“Six to eight million people are living in a state of
undernourishment,” said Susana Raffalli, a veteran Venezuelan humanitarian
adviser who has worked across the world with the Red Cross and Unicef, the UN
agency for children.
In a recent report on global food security, the FAO
estimates that between 2016 and 2018, about 21.2% of the Venezuelan population
was undernourished. When Mr Maduro came to power in 2013 the figure was 6.4%,
it says.
In a June report, Unicef estimated that 3.2m children
in Venezuela were “in need of assistance”.
Mr Maduro (President Nicolas Maduro) blames a
US-orchestrated economic war for the problems with food supplies. The US has
imposed an increasing array of sanctions on Venezuela in an effort to force the
president from office.
The White House and Venezuelan opposition say the
principal culprit is an economy ruined by years of mismanagement whose collapse
began years before the first significant US sanctions in 2017. In a statement,
the US state department described Venezuela as “one of the worst man-made
humanitarian disasters in the modern world”.
Mr Maduro has repeatedly denied there is widespread
hunger in his country. He told the BBC earlier this year: “Venezuela has the
highest levels of nutrients, has extremely high levels of access to food, and
that stereotype, that stigma [of hunger] that they have tried to put on us, has
only one objective: to present a humanitarian crisis that does not exist.”
But hunger is one of the main reasons for the mass
exodus from the country in recent years, according to diplomats and aid
workers. More than 4m Venezuelans have fled abroad, and for those who
remain, the food situation is increasingly perilous.
Venezuela will face long-term consequences from
chronic undernourishment, especially of children, humanitarian organizations
warn. NGO data seen by the FT show the weight and height of Venezuelan children
have fallen significantly below the average for comparable populations.
“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?”
“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.”
“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.”
“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.”
“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.”
“It’s time for investors to stop fighting the last war. The next downturn most likely won’t be triggered by another meltdown of the financial system.”
“Investors didn’t need the Fed to tell them that banks are in better shape than they were a decade ago. The signs are everywhere. Profits have fallen across the industry since the financial crisis, an indication that banks are taking on less risk. Profit margins for the S&P 500 Financials Index averaged 9.3% from 2008 to 2017, down from an average of 13.8% from 2003 to 2007, the years leading up to the crisis. Return on equity is down to an average of 5.2% from 14.5% over the same periods.”
“The biggest of those risks is leverage — or piling on debt to boost profits — and banks have a lot less of it than they used to. The debt-to-equity ratio of the financials index has dropped to 159% as of the first quarter from 563% at the end of 2007. The debt-to-assets ratio has fallen to 19% from 43% over the same period.”
“But if the numbers don’t persuade investors that the next crisis won’t look like the last one, then maybe a look at previous bear markets would. In reverse chronological order: The bursting of the dot-com bubble was behind the downturn from 2000 to 2002. A mass panic or newly introduced computerized trading, depending on whom you ask, set off the 1987 crash. Stagflation brought down the market from 1980 to 1982. A global oil embargo hit stocks from 1973 to 1974. I could keep going, but you get the idea.”
“There is a common thread running through the scariest episodes: high stock prices. The average cyclically adjusted price-to-earnings, or CAPE, ratio for the S&P 500 has been 18 since 1928, according to numbers compiled by Yale professor Robert Shiller. The five worst bear markets during those nine decades, as measured by peak to trough declines, commenced in 1929, 1937, 1973, 2000 and 2007. The average CAPE ratio on the eve of those downturns was 29 and the median was 27.”
“The current CAPE ratio: 32. And it’s never just stocks. Other assets in the U.S. look frothy, too, such as private equity and real estate.”
“Americans were not set up for success in recycling plastics. Even before China stopped accepting plastic refuse from abroad, 9% of potentially recyclable plastic in the U.S. ended up in landfills – or worse, in the oceans. Europe does a little better, with only 70% getting tossed.”
“Why such terrible rates? Partly because some changes that were supposed to make recycling simpler ended up making it almost impossible.”
“University of Georgia engineering professor Jenna Jambeck said that indeed, part of the reason China is now refusing to process American and European plastic is that so many people tossed waste into the wrong bin, resulting in a contaminated mix difficult or impossible to recycle.”
“In a paper published last week in Science Advances, she and her colleagues calculated that between now and 2030, 111 million metric tons of potentially recyclable plastic will be diverted from Chinese plants into landfills.”
“Plastic matters because it takes centuries to degrade, and there’s a lot of it. Jambeck has estimated that the world has produced more than 8 billion metric tons since the 1950s. To help grasp this quantity, paleontologist Jan Zalasiewicz has estimated that this is enough to wrap our entire planet in cling wrap. Others have calculated that it would make four mountains the size of Everest.”
“Given what scientists already know how to do, the future could bring a greener, more fool-proof system. Right now, she said, she and other scientists are starting to develop ways to recycle mixtures of plastics – a tough job because many plastics repel one another like oil and water. One of the reasons China imported recycling was that it was possible there to hire cheap labor to sort the different plastic types by hand.”
