Tag: Venezuela

February 21, 2018

Perspective

WP – Have your representatives in Congress received donations from the NRA? – Aaron Williams 2/15

Worthy Insights / Opinion Pieces / Advice

WSJ – The Big Shift Driving Tech Profits – Dan Gallagher 2/19

  • “Big tech companies learning to look past the initial sale as subscriptions build an important base of recurring revenue.”

Real Estate

Bloomberg – Is America in a Retail Apocalypse? Ask Yelp – Patrick Clark 2/13

WSJ – Daily Shot: John Burns RE Consulting – US National Housing Permits 2/19

WSJ – Daily Shot: John Burns RE Consulting – Burns Affordability Index 2/19

Energy

Bloomberg – ‘Made in the U.S.A.’ Turbines Complicate U.S. Offshore Wind Plan – Jim Efstathiou Jr. 2/14

Fishing

FT – China seeks bigger catch from far-sea fishing fleet – Tom Hancock 2/19

  • “China plans to increase the catch from its far-sea fishing fleet as it clamps down on fishing in its own heavily depleted waters, in a move likely to heighten maritime tension with other coastal nations.”
  • “The state-subsidized long-distance fleet is targeting an increase in its annual catch from 2m tons in 2016 to 2.3m tons in 2020, according to the agriculture ministry. Some 90m tons of wild fish were caught globally in 2016, according to the UN.”
  • “China’s far-ocean fleet increased its catch by nearly 50% over the five years to 2016, according to China’s agriculture ministry. The haul — often sold to Chinese fish processors that then export to Europe and the US — has fueled international concerns over dwindling fish stocks and illegal fishing in territorial waters.”

Europe

Bloomberg – ‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far – Amanda Billner 2/18

South America

NYT – In Colombia Border Town, Desperate Venezuelans Sell Hair to Survive – Joe Parkins Daniels 2/17

February 15, 2018

Perspective

WEF – Norway’s Central Bank has recommended oil and gas holdings are removed from its sovereign wealth fund – Thomas Colson 11/20/17

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Ten Years After the Crisis, Banks Win Big in Trump’s Washington – Robert Schmidt and Jesse Hamilton 2/9

Economist – As California’s fires died down, fraudsters arrived 2/8

  • “David Passey, a spokesperson for FEMA, says that more than 200,000 applications for relief related to the hurricanes and northern California wildfires are suspected to be fraudulent.”

Economist – China is in a muddle over population policy 2/8

Economist – The merits of revisiting Michael Young – Bagehot 2/8

  • “A book published 60 years ago predicted most of the tensions tearing contemporary Britain apart.”

Markets / Economy

Bloomberg – Teslas Are Finally Replacing Porsches on the Autobahn – Elisabeth Behrmann 2/12

WSJ – Daily Shot: NY Fed – US Consumer Debt Balance 2/14

WSJ – Daily Shot: NY Fed – US Consumer Delinquent Debt Percentage 2/14

WSJ – Brace Yourself for Higher Cellphone Bills This Year – Drew FitzGerald 2/8

Real Estate

Economist – How a brothel owner created the world’s biggest industrial park 2/10

  • “Google, eBay, Tesla and dozens of other tech firms have bought nearly all of the Tahoe Reno Industrial Center’s vast tract of land.”

Energy

Bloomberg Gadfly – OPEC’s Oil Price Nightmare Is Coming True – Julian Lee 2/11

Tech

NYT – The Autonomous Selfie Drone Is Here. Is Society Ready for it? – Farhad Manjoo 2/13

  • “Autonomous drones have long been hyped, but until recently they’ve been little more than that. The technology in Skydio’s machine suggests a new turn. Drones that fly themselves — whether following people for outdoor self-photography, which is Skydio’s intended use, or for longer-range applications like delivery, monitoring and surveillance — are coming faster than you think.”

Environment / Science

Economist – Antidepressants are finding their way into fish brains 2/8

China

Bloomberg Businessweek – China Takes a Hard Look at Corporate Borrowers – Enda Curran 2/6

  • “China’s total debt equaled 162% of gross domestic product in 2008. By 2016 it had climbed to 259%, an increase of more than $22 trillion, in large part because of massive corporate borrowing. And even with the current push to deleverage, it could reach 327% by 2022, according to Bloomberg Economics.”

  • “China’s banking regulator last summer ordered lenders to examine their exposure to private conglomerates, which was a way to slow borrowing by corporations without raising benchmark interest rates. In China, the amount of lending, rather than official interest rates, is the best indicator of how tight or loose government monetary policy is. And the picture is pretty clear: Broad-based money supply growth slowed to 8.2% in December, the weakest since data became available in 1998. ‘They are tightening,’ says Chetan Ahya, chief Asia economist at Morgan Stanley. ‘China has always relied more on actually controlling the flow of credit through direct measures’.”

Bloomberg – China’s War on Risk Has Banks Fleeing Shadowy Wealth Products – Jun Luo 2/7

