worth of bitcoin to new speculators over the December to April period, with half of this movement taking place in December alone.“
  • “’This was an exceptional transfer of wealth,’ says Philip Gradwell, Chainalysis’ chief economist, who dubs the past six months as bitcoin’s ‘liquidity event’.”
  • “Mr Gradwell argues that this sudden injection of liquidity — the amount of bitcoin available for trading rose by close to 60% over that period — has been a ‘fundamental driver’ behind the recent price decline. At the same time, bitcoin trading volumes have now fallen in tandem with the prices, from close to $4bn daily in December to $1bn today.”
  • “So will the price of bitcoin ever surpass December’s peak? Part of the answer lies in who holds bitcoin now that the hype has died down.”
  • “Born in 2009 in the wake of the financial crisis, bitcoin is rooted in a libertarian quest for a means of exchange that is unshackled from the central banking system. Proponents — among them, computer experts and political activists — heralded the arrival of an alternative monetary system that could replace fiat currency.”
  • “But despite the recent crypto boom, there are few signs that this is happening. According to research published this month by Morgan Stanley, only four of the top 500 US e-commerce merchants accepted cryptocurrencies in the first quarter of 2018, compared with three at the beginning of 2017.”
  • “Chainalysis notes that the ‘vast majority’ of transactions it analyzed showed bitcoin being received from exchanges and rarely sent to merchant services to pay for goods or services.”
  • “Only a finite number of coin — 21m — can be created. Of this, about 4m are yet to be mined. Just as physical coins can be lost down the back of a sofa, so can bitcoins if users lose or forget the passwords needed to access their online wallets. The Chainalysis data separates out coins it deems to be lost or unused for years — which total 3.7m bitcoin, worth about $28bn.”
  • “’Speculation remains the primary use case for these digital assets; merchant or institutional adoption does not appear to be a primary driver of price,’ says Preston Byrne, an English structured finance lawyer and cryptocurrency observer.”
  • “Given this breakdown in bitcoin owners, most market watchers do not rule out another rapid price run-up. However, they say this would likely be the random movement of pure speculation or market manipulation rather than anything else.”
  • “’It’s very important to stress, this is not in any sense a rational market,’ says David Gerard, the author of Attack of the 50 Foot Blockchain.”
  • “’It’s very thinly traded, very badly structured . . . and it’s stupendously manipulated,’ he adds. ‘Anyone who goes in not realizing just how manipulated the crypto markets are will get skinned.’”
  • “The Chainalysis data also show that the bitcoin marketplace is skewed in terms of wealth distribution. A small cluster of investors — known colloquially as ‘whales’ — capture a hefty proportion of the market, which stands at odds with bitcoin’s mission to democratize finance. This brings its own risks.”
  • “Overall, some 1,600 bitcoin wallets — managed by both speculators and investors — contained at least 1,000 bitcoin each in April, according to Chainalysis, collectively holding nearly 5m bitcoin, or close to a third of the available total.”
  • “Of those, just under 100 wallets owned by longer-term investors contained between 10,000 and 100,000 bitcoin — so between $75m and $750m at today’s prices.”
  • “Nevertheless, some point out that the excitement and influx of fresh funds into the market has allowed its infrastructure to mature — albeit gradually — which could be a boon for those looking to trade bitcoin more safely in future.”
  • “Much of the future of bitcoin trading will depend on the approach that regulators take, experts say. There are stirrings across the world, though to date, little coherence. Asian financial centers such as Tokyo are now regulating crypto exchanges, while China has banned them outright. Meanwhile, the US Securities and Exchange Commission last month announced a criminal probe into potential bitcoin price manipulation.”
  • “Banks in particular have been reticent to engage with cryptocurrencies and the companies that handle them, partly due to the difficulty of conducting anti-money laundering checks on transactions.”
  • “’Bank compliance officers really, really hate cryptos . . . be prepared to demonstrate the provenance of every penny from every crypto,’ says Mr Gerard.”
  • “Any more widespread adoption of bitcoin would need regulators, central banks and tax regulators to allow the transfer of wealth movement from the current financial system into the new one, says Gavin Brown, senior lecturer in financial economics at Manchester Metropolitan University and director of cryptocurrency hedge fund Blockchain Capital.”