“Curing the plastic problem is a lot like fighting cancer. Even if everyone stopped smoking, there would still be cancer. And even if we all figure out whether our municipalities accept yogurt containers, plastic waste will still pollute the environment. Compliance won’t be a cure until innovations from the lab set us up for success.”
“Sea level rise driven by climate change is set to pose an existential crisis to many US coastal communities, with new research finding that as many as 311,000 homes face being flooded every two weeks within the next 30 years.”
“The UCS used federal data from a high sea level rise scenario projected by the National Oceanic and Atmospheric Administration, and combined it with property data from the online real estate company Zillow to quantify the level of risk across the lower 48 states.”
“Under this scenario, where planet-warming emissions are barely constrained and the seas rise by about 6.5 feet globally by the end of the century, 311,000 homes along the US coastline would face flooding on average 26 times a year within the next 30 years—a typical lifespan for a new mortgage.”
“The losses would multiply by the end of the century, with the research warning that as many as 2.4 million homes, worth around a trillion dollars, could be put at risk. Low-lying states would be particularly prone, with a million homes in Florida, 250,000 homes in New Jersey and 143,000 homes in New York at risk of chronic flooding by 2100.”
“The oceans are rising by about 3 mm a year due to the thermal expansion of seawater that’s warming because of the burning of fossil fuels by humans. The melting of massive glaciers in Greenland and Antarctica is also pushing up the seas—NASA announced last week that the amount of ice lost annually from Antartica has tripled since 2012 to an enormous 241 billion tons a year.”
“This slowly unfolding scenario is set to pose wrenching choices for many in the US. Previous research has suggested that about 13 million Americans may have to move due to sea level rise by the end of the century, with landlocked states such as Arizona and Wyoming set for a population surge.”
“Farmers planted 89.6m acres with soya beans this spring, the government reported Friday, surpassing the 89.1m acres planted with corn. The only other year soya topped corn was in 1983, because of a one-off quirk of agricultural policy.”
“After eight years of budget cutting, Britain is looking less like the rest of Europe and more like the United States, with a shrinking welfare state and spreading poverty.”
“Monthly premiums for care insurance have doubled from ¥3,000 to almost ¥6,000 ($55) since the system began in 2000. Meanwhile, the average annual cost of employer-based health insurance is up from ¥386,038 in 2008 to ¥486,042 this year, equivalent to a two percentage point rise in income tax.”
“The rise in health and care costs helps to explain why moderate wage growth, after five years of economic stimulus under prime minister Shinzo Abe, is doing so little to boost consumption. It poses a conundrum for the Bank of Japan, which is relying on spending pressure to push inflation towards its 2% objective.”
“Japan’s future holds more of the same, especially after 2020, when the baby boom generation starts to reach the age of 75 and needs more care. Recent government figures suggest that by 2040 social insurance costs will rise another 2.5 percentage points to 24% of gross domestic product.”
“Less than two years ago, a cup of coffee cost 450 bolivars in Venezuela. Today, as the nation’s hyperinflation continues to skyrocket, a cafe con leche costs 1 million bolivars — or a mere 29 U.S. cents, according to Bloomberg.”
“The global construction industry is a $10 trillion behemoth whose structures determine where people live, how they get to work and what cities look like. It is also one of the world’s least efficient businesses. The construction productivity rate — how much building workers do for each hour of labor they put in — has been flat since 1945, according to the McKinsey Global Institute. Over that period, sectors like agriculture, manufacturing and retail saw their productivity rates surge by as much as 1,500%. In other words, while the rest of the economy has been supercharged by machines, computers and robots, construction companies are about as efficient as they were in World War II.”
“Erratic US policy and fraying alliances give China a free hand.”
“What China is winning is de facto control of nearly the entire South China Sea, including all activities and resources in it, despite the other surrounding Southeast Asian states’ respective legal rights and entitlements under international law.” – Jay Batongbacal, director of the University of the Philippines Institute for Maritime Affairs and Law of the Sea
“At stake is the huge commercial and military leverage that comes with controlling one of the world’s most important shipping lanes, through which up to $5 trillion worth of trade passes each year.”
“The country’s economic output is smaller now than it was in 2004, and employment policies are skewed to protecting jobs, not creating them. The number of Italians registered as living abroad rose 60% from 2006 to 2017, to almost 5 million. Among those who stay, it’s common for unemployed young people to live with their parents instead of starting their own families, which is one reason the country has one of the world’s lowest birthrates.”
“Last weekend, Venezuela’s President Nicolás Maduro dragged his Socialist government into a third decade in power by winning elections that were boycotted by the opposition, ignored by most of his countrymen and rejected by the international community. As sluggish voting drew to a close, a smiling and confident Mr. Maduro posted a video of himself waving not to throngs of adoring supporters but to a largely empty public square.”