  • “Chinese regulators appear to be winning their war against risk in one of the more dangerous corners of the country’s shadow banking industry — the so-called wealth management products that banks buy from each other in a search for easy profits.”
  • “Interbank holdings of WMPs more than halved last year, to 3.25 trillion yuan ($514 billion) in December from 6.65 trillion yuan a year earlier, according to the annual report of China Central Depository & Clearing Co., an industry body. That suggests higher interest rates and increased scrutiny by regulators are deterring Chinese banks from their previous practice of using cheap interbank borrowing to invest in each others’ higher-yielding WMPs.”
  • “The interbank WMP market will continue to contract this year, as China keeps interest rates high as part of its campaign against financial-sector risk, according to analysts from Shenwan Hongyuan Group Co. and Macquarie Group Ltd. Higher rates make it less profitable to use interbank borrowings to invest in WMPs. And many were deterred after the China Banking Regulatory Commission (CBRC) ordered banks to ‘self-review’ their interbank and shadow banking exposures in April, widely seen as a move to rein in the lenders.”
  • “The CBRC and other regulators are working closely in an unprecedented campaign to curb the $16 trillion shadow banking industry, of which WMPs issued by banks are the largest component. Another risky area that is contracting rapidly is some $3.8 trillion of so-called trust products, which have been a popular way for debt-ridden property developers and local governments to raise funds. That market has been hit by delayed payments as wealthy Chinese savers turn sour on the products.”
  • “Despite the retreat in the interbank sector, the wider WMP market continued to grow last year, albeit at a slower pace, according to the industry body. Strong appetite among individual investors helped the outstanding balance of WMPs rise 1.7% to 29.5 trillion yuan in December from a year earlier. Still, the escalating clampdown on all types of asset management products slowed the growth rate markedly from an average compound rate of about 50% between 2013 and 2015.”

Economist – Creditors call time on China’s HNA 2/8

  • “Analysts had foreseen an unravelling for some time, before even the regulatory wrist-slapping. A Chinese business expert calls HNA’s empire-building ‘a classic case of overextending’. For five years it has only been able to service its debts by taking on new ones. Returns on its investments have not exceeded 2% in almost a decade, according to calculations by Bloomberg, a data provider. As a result, HNA’s ratio of debt to earnings before interest, depreciation and amortization is around a lofty ten, estimates Standard & Poor’s, a ratings agency. Bond investors have grown nervous, and the firm’s financing costs have soared.”

South America

WSJ – Daily Shot: Venezuela Official Exchange Rate VEF/USD 2/13

  • “Venezuela has devalued its official exchange rate to be closer to the levels seen in the black market. This chart shows how many (bags of) bolivares are needed to buy one dollar – the official rate.”

  • “This move eliminated a major source of corruption.”
    • “BMI Research: – The move to … devalue the … official exchange rate is a positive step, as it will help to correct some of the extreme distortions in the market for foreign exchange. The massive discrepancy between the official and black market exchange rates has been a major source of corruption and arbitrage over recent years. Those with access to the subsidized exchange rate typically re-sell dollars on the black market at a substantial profit, rather than using the currency to import goods that must be sold at artificially low prices due to the country’s system of price controls. The market has reacted positively to the news of the devalued exchange rate, with the black market value of the bolivar rising to VEF233,531.1/USD as of February 6, up from a low of VEF266,630.7/USD on January 28.”

WSJ – Daily Shot: BMI Research – Venezuela Black Market Exchange Rate VEF/USD 2/14

 

February 14, 2018

Happy Valentine’s Day!

 

Worthy Insights / Opinion Pieces / Advice

The Atlantic – How Humans Sank New Orleans – Richard Campanella 2/6

Economist – The roots of hyperinflation – J.O’s 2/12

  • “Fifty-seven cases of runaway inflation have been documented. They have common patterns.”
  • “In a country where the annual inflation rate is in four figures, the previous month can seem like a golden age. Venezuela’s currency, the bolívar, has lost 99.9% of its value in a short time. It is hard to fathom how a government can get its economic policy so wrong when the effects of hyperinflation are so severe.”
  • “Hyperinflations do not last long. They end in one of two ways. With the first, the paper currency becomes so utterly worthless that it is supplanted by a hard currency. This is what happened in Zimbabwe at the end of 2008, when the American dollar took over, in effect. Prices will stabilize, but other problems emerge. The country loses control of its banking system and its industry may lose competitiveness. With the second, hyperinflation ends through a reform program. This typically involves a commitment to control the budget, a new issue of banknotes and a stabilization of the exchange rate—ideally all backed with confidence-inspiring foreign loans. Without such reform, Venezuela’s leaders, though scornful of America, may find that its people are forced eventually to adopt its dollar anyway.”

FT – HNA/HK property: throttling back – Lex 2/13

  • “On Tuesday it (HNA Group) sold two parcels of land near the old airport to Hong Kong developer Henderson Land for HK$15.8bn ($2bn). The pull back of a formerly acquisitive group is a warning sign for the territory’s property market.”
  • “True, Henderson is paying 11.2% more than the sum HNA paid for the plots less than a year and a half ago. Back then, a report by real estate services group JLL estimated that the initial price was 13% above the higher end of the market.”
  • Bottom line, the recent run up has been juiced by mainland developers and expect them to be pulling back.

FT – ‘Self-inspection’ campaign looms for China’s online lenders – Henny Sender 2/12

  • “Regulators tighten their grip on fears that borrowers are overstretched.”

Markets / Economy

Bloomberg Businessweek – This Bond Market Could Get Uglier – Brian Chappatta, John Gittelsohn, and Liz McCormick 2/6

FT – US craft beer slowdown sends hops market from boom to bust – Emiko Terazono 2/12

  • “A sharp slowdown in US craft beer sales growth has sent the specialty hop market from boom to bust with its effects starting to be felt by growers beyond its shores.”
  • “Many of the hop varieties popular among craft beer makers have plunged from their peaks between 2015 and 2016. For example, Citra, known for its smooth floral and citrus aroma and flavor, has almost halved from $23 a pound, according to Lupulin Exchange, a US online hop exchange.”
  • “Another variety, Cascade, was trading at $6-$7 a pound in 2015-16, but is now on the market for $1.20, said Mr MacKinnon (Douglas MacKinnon, chief executive of trader 47hops).”
  • “The main issue has been the sudden slowing of growth in the craft beer market, which until a few years ago had been rising annually by double digits. However, market saturation, as well as competition from other alcoholic beverages, have affected growth, which peaked in 2014 at 18%, slowing to about 5% last year.”
  • “The oversupply situation has been made worse by the jump in hop production and acreage which almost doubled in the past five years. Brewers fearing a shortage rushed to sign three- to five-year contracts with farmers, who increased plantings on the back of those contracts and high prices.”
  • “The rising output amid falling demand has resulted in a hop glut, with inventories in pre-harvest September rising 15% to a record 98m pounds, according to the US Department of Agriculture. Of the total, growers and merchants held an all-time-high share of 65%.”
  • “But despite the supply overhang, hop farmers — who on the back of demand invested in expanding operations, need to repay bank loans — are still expected to plant about 1,500 new acres.”