Environment / Science

Quartz – To hit climate goals, Bill Gates and his billionaire friends are betting on energy storage – Akshat Rathi 6/12

China

FT – Beijing leans on lenders to back debt-hit HNA’s bond sale – Lucy Hornby and Sherry Fei Ju 6/15

  • “Chinese banks have been urged by government officials to ‘support’ bonds issued by HNA as the troubled finance-to-aviation conglomerate tries to extricate itself from a massive debt burden racked up during an acquisition binge.”
  • “HNA plans to issue Rmb4bn ($620m) in domestic bonds, paying interest of 6.5-7.5%.”

Other Interesting Links

Bloomberg – It’s Billionaires at the Gate as Ultra-Rich Muscle In on Private Equity – Simone Foxman and Sonali Basak 6/11

WSJ – Daily Shot: Plastic Surgery Portal – Most Searched Plastic Surgery Procedures by State 6/18

June 14, 2018

I’m back. Sorry for the leave of absence.

Perspective

Visual Capitalist: Mary Meeker 2018 Internet Trends Report – How American Household Finances are Changing – Jeff Desjardins 6/1

Worthy Insights / Opinion Pieces / Advice

Axios – Millennials are moving to the exurbs in droves – Steve LeVine 6/10

FT – China’s Achilles heel lies with property companies – Henny Sender 6/12

  • “Heavy issuance of dollar debt could be exposed if currency rises further.”

NYT – A Rescue Plan for a Jobs Crisis in the Heartland – Edward L. Glaeser, Lawrence H. Summers, and Ben Austin 5/24

WSJ – Daily Shot: John Burns RE – US Economic Recovery Projection 6/13

Real Estate

WSJ – Blackstone Triples REIT’s Fundraising Goal – Peter Grant 6/12

Energy

WSJ – The New Tech That Terrifies OPEC – Spencer Jakab 6/1

  • “U.S. shale oil drillers are boosting efficiency with giant pads and walking rigs, lowering prices to a point that could hurt exporters like Saudi Arabia.”

Cryptocurrency / ICOs

WSJ – Daily Shot: Bianco Research – Bitcoin Trading Activity by Currency 6/13

Tech

Bloomberg – Native Programmable Microcomputer Shipments – Barry Ritholtz 5/11

Entertainment

WSJ – Why Empty Seats at Taylor Swift’s Concerts Are Good for Business – Anne Steele 5/15

Environment / Science

how much.net – The Most Expensive Weather and Climate Disasters in the US – Raul 5/29

Automotive

WSJ – A Worrying Turn Ahead for Auto Loans – Aaron Back 5/29

  • “Auto loan delinquencies are too high considering the strong economy.”

May 23, 2018

Perspective

MarketWatch – Utah and Georgia residents enjoy biggest income gains in U.S. How did your state do? – Jeffrey Bartash 5/17

Worthy Insights / Opinion Pieces / Advice

MarketWatch – Millennials haven’t saved two years’ salary – they’ve saved one week’s worth – Rex Nutting 5/18

WSJ – Is Tesla Abandoning the Mass Market? – Charley Grant 5/21

WSJ – In Trade War With U.S., China Gets the Upper Hand – Greg Ip 5/22

Markets / Economy

WSJ – Daily Shot: Consumer Staples SPDR ETF – S&P 500: Relative Performance 5/22

  • “The consumer staples underperformance over the past two years has been unprecedented. Is the selloff overdone?”

Energy

WSJ – Oil Is Above $70, but Frackers Still Struggle to Make Money – Christopher M. Matthews and Bradley Olson 5/17

  • “American shale drillers are still spending more money than they are making, even as oil prices rise.”
  • “Of the top 20 U.S. oil companies that focus mostly on fracking, only five managed to generate more cash than they spent in the first quarter, according to a Wall Street Journal analysis of FactSet data.”
  • “Shale companies have helped propel U.S. oil output to all-time highs, surpassing 10 million barrels a day and rivaling Russia and Saudi Arabia. But the top 20 companies by market capitalization collectively spent almost $2 billion more in the quarter than they took in from operations, largely due to bad bets hedging crude prices, as well as transportation bottlenecks, labor and material shortages that raised costs.”