“By the end of 2018, it will have shrunk by an estimated 35% since 2013, the steepest contraction in the country’s 200-year history and the deepest recession anywhere in the world in decades. From 2014 to 2017, the poverty rate rose from 48% to 87%, according to a survey by the country’s top universities. Some nine out of 10 Venezuelans don’t earn enough to meet basic needs. Children die from malnutrition and medicine shortages. An estimated three million Venezuelans, 10% of the population, have left the country in the two decades of Socialist rule, almost half of them in the past two years, according to Tomás Páez, a researcher at the Central University of Venezuela.”
“If Mr. Maduro didn’t know when to stop the music, the idea for the endless party came from his predecessor, Hugo Chávez, who died just a month before I arrived in 2013. The strongman charmed his countrymen with a silver tongue, his love of dancing and singing and his disdain for the hated austerity packages imposed by previous Venezuelan presidents. As oil prices shot up in his last decade, Mr. Chavez not only failed to save any of the windfall but buried the country in debt.”
“Along the way, he imposed capital controls to try to stop money from fleeing the country. The arbitrary exchange rate system suffocated private enterprise and investment, but the poor got subsidized food and free housing. The middle class got up to $8,000 of almost-free credit card allowances a year for travel and shopping. And the rich and politically connected siphoned off up to $30 billion a year of heavily subsidized dollars through shell companies, according to the planning minister at the time.”
“The currency and price controls implemented by Mr. Chávez broke the basic link between supply and demand, creating surreal economic distortions. A business-class Air France return ticket from Caracas to my hometown in Siberia would cost me $400, yet a 15-year-old Suzuki jalopy with no air conditioning and 150,000 miles set me back $4,600.”
“Caracas in 2013 reminded me of a tropical version of the Soviet periphery. Basic goods like flour and aspirin had fixed prices and were so cheap that companies had no incentive to make them. When you did find them, it made sense to grab as much as you could carry. Who knew when you would find them again? Like Russia in the 1980s, people dealt with shortages by resorting to the black market, hoarding goods and trading perks of their jobs, like bureaucratic stamps of approval or access to car batteries, for other favors or products.”
“But Venezuela’s collapse has been far worse than the chaos that I experienced in the post-Soviet meltdown. As a young person, I was still able to get a good education in a public school with subsidized meals and decent free hospital treatment. By contrast, as the recession took hold in Venezuela, the so-called Socialist government made no attempt to shield health care and education, the two supposed pillars of its program. This wasn’t Socialism. It was kleptocracy—the rule of thieves.”
“In Venezuela, I saw children abandon schools that had stopped serving meals and teachers trade their lesson books for pickaxes to work in dangerous mines. I saw pictures of horse carcasses on the grounds of the top university’s veterinary school—killed and eaten because of the lack of food.”
“Hyperinflation, set to reach 14,000% this year, has transformed the most basic transactions into Kafkaesque trials. Cash is extremely scarce, card payment networks are overloaded, cell phone coverage is worse than in Syria, and online banking systems constantly crash because of underinvestment. Paying for a cup of coffee can take an hour.”
“The crisis has even made it harder for the ruling elite to enjoy its privileged status. Despite access to official dollars and the protection of security details, top apparatchiks now avoid the best restaurants, the plushest resorts and business-class lounges, where they fear encountering the hatred of their compatriots. Sanctions and fears of corruption probes have barred many of them from trips to the U.S. and much of Europe.”
“After 2016, I no longer had to travel to report on the toll of the economic crisis. It was visible all around me: in the sagging skin of neighbors, the dimming eyes of janitors and security guards, the children’s scuffles for mangos from a nearby tree. It is profoundly depressing to watch people you know grow thinner and more dejected day by day, year after year. When I look back at my five years in Venezuela, it’s not the time I spent covering riots, violent street protests or armed gangs that stirs the most feeling. It’s the slow decay of the people I encountered every day.”
“For most ordinary Venezuelans I know, Mr. Maduro’s foreordained victory last weekend snuffed out the last glimmer of hope that their lives can improve through democratic and peaceful means. What’s left is exile or further misery.”
Perspective
WSJ – Daily Shot: CNN – Global School Shootings Since 2009 5/25
“Clouds are hovering over New York’s housing market. A couple of years ago, property prices were spiraling ever higher — much like the new luxury skyscrapers now springing up in midtown Manhattan.”
“But estate agents say that sales volumes in the first quarter of 2018 were at their lowest level for six years. Meanwhile the median price per square foot was 18% lower than a year earlier, according to some reports.”
For those of you not living in Manhattan and that don’t own property there, you think, so what? The thing is … “last month the IMF published its first comprehensive analysis of global property and this suggests that real estate is becoming prone to synchronization too. Two decades ago, only 10% of property price movements could be blamed on global — not local — factors. Now it is 30%.”