Investment News – SEC offers advisers amnesty to move clients out of high-fee mutual fund share classes – Jeff Benjamin 2/12

  • “Enforcement division giving advisers until June 12 to declare intentions to self-report fiduciary violations and make financial restitution.”

Real Estate

Bloomberg – This Mall Is Only for the Rich, and It’s Doing Fine – Kim Bhasin 2/8

Visual Capitalist – UBS: Real Estate Bubbles: The 8 Global Cities at Risk – Jeff Desjardins 2/13

WSJ – Daily Shot: Lawler Economic & Housing Consulting – Home Builder Net Orders 2/12

Finance

WSJ – Daily Shot: Bloomberg – Broadcom Lines Up Biggest Debt Financing Ever for Qualcomm – Molly Smith and Jacqueline Poh 2/12

WSJ – Daily Shot: FRED – LIBOR and Bank Rate Spread 2/12

  • It’s good to be a banker again.

Cryptocurrency

BBC – Bitcoin energy use in Iceland set to overtake homes, says local firm – Chris Baraniuk 2/12

Bloomberg – Bitcoin Risks Crashing to $900 If Dot-Com Mania Is Any Guide – Eddie Van Der Walt 2/12

  • “Already slashed by more than half since hitting a record near $20,000 in December, the cryptocurrency could plunge a further 90% in an environment of unsustainably growing supply, according to Bloomberg Intelligence commodity strategist Mike McGlone.” 
  • While the creators of Bitcoin intended to limit supply to 21 million coins, forks mean that there are already more than 50 million outstanding coins based on the original blockchain. There’s also nothing preventing rivals from spawning an infinite amount of clones, he said. The number of tradable cryptocurrencies jumped 120% in the past year.”
  • “’Parabolically increasing supply is the primary limitation to cryptocurrency market-price appreciation,’ McGlone said. ‘There’s strong gravitational pull toward $900, the average price since inception and the start of 2017’.”

Environment / Science

NYT – Here Are the Places That Struggle to Meet the Rules on Safe Drinking Water – Brad Plumer and Nadja Popovich 2/12

 

February 12, 2018

Perspective

WSJ – Tech Wealth Turns Attention to Affordable Housing in Seattle – Nour Malas 2/7

WSJ – Why Even ‘Ordinary’ Homes Sell for $500,000 Over the List Price – Nancy Keates 2/8

  • “Nowhere is demand more pent up than in the San Francisco Bay Area. In the past four months, 39 homes in Silicon Valley have sold for $500,000 or more over the listing price, says Mark Wong, a real-estate broker with Alain Pinel Realtors, based in Saratoga, Calif..”
  • “That figure includes a ‘lovingly cared for and well maintained home’ (read: not updated). The 53-year-old, three-bedroom, one-story house on 0.197 acre in West San Jose got 15 offers and sold to an all-cash buyer for $2.5 million—$815,000 over asking. A three-bedroom, 2,040-square-foot house in the Glen Park neighborhood sold in October for $2.6 million—nearly $1 million over its listing price of $1.675 million.”
  • “Seattle is another hot spot. Over the past year, the city has seen the greatest increase in the country in the share of sales above the asking price, surging to 52% of home sales in 2017 from 20% of sales in 2012, according to Zillow.”

Worthy Insights / Opinion Pieces / Advice

NYT – One Cause of Market Turbulence: Computer-Driven Index Funds – Landon Thomas Jr. 2/9

WSJ – BlackRock’s New Ambition Is a Sign of Froth – Aaron Back 2/8

  • “One can’t begrudge BlackRock for putting out its hand for a small slice of the money on offer. Even if the experiment somehow goes awry, it won’t make much of a dent in a company with $6.3 trillion of assets under management.”
  • “But the sheer imbalance between the supply of investable funds and suitable outlets for investment that gave rise to this move should ring some alarm bells for investors generally. At market tops when money is desperate to find a home, it often winds up in places it shouldn’t.”

WSJ – When Investing in Stock Makes You Feel Like Throwing Up and You Do It Anyway – Jason Zweig 2/9

Markets / Economy

Bloomberg Businessweek – The Breakneck Rise of China’s Colossus of Electric-Car Batteries – Jie Ma, David Stringer, Yan Zhang, and Sohee Kim 1/31

Real Estate

WSJ – Gig Economy Grows Up as Lenders Allow Airbnb Income on Mortgage Applications – Laura Kusisto 2/8

  • “Homeowners soon will be able to count income they earn from Airbnb Inc. rentals on applications for refinance loans.”
  • “A new program—expected to be announced on Thursday by Airbnb, mortgage giant Fannie Mae and three big lenders—will allow anyone who has rented out property on Airbnb for a year or longer to count some or all of that money as income.”
  • “The mortgages will be backed by Fannie Mae, an acknowledgment that Americans today increasingly are earning money through the ‘gig economy,’ such as renting out rooms or ride-sharing.”
  • “Initially, three lenders, Quicken Loans, Citizens Bank and Better Mortgage, will participate in the program. Fannie will evaluate the initiative and could decide over time to back mortgages from any lender that chooses to count Airbnb income in a refinancing, as long as the short-term rentals aren’t against local laws.”
  • “Still, the move raises worries about encouraging homeowners to borrow more based on the unpredictable tourism industry.”
  • “Executives at the three lenders said one crucial difference between the housing bubble and today is technology, which makes it easy to keep track of how much income homeowners are earning from Airbnb.”