Cryptocurrency / ICOs

FT – Tax havens take the ICO lead – Don Weinland 5/21

May 11, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Middle-Class Doldrums Don’t Add Up to a Crisis – Noah Smith 5/9

  • “The U.S. economy is back to normal again. Unemployment is low. Business investment is up. Wages are slowly rising. The traumatic memories of the Great Recession and the global financial crisis are finally beginning to fade.”
  • “The absence of pressing crises means that it’s a good time to step back and take stock of deeper issues in the U.S. economic system. For several years, there has been a rising outcry over inequality… Adjusted for inflation, wages for production and nonsupervisory workers fell from their peak until the early 1990s, and haven’t yet climbed back to their former heights:”
  • “But the story isn’t quite true. The average American has, in fact, seen modest gains since the early 1970s; the falling wages of production workers don’t tell the whole story.”
  • “What explains the difference between wages and income? Two things. First, wages aren’t the only way Americans make money in the market. Income from assets, like retirement accounts and pensions, is increasingly important, as are nonwage compensation like employer contributions to retirement accounts. Second, the income numbers include government transfers, which have shifted more and more income from rich Americans to those who earn less in the market. These factors are all bigger than in the 1970s:”
  • “Increased redistribution has been helping the poor as well as the middle class. Recent calculations by the Center on Budget and Policy Priorities show that child poverty in the U.S. has fallen to record lows once government assistance is taken into account.”
  • “Meanwhile, gains in income haven’t come from increased toil. Despite women’s increased labor force participation, working-age Americans in 2014 tended to labor little more than their predecessors in the late 1970s:”
  • “In fact, the working hours data makes the 2000s and 2010s look less awful in comparison to the ’80s and ’90s. Gains in those earlier decades came partly from women entering the workforce en masse. But those gains were preserved in recent decades despite Americans working fewer hours on average.”
  • “It was during the early 1970s that total factor productivity growth began to slow down. It accelerated again in the 1990s and early 2000s, only to fall back to a crawl about the middle of that decade.”
  • “It’s therefore possible to interpret the slower growth of Americans’ incomes as the result of slowing productivity. Inequality has certainly contributed as well, but increasing government transfers have helped cancel out some of that. But with slowing productivity growth, there’s simply less to redistribute than if productivity had maintained the torrid pace of the early and mid-20th century.”
  • “Capitalism may not be in crisis, but it’s troubling that a few super-rich individuals have managed to amass vast fortunes even as productivity has stagnated. That is a phenomenon whose cause must be carefully investigated. For the typical American, gains in living standards have continued at a slow, steady pace. Increasing that pace should be a top priority.”

FT – Investors should be cautious of simplistic indices – Kate Allen 5/9

  • “Poland’s upgrade to developed status shines a light on [an] outdated approach to classification.”

Markets / Economy

FT – Daimler leads new investors in SoftBank’s $100bn Vision Fund – Arash Massoudi, Leo Lewis, and Patrick McGee 5/10

  • “Germany’s Daimler and Japan’s three largest banks are set to become investors in SoftBank’s Vision Fund as the Masayoshi Son-led company looks to complete fundraising for its $100bn technology investment fund, according to people briefed on the matter.”
  • “The Mercedes-Benz maker along with MUFG, Mizuho and Sumitomo Mitsui Banking Corp will be among the final investors in the fund, which is the largest ever created in private equity or venture capital, these people said.”
  • “They added that other new investors will include Larry Ellison, the billionaire US co-founder of software group Oracle who is investing personally, and the sovereign wealth fund of Bahrain.”
  • “Daimler and the Japanese banks are set to be among the smaller ones in the fund, alongside earlier participants such as Apple, Qualcomm, Foxconn and Sharp. About $88bn of the fund comes from SoftBank, Saudi Arabia and Abu Dhabi.”
  • “Individuals close to the three Japanese banks said their decision to invest had a twin motivation: the quest for returns in Japan’s ultra low-interest environment and the desire to further strengthen their relationships with what is by far Japan’s most active corporate name.”
  • “All the new investors will be participating under the terms of the fund’s unusual structure, which sees them receive 62% in preferred units paying out an annual coupon of 7% over the fund’s 12-year life cycle, and the rest with equity.”
  • “SoftBank itself is the only investor that has full equity exposure, giving it the most upside to the fund’s investments in addition to the management and performance fees.”
  • “SoftBank outlined on Wednesday in a presentation that it had spent $29.7bn of the Vision Fund since inception. It has placed bets on more than 30 companies including ride-hailing group Uber, shared-office provider WeWork and chipmaker Nvidia.”