“…What is striking is that this real estate synchronization is affecting urban centers in both emerging and advanced economies. Or as the report notes: ‘House prices in major cities outside the United States — Beijing, Dublin, Hong Kong SAR, London, Seoul, Shanghai, Singapore, Tokyo, Toronto and Vancouver — are positively associated with US house price dispersions’.”
“This might seem unsurprising. After all, the global elite hop across borders at dizzying speed. So does financial capital, and sentiment-shaping news. Meanwhile, the market capitalization of the real estate investment trust sector has tripled in the past 15 years, and large asset managers allocate on average of 11% of their portfolios to property.”
“This has made the housing market more ‘financialized’, since some investors are treating housing more like a tradeable asset, chasing yields around the world. No wonder that a decade of ultra-loose monetary policy in the west has lifted so many geographically dispersed real estate boats.”
“…the key point is this: if (or when) global financial conditions eventually become less benign, there will probably be downward movement in housing markets too, with some unexpected spillover effects.”
“Indeed, the most intriguing point in the IMF report is that ‘heightened synchronicity of house prices can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment’.”
“In plain English, this means that a correlated boom in global real estate markets can signal trouble ahead. We should keep a close eye on those estate agents’ reports in New York — as well as London or Hong Kong. The Big Apple’s jitters might yet be a canary in the coal-mine.”
“The world’s biggest container shipping group Maersk Line told customers it is raising prices in response to increased marine fuel costs, showing how the surge in oil prices to their highest levels in four years is rippling through the global supply chain.”
“Bunker prices, as marine fuel is known, have risen more than 20% since the start of the year, and in Europe have hit $440 per metric ton, the highest since 2014. That has forced Maersk to introduce an ’emergency bunker surcharge’, the company told customers in a note.”
“Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”
“More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.”
“For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.”
“More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.”
“Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included.”
“Mr. Meru’s financial records—provided to The Wall Street Journal—show he borrowed $601,506 to attend USC—a debt swelled to more than $1 million by fees and interest.”
“The cash confiscated last week from a luxury Kuala Lumpur apartment linked to the 1Malaysia Development Berhad investigation was worth RM114m ($28.6m), Malaysian police said on Friday.”
“The hoard, composed of Malaysian ringgit, US dollars and 24 other currencies, was seized alongside 284 luxury handbags and 37 other bags full of jewelry and watches from an empty apartment at the Pavilion Residences condominiums.”
We’re talking liquid-hard currency…
“Amar Singh, the head of the commercial crime unit, said it took police and 21 officers from Malaysia’s central bank three days to count the stash, which is now being held in the bank’s vaults.”
“When oil collapsed in 2014 under the weight of US shale production, it ushered in a new-found belief that prices would remain ‘lower for longer’.”
“The rampant new source of crude supplies was seen to be capable of meeting rising world demand almost single-handedly, obviating the need for extra Opec barrels ever again.”
“As such, the concept of a ‘shale price band’ emerged of roughly $40 to $55 per barrel, reflecting the range within which the majority of US shale producers could turn a profit without the risk of the industry growing so fast that it would again flood the market. And for the better part of three years, from 2015 to 2017, oil prices traded in this range.”
“But in 2018, this narrative has been slowly picked apart and is now in the process of disintegrating.”
“While there has been breathless attention paid to prompt Brent prices climbing to $80 a barrel for the first time since 2014, what has received less attention is that the entire Brent forward curve is now trading above $60, including contracts for delivery as far out as December 2024.”
“This development is an important psychological milestone for the oil market. The market is, in effect, saying that ‘lower for longer’ is dead.”
“The reality is that US shale has been unable to meet rising global oil demand, which has averaged 1.7m b/d per year since 2014 — double the level at the start of this decade — and inventories have drawn down as a consequence, eliminating the buffer that had been built up.”
“This inventory fall has been helped by strong demand growth and the Opec/non-Opec deal to curtail output since January 2017, which has since been superseded by rapid declines in Venezuelan and Angolan production and, more recently, non-Opec production outside of the US.”
“The inevitable supply deficit is very worrying, with very limited spare production capacity available globally.”
“Two main themes are now starting to impact investor thinking and drive the new-found interest in exposure to energy.”
“First, recent supply data are finally reflecting the ill effects from under-investment due to the collapse in capital expenditure since 2015. The data are now showing accelerating decline rates across important suppliers such as Brazil, Norway and Angola.”
“Second, the impressive strength in demand has been overshadowed in the past two years by the narrative dominated by electric cars.”
“But slowly this has given way to a recognition that while electric cars will undoubtedly alter the trajectory for global oil demand in the long term, this trend will not reach critical mass in the medium term (the next five years) to sufficiently make up for the expected fall in oil supplies due to the lack of investment.”
“So, even though expectations are for oil demand growth to slow from current levels, consumption will still be robust enough that — barring a major recession — the market will need new supplies to meet that growth.”
“The physical oil market is only going to face greater strain ahead of the marine fuel specification change in 2020, which is set to boost demand for products such as diesel and ultra-low sulphur fuel oil by 2m to 3m b/d.”