WSJ – eBay Finds Unlikely Fans in Luxury-Home Sellers – Leigh Kamping-Carder 2/8

Energy

WSJ – Venezuela’s Pain is OPEC’s Gain – Spencer Jakab 2/9

  • “The cut in oil production engineered by OPEC and Russia is now in its second year, defying skeptics and helping to boost crude prices. But the cartel’s compliance owes a big debt these days to a single member: Venezuela.”
  • “A founding member of the Organization of the Petroleum Exporting Countries, Venezuela pumped only 1.64 million barrels a day last month, well below its 1.97 million barrel a day allocation, according to estimates by S&P Global Platts. That gap of 330,000 barrels a day is marginally more than the amount that the entire cartel is undershooting its 32.73 million barrel-a-day target.”
  • “Calling even the decline so far in Venezuela’s petroleum industry historic is almost an understatement. Just last year, output was down by almost 30%. In percentage terms, that is worse than in major producing countries that broke apart and saw their economies collapse, such as the former Soviet Union, and Iraq in 2003.”

Finance

FT – Investors resume their bets against market volatility – Robin Wigglesworth and Joe Rennison 2/8

Cryptocurrency

WSJ – Bitcoin’s Plunge Weighs on Coin Offerings – Paul Vigna 2/7

Construction

Economist – Wooden skyscrapers could be the future for cities – 2/1

  • Video

China

Bloomberg Businessweek – For China’s Wealthy, Singapore Is the New Hong Kong – Chanyaporn Chanjaroen, Keith Zhai, and Cathy Chan 2/6

  • “Hong Kong is starting to be eclipsed by Singapore as the favorite destination for the wealth of China’s rich.”
  • “At stake for banks in both cities is a huge pile of money. China’s high-net-worth individuals control an estimated $5.8 trillion—almost half of it already offshore, according to consulting firm Capgemini SE. For some, the city-state of Singapore is preferable because it’s at a safer distance from any potential scrutiny from authorities in Beijing, according to interviews with several wealth managers. Multiple private banking sources in Singapore, who would not comment on the record because of the sensitivity of the subject, report seeing increased flows at the expense of Hong Kong.”
  • “The rich may be feeling exposed by changing banking practices. Hong Kong has signed tax transparency agreements that for the first time last year required all banks to report their account holders’ information to Hong Kong tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China. Singapore will have similar agreements with 61 jurisdictions. But they don’t include either Hong Kong or Beijing, meaning its accounts and account holders aren’t visible to the Chinese government.”
  • “Overall, Hong Kong remains the primary destination for China’s offshore money, according to a Capgemini survey, followed by Singapore and New York. Yet the number of Chinese high-net-worth individuals who view Hong Kong as their preferred overseas place of investment is down to 53%, from 71% two years ago, according to a survey in July by Bain & Co. More than 20% favor Singapore, up from 15% two years ago.”
  • “‘We see Singapore, not Hong Kong, as the bridgehead of China’s investment overseas,’ says Li Qinghao, co-founder of NewBanker Tech Consulting, which organized the Sentosa conference last year. About 78% of S$2.7 trillion ($1.9 trillion) in assets under management in Singapore comes from overseas sources.”

FT – Wealthy Chinese push racing pigeon prices skywards – Tom Hancock 2/8

  • “An elite group of Chinese pigeon fanciers have pushed the prices of racing birds to record highs, reflecting a mood of exuberance among China’s wealthy following a pick-up in economic growth and asset prices that has buoyed luxury spending.”
  • “Xing Wei, a property tycoon, paid €400,000 ($490,000) to purchase a Belgian pigeon called Nadine, in what is thought to be the largest deal on record. He followed that with a Rmb3m ($475,000) purchase of a champion bird called Extreme Speed Goddess at a Beijing auction in December.”
  • “Soaring pigeon prices are matched by bigger prizes for pigeon-racing competitions. China’s premier 500km ‘Iron Eagle’ race series held by the Pioneer International club in Beijing boasts a prize pot of Rmb450m ($71.2m).” 
  • “Higher property and equities prices helped the wealth of China’s 2,000 richest people increase nearly 13% last year, according the country’s top rich list. The number of people known to possess assets above $300m grew faster last year than any other in the previous decade, said Rupert Hoogewerf, the compiler of the list.”
  • “After years of declines following the anti-corruption campaign launched by President Xi Jinping in 2012, sales of luxury goods in China grew 20% last year, according to business consultancy Bain. Art auction sales in Shanghai saw 42% growth last year, according to consultancy ArtTactic.”
  • “Pigeon industry insiders say just half a dozen enthusiasts are responsible for largest sales. ‘Five years ago Rmb300-Rmb400 ($47 – $63) was a very high price for a pigeon,’ said Zhang Wangbin, who runs a club in the central city of Wuhan whose auctions this winter saw several birds sell for 10 times that amount. ‘It’s the result of economic development,’ he added.”
  • “Pigeons are not the only animals to catch the eye of China’s business elite, with Japanese Koi carp prices also seeing a China effect. Kentaro Sakai, president of the Sakai Fish Farm, Japan’s biggest Koi breeder, said a single fish could sell for up to ¥42m ($380,000).”