Real Estate

Bisnow – California Super-Commuters Are Transforming Sleepy Suburbs Into Busy Metros – Julie Littman and Joseph Pimentel 5/9

WSJ – California Takes Big Step to Require Solar on New Homes – Erin Ailworth 5/9

Energy

FT – US oil producers battle to meet Iran shortfall – Ed Crooks 5/9

  • “Pipeline constraints mean shale cannot come to rescue as sanctions push up prices.”
  • “Inadequate transport capacity in the region is reflected in the soaring discount for oil in Midland, west Texas, compared with US benchmark crude. That discount hit $13 a barrel this week, meaning that while the easier-to-trade West Texas Intermediate was selling for about $70 a barrel, oil in Midland was just $57 a barrel.”

WSJ – Venezuela’s Brewing Oil Shock May Be Bigger Than Iran’s – Spencer Jakab 5/10

  • “The oil headlines this week have all been about Iran, but the slowly unfolding disaster in Venezuela may be even more significant.”
  • “Venezuela faces two risks that, if both come to pass, could cut its oil output by more than the biggest estimates of what could happen to Iran if sanctions were reimposed. The risks stem from Venezuela’s dependence on importing lighter varieties of crude to mix with the heavy oil it produces, and its need for products imported from the U.S. to enable its thick oil to be transported.”
  • “The first situation is playing out in the Dutch-administered islands of Curaçao and Bonaire, where Venezuela’s state oil company owns refining and storage facilities. U.S. producer ConocoPhillips is attempting to take physical control of those facilities after winning an arbitration award against Venezuela for seizing its assets in 2007. Venezuela appears to be telling its suppliers not to ship oil to these facilities for fear ConocoPhillips will seize that too, potentially shutting down refining.”
  • “The second situation would play out if the U.S. halts exports to Venezuela of a product called diluent, which allows the thick oil to be transported. Such a move would imperil half or more of the country’s remaining production. U.S. Vice President Mike Pence has already called the presidential election a sham.”

Finance

WSJ – Daily Shot: DISH Network Bond Price 5/19

Environment / Science

Economist – Climate change will affect developing countries more than rich ones – The Data Team 5/9

Construction

WSJ – Daily Shot: FRED – PPI Concrete Products 5/10

Asia – excluding China and Japan

Economist – Malaysia’s chance to clean up – Leaders 5/10

  • “Elections in Malaysia are normally predictable. In fact, the United Malays National Organization (UMNO) and various allies had won all of them since 1955, until this week. Over the years UMNO has resorted to every conceivable trick to remain in power: stirring communal tensions among Malaysia’s ethnic groups, locking up critics, rigging the electoral system in its favor, bribing voters with populist handouts and threatening chaos if it lost. In the run-up to the election on May 9th it did all of that. It was testimony to the awfulness of the government of Najib Razak that the opposition was even in contention. And it is testimony to the good sense of Malaysian voters that the opposition won, convincingly, paving the way for Malaysia’s first ever change of government.”
  • “For a country where politics has always been run along communal lines, the shocking upset holds out the prospect of a more meritocratic form of government. For the region, where rulers with authoritarian instincts have been steadily curbing political freedoms, it is a heartening victory for democracy. And for Mr Najib, who was accused by America’s Department of Justice of personally pocketing $681m looted from a Malaysian government agency, it is a welcome comeuppance.”
  • “Sceptics note that it is led by Mahathir Mohamad, a former five-term UMNO prime minister who pioneered many of the underhand tactics to which Mr Najib resorted in his failed bid to remain in power. Dr Mahathir was also a champion of Malaysia’s odious system of racial preferences, which he expanded to keep Malay voters loyal to UMNO.”
  • “Perhaps the new government will succumb to infighting and fail to get much done. But its very existence is a potent reminder to Malaysians and their neighbors that governments can and should, from time to time, change peacefully. With luck, Cambodians, Singaporeans, Thais and Vietnamese, among others, will begin to wonder if something similar might one day happen to them.”

China

FT – China credit spreads near 2-year highs on default worries – Gabriel Wildau 5/9

“China credit spreads hit their widest level in nearly two years this week following new regulations that undermined long-held assumptions about implicit guarantees on debt linked to local governments.”

FT – Hong Kong’s tycoons: handing over power in troubled times – Ben Bland 5/9