“As a result, we believe that oil prices may spike to above $100 per barrel, a price forecast we have held for the latter half of 2019 for three years now.”
“The shale price band has been decisively broken and 2018 will be a watershed year: the market will realize that US shale alone cannot meet the world’s incremental demand growth and future prices must rise to re-incentivize long-cycle investments (or curtail demand).”
“Nothing ever moves in a straight line, but the broader oil market is perhaps not prepared for what will happen to oil prices over the next couple of years.”
“The age of the unicorn likely peaked a few years ago. In 2014 there were 42 new unicorns in the United States; in 2015 there were 43. The unicorn market hasn’t reached that number again. In 2017, 33 new U.S. companies achieved unicorn status from a total of 53 globally. This year there have been 11 new unicorns, according to PitchBook data as of May 15, but these numbers tend to move around, and I believe the 279 unicorns recorded globally in late February by TechCrunch was the peak, where the start-up bubble was stretched to its limit.”
“A recent study by the National Bureau of Economic Research concludes that, on average, unicorns are roughly 50% overvalued. The research, conducted by Will Gornall at the University of British Columbia and Ilya Strebulaev of Stanford, examined 135 unicorns. Of those 135, the researchers estimate that nearly half, or 65, should be more fairly valued at less than $1 billion.”
“Don’t let the few recent successes in the 2017 IPO market fool you. After two years of stagnation in terms of the number of IPOs being filed in the United States — 275 IPOs (2014), 170 IPOs (2015) and 105 IPOs (2016) — deal counts have dropped to their lowest figure since 2012.”
“Seventy-six percent of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida’s Warrington College of Business, and recently featured in The New York Times. This is the largest number since the peak of the dot-com boom in 2000, when 81% of newly public companies were unprofitable.”
“The current volatility and correction evolving in the private market will be amplified for companies that have yet to make money and are burning cash faster than they’re bringing it in. Growth at all costs will not weather an economic storm.”
“Since the Snap IPO in March 2017 at $17 a share, when its shares surged 44% during its first day of trading, they have now declined to $11. Dropbox also went public. It had a first-day pop of 36%; however, with only 200,000 paying customers compared to its 500 million users, I would be hesitant to rush in to buy, even as it comes off that year-to-date high considerably. Another highly valued start-up, Blue Apron, went public at $10 a share in June and is now trading at $3. Remember Fitbit was a $45 stock in 2015 — it’s currently trading at just over $5.”
“Multiple signs of inflation in freight-related industries are at or near historical highs, in what could be an early sign that price pressures are building and ready to reverberate around the economy.”
“Freight marketplace DAT keeps track of supply and demand in the freight industry through a bulletin board that matches companies with loads to be delivered to the vehicles that will take the goods to the marketplace. The measures are in the spot market, where vendors that don’t contract their deliveries find drivers for their products.”
“Recent readings show demand for vehicles skyrocketing, a sign that generally points to inflationary pressures building up in the supply chain.”
“Loads on the spot market in general are up 100% from the same period a year ago. Another measure, the flatbed load-to-truck comparison, which tracks the amount of vendors looking for flatbeds and is generally the highest of all truck types, is up 142%.”
“The numbers by themselves, though, don’t indicate that inflation is ready to strike soon. Indeed, the most recent readings, such as the consumer and producer price indexes, show inflation pressures rising though relatively benign.”
“But they do jibe with some other indicators showing inflation is rising beneath the surface.”
“The US’s banks have largely sat out the mergers and acquisitions wave of recent years. While deal records have fallen in almost every other sector, big banks have done almost nothing, shrinking rather than expanding. And merger activity among small and mid-sized banks — some 5,607 of them, at last count — has been subdued.”
“But when Fifth Third Bancorp of Cincinnati revealed its $4.7bn swoop for Chicago’s MB Financial on Monday morning, shares in other Chicago-area banks began to move, too. Wintrust, a similar-sized bank based in Rosemont, Illinois, ended the day up almost 4%, while First Midwest of Itasca closed up 3%.”
“The implications were obvious: after years of thin activity in bank M&A, this deal could mark a turn.”
“The conditions for dealmaking look better than at any time since the financial crisis. Higher interest rates and lower taxes have pumped up bank profits, giving management teams stronger platforms from which to contemplate doing something radical.”
“Oil has had a leading role in geopolitics over the past 100 years, sucking western powers into an often disastrous dependence on the Middle East.”
“While black gold, as oil is sometimes known, is not always the overt cause of conflict, it is linked to between one quarter and a half of all interstate conflicts globally between 1973 and 2012, according to a 2013 study by Jeff Colgan of Brown University.”
“But it would be a mistake to assume that geopolitical tensions will miraculously ease in a future in which renewable energy sources dominate. Building wind turbines and creating lithium-ion batteries requires metals and raw materials from those countries which are blessed, or potentially cursed, with them.”