India

Bloomberg Quint – SBI Posts Surprise Loss A Provisions Surge, Treasury Income Falls – Vishwanath Nair and Azman Usmani 2/9

  • “State Bank of India Ltd. reported a quarterly loss for the first time in at least 17 years as its treasury operations turned unprofitable and provisions for bad loans increased. The public lender reported a significant divergence in bad loans from RBI’s assessment which weighed on the bottom line.”

Other Interesting Links

WSJ – Daily Shot: Number of Times a State has Hosted a Super Bowl 2/8

WSJ – CMO Today: Super Bowl Ratings Slump – Lara O’Reilly 2/6

February 9, 2018

Perspective

Economist – When the prices are too damn high – Daily Chart 2/5

WSJ – Hard Lessons From the Federal Student-Loan Program’s Coming $36 Billion Shortfall – Josh Mitchell 2/4

  • “U.S. officials have long maintained the federal government would make a profit on its $1.4 trillion student loan portfolio or at least break even, but two recent reports suggest just the opposite will be the case. Government lending to college and graduate students could soon become an immense drain on federal coffers, worsening an already deteriorating U.S. budget picture.”
  • “The Education Department’s inspector general, an agency watchdog, in a report released last week said the profitability of the U.S. federal student-lending program is being squeezed because millions of Americans who borrowed heavily in recent years—including many graduate students—are flocking into a program to have substantial portions of their debts forgiven.”
  • “Students who borrowed in the fiscal year ended Sep. 30, 2015, and enrolled in such ‘income-driven repayment’ plans, for example, are expected to pay back $11.5 billion less than they took to pay tuition and other schooling costs.”
  • “The government still earns billions of dollars every year in interest on the loans it has made to 43 million American undergraduates, graduate students and parents of undergrads. But the losses from those not repaying are now projected to mount and could eat up all of the gains. It is hard to get precise estimates, but the Education Department’s annual financial report, released in November, offered a clue. A footnote in the report projected that money coming in for government student loan and guarantee programs will be $36 billion short of what’s needed to cover outstanding debt and accrued interest.”
  • “A year earlier, the department projected the shortfall at $8.4 billion, while in prior years it projected the program would generate billions of dollars in taxpayer surpluses. The latest report explained that one reason for the sharp switch was the rise of income-driven repayment plans. These plans set monthly payments as a share of a borrower’s income and then forgive any balance that remains after 10, 20 or 25 years, depending on the borrower’s work status and loan size.”
  • “While that $36 billion projection doesn’t quite compare to the $4 trillion federal budget, it’s still an immense sum. To put it in perspective, the government ultimately paid $33 billion in its response to the financial crisis through the Troubled Asset Relief Program, according to the Congressional Budget Office.”

Worthy Insights / Opinion Pieces / Advice

FT – The discreet terror of the American bourgeoisie – Edward Luce 2/7

  • “Elites thought they could have it both ways: capital gains and moral certainty.”

Mauldin Economics – Kill the Quants – John Mauldin 2/7: Once Again – “Kill the Quants (and the Levered ETFs and ETNs) Before They Kill Our Markets” – Douglas A. Kass 2/6

Project Syndicate – Justice Without Borders for Venezuela – Ricardo Hausmann 2/7

  • “According to estimates from MIT’s Billion Prices Project, month-on-month food inflation in Venezuela reached 117.6% in January, or the equivalent of 1,130,000% a year. At the same time, the exchange rate depreciated at an annual rate of more than 700,000%, while the real purchasing power of wages – which barely represented 1,400 calories a day in December – was decimated further. A survey published in early January estimated recent out-migration at four million people, nearly as many as from Syria.”

Markets / Economy

Bloomberg – World’s Largest ETF Hit by Biggest Four-Day Outflow on Record – Sid Verma and Dani Burger 2/7

  • “The global market maelstrom spurred money managers to yank a record $17.4 billion from the mighty SPDR S&P 500 ETF over the past four trading sessions. The $8 billion removed on Tuesday alone was the third-largest daily withdrawal in the post-crisis era.”

Real Estate

Bloomberg – HNA Group Puts $4 Billion of U.S. Properties on Market – Sarah Mulholland 2/8

  • “Among the properties on the block is 245 Park Ave., according to a marketing document seen by Bloomberg. HNA bought that skyscraper less than a year ago for $2.21 billion, one of the highest prices ever paid for a New York office building.”

Health / Medicine

NYT – In Sweeping War on Obesity, Chile Slays Tony the Tiger – Andrew Jacobs 2/7

  • “New regulations, which corporate interests delayed for almost a decade, require explicit labeling and limit the marketing of sugary foods to children.”

Canada

FT – Canada’s housing market flirts with disaster – Ben McLannahan 2/7

  • “Canada is in the grip of a housing crisis more severe, by some measures, than anywhere else in the world. Household debt now amounts to more than 100% of the country’s gross domestic product, according to the Basel-based Bank for International Settlements, one of the highest of any developed nation. House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.”
  • “For now, the number of home loans in arrears across Canada is still very low, suggesting that people are finding ways to cope with ever-larger debts. But rising interest rates are beginning to bite, while a new stress test for mortgages issued by regulated banks has tightened the supply of credit. This week the Toronto Real Estate board said that sales in Canada’s biggest city dropped 22% in January, the weakest for that month since 2009.”
  • “Bullish observers say fears of a meltdown are overblown. Canada can sustain high house prices, they argue, because they reflect the country’s high levels of net migration, restrictive zoning laws and low unemployment.”
  • “Henry Lotin, a retired diplomat and principal at research group Integrative Trade and Economics, says the same forces that have pushed up prices in global hubs such as New York are now doing the same to the most attractive parts of Canada. ‘Torontonians should be thankful and we should manage it as best we can. We really have to be prepared that demand is going to exceed supply for the foreseeable future’.”
  • “Many also note that mortgage books at the big banks look rock-solid. Royal Bank of Canada, for example, which recently joined the club of the world’s most systemically important banks thanks to years of rapid asset growth, had a Canadian residential mortgage portfolio of an average C$231bn in the year to October. Defined as estimates of losses on impaired loans and losses incurred but not yet identified, provisions for credit losses were just C$33m — or one one-hundredth of 1%.”
  • “Others say pristine loan books are not a good indicator of the stress lurking in the system. For one thing, every homebuyer with a down payment of less than 20% of the purchase price (if less than C$1m) has to buy insurance against default. That has the effect of flattering the banks’ books but shifts the risk of default to insurers such as the state-backed Canada Mortgage and Housing Corporation.”
  • “CMHC was set up after the second world war to help returning veterans find housing. These days it insures about C$480bn of residential mortgages, or almost one-third of the outstanding stock in Canada, using an automated system to process about two-thirds of applications.”
  • “Meanwhile, the uninsured segment is growing. As the market has barreled upwards in recent years, borrowers have been able to convert insured mortgages into uninsured mortgages simply by buying a property, waiting for the price to rise, then refinancing.”
  • “Uninsured buyers made up about three-quarters of new loans at federally regulated banks in 2017, up from two-thirds in 2014, according to the Bank of Canada. In Vancouver, where the average sales price of condos hit a record of C$1.1m in January, more than double the level a decade earlier, about 90% of new mortgages are uninsured.”
  • “Laurentian Bank, Canada’s seventh-biggest by assets, said in December that it would have to buy back about C$300m of mortgages it had sold to third parties, having found that borrowers had ’embellished’ income and assets. Last month, the Montreal-based bank said the buyback obligations had increased to about C$400m, and it would have to raise more capital.”
  • “That kind of disclosure — in dribs and drabs, each more alarming than the last — has echoes of the beginning of the US mortgage crisis, when terms such as ‘liar loan’ began to enter the vernacular. ‘Trends are developing . . . that we took for granted were not an issue in Canada,’ says Gabriel Dechaine, an analyst at National Bank of Canada. ‘There are puffs of smoke, but I don’t want to yell fire in a crowded theater’.”
  • “More strains could emerge. With interest rates rising — three increases in the central bank’s policy rate since July has left it at 1.25% — many borrowers may be facing a struggle to refinance in a market where almost all mortgages are renewed every five years or less.”
  • “Anecdotal evidence suggests tougher rules on underwriting are also beginning to curb lending. On January 1 the federal banking regulator, the Office of the Superintendent of Financial Institutions, introduced a rule requiring all new mortgage applicants to show they could cope with interest rates substantially higher than their contracted rate. Previously, stress tests applied only to insured mortgages.”

China

Bloomberg – Frenzy of Fines for China’s Bank Is Only Just Getting Started – Jun Luo and Alfred Liu 2/5

  • “China’s banking regulator is increasingly showing its teeth, slapping a record amount of fines on financial institutions in the past several months for transgressions such as lax lending procedures and manipulating bad-loan data. Expect the unprecedented frenzy to continue.”
  • “The China Banking Regulatory Commission (CBRC) announced 3,452 penalties and confiscations of funds involving 1,877 financial institutions and totaling 2.93 billion yuan ($465 million) in 2017, a 10-fold surge from the previous year, according to official data. Some 270 banking executives were punished, including being banned from the industry for life, according to a CBRC official speaking on CCTV.”
  • “The frenzy continues this year, with an average 16 fines imposed every day of January.”
  • “The biggest of 2018 so far was levied against Shanghai Pudong Development Bank Co., fined 462 million yuan for what the CBRC termed ‘a well-organized fraud.’ Last Friday, the CBRC fined Industrial & Commercial Bank of China Ltd. and 18 other banks’ branches in central China 52.5 million yuan for accepting low-quality gold as collateral for 19 billion yuan worth of loans, resulting in the banks being defrauded.”
  • “After his appointment last year as CBRC chairman, Guo Shuqing embarked on a campaign to root out malpractice in the $39 trillion banking industry, improve implementation of lending policies and curb cross-holdings of financial products.”

 

February 7, 2018

Perspective

AEIdeas – Price changes 1997 to 2017 – Mark Perry 2/2

Howmuch.net – How Much Debt Americans Have in Every State – Raul 12/26/17

Top 10 States Where People Have the Most Debt

  1. Hawaii: $869,250
  2. Maryland: $284,851
  3. Texas: $185,584
  4. Oklahoma: $174,839
  5. Indiana: $166,844
  6. Nevada: $165,740
  7. Minnesota: $113,455
  8. Illinois: $98,309
  9. Maine: $91,183
  10. Virginia: $81,194
  • “All of this suggests that average debt depends more on an individual’s choices than where he or she lives. People can achieve extremely low debt levels if they are in expensive urban areas or rural towns. If both the bureaucrats in Washington, DC and frontiersmen in Alaska can do it, then we bet you can too.”
  • Unless of course you live in Hawaii where the incomes are low and the cost of housing is high…

WSJ – How Fast Are Prices Skyrocketing in Venezuela? See Exhibit A: the Egg – Kejal Vyas 2/5

  • “With hyperinflation at 13,000%, eggs become essential to bartering.”