“And for some of these commodities, their high concentration in particular parts of the world sharpens the risks.”
“A clean energy economy will require a staggering volume of metals to be prized from the ground.”
“For example, Olivier Vidal of the University Grenoble Alpes estimates that to build the infrastructure for clean energy the amount of copper needed amounts to almost half the total mined since 1900.”
“There is also the real risk that the age of the electric car will generate corporate monopolies, echoing those of Standard Oil whose founder John D Rockefeller cornered the oil market more than a century ago as the combustion engine took off.”
“Glencore, the Switzerland-based and London-listed miner, is expanding its production of cobalt which is set to give it a 40% share of global supply by 2020.”
“The production of lithium, a key ingredient for batteries in electric cars as well as smartphones, is controlled by just five companies.”
“However, rather than tensions with the Middle East, the advent of the electric car will usher in greater friction with China. Beijing’s ambitions in clean energy are enormous.”
“As part of the ‘Made in China 2025’ plan to advance high-end manufacturing, the government wants to establish a grip on the production of electric cars and clean energy technology.”
“The rest of the year will provide further signs of the capital and scale that China is bringing to this competition.”
“No one is giving China a free run at the metals that have emerged as central to electric cars.”
“Trade tensions with US President Donald Trump are already brewing. This month his administration released a list of 35 minerals, including lithium and cobalt, that are ‘considered critical to the economic and national security of the United States.’”
“Chile, which has the world’s largest lithium reserves, is looking to build battery components, while South Africa, a producer of vanadium, wants to produce electrolytes for vanadium batteries, which are used to store energy for the electric grid.”
“Europe, too, is beginning to build its own giant battery factories to supply Germany’s car companies and the UK’s innovation agency has backed a study that uses satellites to look for lithium in Cornwall.”
“The geopolitics of the era of the electric car are in their infancy. While it is unlikely to lead to military conflict, the tensions, especially with China, over who will control the resources and technologies that will underpin electric cars will be heightened.”
“Over the long term, the winners are likely to be those countries and companies that can develop battery technology that relies on materials that are abundant rather than scarce. It might even help make the geopolitics a little less fraught.”
“Malaysia has paid almost RM7bn ($1.8bn) to service debt owed by 1MDB, the south-east Asian nation’s finance ministry said on Tuesday, as investigators ratcheted up their probe into the state investment fund from which $4.5bn is alleged to have gone missing.”
“Two weeks after voters ousted the government of Najib Razak, the finance ministry said it had been ‘bailing out’ the 1Malaysia Development Berhad fund since April 2017, adding that another RM144m interest payment was due on May 30.”
“The revelation ‘confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that [the payments] have been paid via a ‘successful rationalization exercise’,’ the ministry said in a statement. ‘All the while it has been the MoF [ministry of finance] who has bailed out 1MDB.'”
“Earlier on Tuesday, Malaysia’s new anti-corruption chief said he had been harassed and received a death threat after he pursued a 2015 investigation into 1MDB.”
“In 2016 — as global crude oil prices fell to about $40 per barrel — India, which imports nearly 80% of its petroleum, levied new excise duties on petrol and diesel to stabilize prices and prevent a surge in demand.”
“Since then, New Delhi has come to depend heavily on those revenues to shore up its fragile public finances, especially as receipts from the goods and services tax introduced last year have failed to stabilize at expected levels.”
“But after global crude oil prices hit a four-year high of more than $80 per barrel last week, India’s fuel pump prices — for decades subsidized by the government and held artificially low — have jumped to among the highest in south Asia.”
“Industry groups are pressing New Delhi to pare back excise duties on fuel, warning that the high prices will undermine an economy only now recovering from the successive disruption of a dramatic cash ban and the introduction of the goods and services tax.”
“But any meaningful rollback to ease pressure on consumers will raise doubts over the ability of Mr Modi’s administration to meet its target of cutting the fiscal deficit to just 3.3% of gross domestic product.”
“’India’s reliance on oil revenue has now surpassed the Malaysian government’s reliance on oil revenues — and Malaysia is an oil exporter,’ said Vikas Halan, senior vice-president at Moody’s Investors Service, the rating agency. ‘The government can always roll back excise duty — there is no one stopping them — but the issue is, how will they compensate for the loss of revenue?’”
“Last year, excise duties on petroleum products, which are about a quarter of the retail price of petrol and diesel, accounted for 17% of New Delhi’s total revenue collection. For every R1 that the government pares back these excise duties, it will lose an estimated $1.8bn in revenues, or about 0.1% of annual GDP.”
“Adding to the overall pressure is the recent weakening of the Indian rupee, which has fallen 6% this year to a 16-month low of Rs68.1 per dollar. Further depreciation will mean even higher local fuel prices. Bond markets are also jittery, with yields rising.”
“With a rapidly ageing population and a shrinking workforce, Japan is one of the world’s oldest societies. Now analysts fear that these demographics are hampering economic growth.”