Markets / Economy

Reuters – A decade after recession, a jump in U.S. states with wage gains – Ann Saphir, Jonathan Spicer, and Howard Schneider 2/4

statista – Shrinking sweets – Martin Armstrong 2/5

Cryptocurrency

NYT – As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to Surface – Nathaniel Popper 2/5

  • “You did not have to be a technophobe to worry that the virtual-currency boom of the past year papered over plenty of problems.”
  • “The scale of those problems is starting to become clear as digital tokens have slid more than 50% in value from their peaks in early January, with steep drops on Monday pushing the value of Bitcoin specifically below $7,000.”
  • “Hackers draining funds from online exchanges. Ponzi schemes. Government regulators unable to keep up with the rise of so-called cryptocurrencies. Signs of trouble have appeared at nearly every level of the industry, from the biggest exchanges to the news sites and chat rooms where the investment frenzy has been discussed.”
  • “’Cryptocurrencies are almost a perfect vehicle for scams,’ said Kevin Werbach, a professor at University of Pennsylvania’s Wharton School. ‘The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.’”
  • “The fall from the peaks of early January has been dizzying. The value of all outstanding virtual currencies has been cut by more than half, down over $400 billion as of Monday, according to the website Coinmarketcap.com.”
  • “Government agencies in the United States have shut down a few notable frauds. Early last month, securities regulators in Texas and North Carolina issued cease-and-desist orders to BitConnect, an operation that had grown to be worth $3 billion.”
  • “But those moves only came after BitConnect had operated openly for months, collecting hundreds of millions of dollars from people around the world despite being labeled a Ponzi scheme by many prominent people in the virtual currency industry. BitConnect offered tokens on a decentralized network, similar to Bitcoin, but promised regular payouts to coin holders.”
  • “But regulators have not gotten near most of the brazen schemes that have popped up in the past year, many of which had been attacked by hackers first, or simply shut down by their operators after money had been raised.”
  • “A new virtual currency, Proof of Weak Hands Coin, whose creators referred to it as a Ponzi scheme on Twitter and use a pyramid as a website logo, raised $800,000 before hackers got into its systems last week and drained its funds.”
  • “One challenge facing regulators is that it is unclear how much of the deceptive activity they can legally control.”
  • “Some online groups openly try to manipulate the prices of digital tokens in what are known as pump-and-dump schemes. Similar schemes involving stocks are illegal, but people operating the groups recently told BuzzFeed that they did not think the same rules applied to virtual currencies.”
  • “Many schemes have been able to expand quickly because they do not use bank accounts and therefore do not have to win approval from established institutions. Instead, they are able to use virtual currency ‘wallets’ without any approvals. And virtual currency transactions cannot be reversed like normal bank or even PayPal transfers.”
  • “Traders have been particularly worried about the largest Bitcoin exchange in the world, Bitfinex, an unregulated operation that has provided few details about its operations, raising concerns about whether it is insolvent or involved in price manipulation.”
  • “But the biggest number of incidents have cropped up around so-called initial coin offerings, in which entrepreneurs sell custom virtual currencies to investors to raise money for software they are building. About 890 projects raised over $6 billion last year, a 6,000% increase over the year before, according to Icodata.io, which tracks the offerings.”
  • “The $240 million raised through one of the most successful initial coin offerings last year, Tezos, is already frozen in a dispute between the founders of the project and the board they created in Switzerland.”
  • “’It is a perfect storm for the kind of scammy activity we are seeing, and it’s not obvious to me how that is easily removed,’ said Fred Wilson, a partner at the venture capital firm Union Square Venture and one of the earliest advocates of Bitcoin in Silicon Valley. ‘Regulation, ideally prudent and informed regulation, can help. But we may also need to have a big correction to really clean things up’.”

WSJ – Daily Shot: Bitcoin 2/5

February 6, 2018

If you were only to read one thing…

Economist – Pyramid schemes cause huge social harm in China 2/3

  • “The authorities call them ‘business cults’. Tens of millions of people are ensnared in these pyramid schemes that use cult-like techniques to brainwash their targets and bilk them out of their money.”
  • “Many countries suffer from Ponzi schemes, which typically sell financial products offering extravagant rewards. They pay old investors out of new deposits, which means their liabilities exceed their assets; when recruitment falters, the schemes collapse. China is no exception. In 2016 it closed down Ezubao, a multi-billion-dollar scam that had drawn in more than 900,000 investors. By number of victims, it was the world’s largest such fraud.”
  • “Chinese pyramid schemes commonly practice ‘multi-level marketing’ (MLM), a system whereby a salesperson earns money not just by selling a company’s goods but also from commissions on sales made by others, whom the first salesperson has recruited. People often earn more by recruiting others than from their own sales. Since 1998 China has banned the use of such methods, although it does allow some, mostly foreign, MLM companies to do business in China as ‘direct sellers’. This involves recruiting people to sell products at work or at home.”
  • “The distinguishing feature of the Chinese scams is the way they combine pyramid-type operations with cult-like brainwashing.”
  • “Many perfectly legal companies try to boost morale by getting staff to sing company songs or organizing awaydays. China’s business cults, however, combine such techniques with violence.”
  • “Business cults seem to be growing. In the first nine months of 2017 the police brought cases against almost 6,000 of them, twice as many as in the whole of 2016 and three times the average annual number in 2005-15. This was just scratching the surface. In July 2017 the police arrested 230 leaders of Shan Xin Hui, a scheme that was launched in May 2016 and had an estimated 5m investors just 15 months later. In August 2017, after the government launched its campaign against ‘diehard scams’, police in the southern port of Beihai, Guangxi province, arrested 1,200 people for defrauding victims of 1.5bn yuan ($223m). One scheme in Guangxi, known as 1040 Project, was reckoned to have fleeced its targets of 600m yuan.”
  • “The scale of the scams worries the government. Their cultish features make it even more anxious. The Communist Party worries about any social organization that it does not control. Cults are especially worrisome because religious and quasi-religious activities give their followers a focus of loyalty that competes with the party.”
  • “The authorities will find it hard to curb the scams for three main reasons. First, in order to encourage cheap loans for industry, the central bank keeps interest rates low. For years they were negative, i.e, below inflation. That built up demand among China’s savers for better returns. With gross savings equal to just under half of GDP, it is not surprising that some of that pool of money should be attracted to schemes promising remarkable dividends.”
  • “Second, it is often hard for consumers to spot frauds. In 2005 China legalized direct selling, arguing that there was a distinction between that practice and the way that Ponzi schemes operate. But Qiao Xinsheng of Zhongnan University of Economics and Law argues that the difference is often ‘blurred’ in the eyes of the public. Scammers can easily pass them themselves off as legitimate. Dodgy companies exploit government propaganda in order to pretend they have official status. For example, they may claim to be ‘new era’ companies, borrowing a catchphrase of China’s president, Xi Jinping.”
  • “Third, argues Mr Li, business cults manipulate traditional attachments to kin. Companies in America often appeal to individual ambition, promising to show investors how to make money for themselves. Those in China offer to help the family, or a wider group. Shan Xin Hui literally means Kind Heart Exchange. It purported to be a charity, offering higher returns to poor investors than to rich ones. (In reality everyone got scammed.) Business cults rely on one family member to recruit another, and upon the obligation that relatives feel to trust each other. This helps explain why investors who have lost life savings continue to support the companies that defrauded them.”