“Japan’s economy contracted by 0.2% in the first three months of this year over the previous quarter, ending eight consecutive quarters of growth, Japan’s longest period of uninterrupted growth since 1989. It is now the only major economy to start 2018 with a shrinking economy.”
“With the second-weakest performance of major economies last year — Italy had the poorest — Japan is now set to be the slowest growing of the G7 economies this year.”
“Japan cannot keep up with the growth rates seen in other advanced economies because ‘Japan’s demographics weaken its GDP growth,’ said Rob Carnell, head of research and chief economist for Asia-Pacific at ING. ‘A rapidly ageing population and shrinking labor force are hampering growth,’ warned the IMF in its latest country’s report.”
“In a separate document, the IMF calculated that ‘the impact of ageing could potentially drag down Japan’s average annual GDP growth by 1 percentage point over the next three decades’.”
“Since Japan’s population began its decline in 2010, the country’s population has shrunk by about 1.3m people.”
“By 2065, the UN expects Japan’s population to fall by an additional 28m people, corresponding to a 22% drop. Over the same period, the population in advanced economies is expected to rise by 3%.”
“Not only is Japan’s population shrinking, but it is also ageing rapidly.”
“A shrinking population means a smaller domestic market with fewer people buying goods and services.”
“In 2016, there were about 2,300 fewer kindergartens than seven years earlier as the number of pupils dropped by 18%. Nearly 2,000 primary schools have been shut over the same period while the number of children of primary school age dropped by 8%.”
“Far fewer houses are being built as the population, and demand, falls.”
“The shrinkage in Japan’s population means that even with flat productivity growth there would be ‘steady declines in GDP output from one year to another,’ said Mr Carnell. Assuming all other factors remained similar, an economy with an expanding population would see positive GDP growth. ‘A better way of looking at Japan would be as per capita GDP,’ added Mr Carnell.”
“When looking at GDP growth rate per person of working age — which takes into account ageing trends as well as population shrinkage — Japan is in fact the second-best performing G7 country after Germany over the past 20 years.”
“Unless demographic trends are corrected, this is unlikely to be the last time Japan will see negative GDP growth, analysts say. But, given its shrinking labor force, its economy is performing strongly, they add.”
“The Wu Xiaohui who appeared in a Shanghai court in late March on fraud and embezzlement charges was a far cry from the man who rapidly turned a modest provincial car insurance business into an investment conglomerate with Rmb2tn ($316bn) in assets.”
“Tie-less and wearing a rumpled suit, the founder of Anbang ‘expressed deep self-reflection, understanding of and regret for the crimes and expressed deep remorse’, according to a post on the court’s social media account. But to no avail. On Thursday, he was sentenced to 18 years in prison.”
“At the time of his detention in February, Anbang controlled 58 companies directly or indirectly. As well as New York hotels, its holdings included rescue financings of troubled European financial institutions, control of a South Korean insurer and substantial equity stakes in about 20 major listed companies in China.”
“The charges that Wu was convicted of relate to the way the finances of the group were managed, including the shifting of billions of dollars of funds between different entities that he allegedly oversaw. His sister, who was officially head of Anbang Hong Kong, has also been detained.”
“Prosecutors accused Wu of using ‘false material’ in 2011 to get regulatory approval to sell insurance products. They also said that he had oversold Rmb724bn of insurance products and had diverted Rmb65bn to another company he controlled, which he had partly used for ‘lavish personal spending’.”
“In addition, Wu was accused of using the proceeds from insurance sales to inject capital back into Anbang in order to give the impression that the company was more financially stable than it was.”
“Analysts say Anbang was bound to attract the attention of Chinese regulators because of the nature of its business model. The group relied on issuing wealth management products for its funding. These risky investments were sold to ordinary people seeking higher returns than they could get from bank deposits. Given the nature of the investors, the Chinese authorities worried that any failure to pay out on the products could lead to social friction.”
“At the same time, the group took huge risks on how it invested the funds. Two months before Wu was detained, the company had 19% of its long-term investments in stocks, presenting a high level of risk should the market be hit by a downturn. Most insurance companies in China have less than 5% of their assets invested in the stock market. Another 19% was invested in redeemable short-term loans provided through trusts, an opaque area of shadow banking in China in which risk is almost impossible to assess with available public information.”
“Some may view the US dollar’s appreciation as consistent with a long-term rebalancing of the global economy. But, as Argentina’s recent request for IMF financing starkly demonstrates, a sharp and sudden dollar appreciation risks unbalancing things elsewhere.”
“Succeed or fail, Masayoshi Son is changing the world of technology investing.”
“The fund is the result of a peculiar alliance forged in 2016 between Mr Son and Muhammad bin Salman. Saudi Arabia’s thrusting crown prince handed Mr Son $45bn as part of his attempt to diversify the kingdom’s economy. That great dollop of capital attracted more investors—from Abu Dhabi, Apple and others. Add in SoftBank’s own $28bn of equity, and Mr Son has a war chest of $100bn. That far exceeds the $64bn that all venture capital (VC) funds raised globally in 2016; it is four times the size of the biggest private-equity fund ever raised.”
“The fund has already spent $30bn, nearly as much as the $33bn raised by the entire American VC industry in 2017. And because about half of its capital is in the form of debt, it is under pressure to make interest payments. This combination of gargantuanism, grandiosity and guaranteed payouts may end up in financial disaster. Indeed, the Vision Fund could mark the giddy top of the tech boom.”
“Rapid growth in debt levels is historically the best predictor of a crisis. And this year the corporate bond market has been on a tear, with companies issuing a record $1.7tn last year, and over half a trillion already this year. Even mediocre companies have benefited from easy money. But as the rate environment changes, perhaps more quickly than is imagined, many could be vulnerable.”
“Investors who bought some of the riskiest emerging market sovereign bond sales in the past year have been left nursing paper losses as a strengthening dollar has rattled sentiment for emerging markets.”
“JPMorgan’s emerging markets bond index has lost 5.1% since the start of this year.”
WSJ – Daily Shot: FRED – BOJ Assets YoY Change 5/13
“Chinese airlines are buying foreign flying schools and poaching pilots, amplifying a talent shortage that has affected airlines in other regions.”
“’The growth in Chinese aviation is unprecedented in our lifetimes and probably in history,’ said Paul Jebely, a Hong-Kong-based lawyer specializing in aviation. ‘There have been more aircraft ordered than there are pilots to fly them’.”
“The squeeze on flying talent has triggered flight cancellations, dented profits and threatened the industry’s ambitious growth targets around the world.”
“China is on course to overtake the US as the world’s largest air travel market by 2022, according to the International Air Transport Association.”
“US aircraft maker Boeing predicts China will need 110,000 new pilots in the years through to 2035, and its airlines are expected to purchase 7,000 commercial aircraft over the next two decades.”
“China’s aviation market grew by 13% last year, with 549m passengers taking to the skies, double the number who flew in 2010. Growth is being driven by the rising middle class, an expansion of routes by Chinese airlines and the easing of visa restrictions by foreign governments keen to attract Chinese tourists.”
“The number of pilots and co-pilots working in China almost doubled between 2011 and 2017. Over recent months China’s main airlines — China Eastern, Air China, China Southern and Hainan Airlines — have stepped up recruitment and are expanding their offshore training.”
“The starting salary offered to foreign pilots in China has jumped over the past 10 years from $10,000 per month to $26,000 per month, tax free, and was still rising, he said.”
“’Some Chinese airlines are offering tax-free salary packages, which can be up to twice what western airlines offer,’ said Murray Butt, president of the Australian and International Pilots Association.”
“India’s surging air travel — where passenger numbers have been growing by an average of about 16% a year since the beginning of the millennium — adds more pressure to the global pilot shortage.”
“Having seen rapid growth in passenger numbers over the past few years, Indian airlines have been recruiting from the military, from abroad and from their competitors by offering increasingly lucrative contracts. They have also made it more difficult for pilots to leave, forcing commanding officers to give a year’s notice if they wish to leave.”
“Chinese airlines pay the tuition of cadet pilots and are intensifying efforts to develop more local talent. But there are only 22 pilot schools in China and restrictions on the use of domestic airspace mean they are increasingly looking overseas to partner with foreign flights schools.”
“Almost half of China’s 5,053 trainee pilots last year were trained abroad, creating a flourishing business for flight schools and their owners in the US, Canada and Australia.”
“It isn’t rare for a handful of big movies to do much better than anything else during the same year, but over the past few years the differences have become more acute. One way to see this is by applying a standard measure of inequality—the Gini coefficient—to the box office. A Gini of zero would mean all the movies did equally well and a Gini of one would mean one movie made all the money.”
“Based on the domestic receipts of the top 100 grossing movies, the box office Gini for last year’s releases was 0.49, versus 0.46 for 2016. Over the previous 10 years, the Gini averaged 0.4 so there has been a big change in an already skewed field. For comparison’s sake, the Gini coefficient for after-tax household income is 0.39 in the U.S. versus 0.46 in Mexico, according to the Organization for Economic Cooperation and Development.”
“Apple has joined forces with two of the world’s biggest aluminum producers to develop a ‘carbon-free’ metal it plans to use in its iPhone and laptop computers.”
“The consumer electronics group is backing a joint venture between Rio Tinto and Alcoa that is seeking to commercialize a new technology to eliminate greenhouse gas emissions from aluminum smelting.”
“The uninsured rate rose by statistically significant margins in 17 states in 2017, the first time since the full implementation of the major mechanisms of the Affordable Care Act (ACA) in 2014 that any state had a rate increase. Also, for the first time since 2013, no states had a lower uninsured rate than the previous year.”