Worthy Insights / Opinion Pieces / Advice

Economist – Why sub-zero interest rates are neither unfair nor unnatural – Free exchange 2/3

NYT – Early Facebook and Google Employees Form Coalition to Fight What They Built – Nellie Bowles 2/4

NYT – Amazon Asked for Patience. Remarkably, Wall Street Complied. – Michael Corkery and Nick Wingfield 2/4

  • “In a business environment that demands, and rewards, quarterly profits and short-term strategic thinking, Amazon showed extraordinary resolve in focusing on long-term goals, somehow persuading investors to go along.”
  • “Over its first decade in existence, including long stretches where it consistently reported losses, Amazon enjoyed a luxury afforded few companies: leeway.”
  • “Amazon has reported an annual profit in only 13 of the 21 years that it has operated as a publicly traded company, according to FactSet, a financial data firm.”
  • “And its profit margins, already low by some measures, have fluctuated from year to year — hardly moving in the straight upward line that Wall Street usually likes to see.”
  • “Yet investors have rewarded Amazon for plowing its profits back into growing its businesses, whether in online retail, cloud computing or, most recently, in grocery stores, with the acquisition of Whole Foods Market.”

Vanity Fair – Twitter’s Dirty Secret – Nick Bilton 2/2

  • “Twitter knew about all its fake followers, and always has – eliminating just enough bots to make it seem like they care, but not enough that it would affect the perceived number of active users on the platform.”

WSJ – China Shows How It Will Fight a Trade War – Nathaniel Taplin 2/5

  • “U.S. agriculture will be in China’s crosshairs if a trade war erupts.”

Real Estate

The Real Deal – Everything must go: Chinese investors sell off their foreign RE holdings – Erin Hudson 2/3

WSJ – Daily Shot: Bankrate.com US 30-Yr Fixed Rate Mortgage Rate 2/2

WSJ – Daily Shot: FRED – Home Equity Loans 2/5

  • “Home equity loan balances continue to slip as Americans remain uneasy tapping this form of credit.”

Finance

Reuters – JGBs pare losses as Bank of Japan offers “unlimited” buying to curb rising yields – Hideyuki Sano 2/1

WSJ – What Markets Are Really Telling Us About Higher Rates – Richard Barley 2/5

  • “Companies are paying slightly more to borrow, but higher risk-free yields haven’t fed through fully. This is significant.”
  • “…the ECB, is still at play. The ECB’s bond-buying actions have a twist: in the first four weeks of January, corporate purchases as a share of government purchases stood at 27%, versus 11.5% when the program was running full-tilt at €80 billion a month, according to Deutsche Bank . In other words, corporates are still getting decent support from ECB purchases.”
  • “One snag is that corporate-bond spreads are already so tight there is little room for error. In Europe, the investment-grade ICE BofAML corporate index yield premium over government bonds is just 0.74 percentage points, its lowest level since August 2007.”
  • “Investors should watch closely if spreads do widen significantly. It would mean either companies are making riskier, top-of-market types of bets or investors are getting concerned about growth and underlying cash flows. For now, the message from higher interest rates is, don’t sweat it.”

Cryptocurrency

FT – ‘Crypto crazy’ Japanese mystified by virtual heist – Leo Lewis and Robin Harding 2/2

  • “The $500m theft of XEM coins by an anonymous hacker is threatening the country’s faith in cryptocurrencies.”

FT – Bitcoin investors find tax demands are not virtual – Ben McLannahan and Vanessa Houlder 2/4

  • “Cryptocurrency traders in many jurisdictions may be liable for hefty capital gains tax bills.”

NYT – Making a Crypto Utopia in Puerto Rico – Nellie Bowles 2/2

Reuters – Bitcoin extends slide, falls below $7,000 – Gertrude Chavez-Dreyfuss 2/5

  • “Digital currency bitcoin BTC=BTSP fell more than 15% on Monday to a nearly three-month low amid a slew of concerns ranging from a global regulatory clampdown to a ban on using credit cards to buy bitcoin by British and U.S. banks.”
  • “On the Luxembourg-based Bitstamp exchange, bitcoin fell as low as $6,853.53 in early afternoon trading in New York. That marked a fall of more than half from a peak of almost $20,000 hit in December.”
  • “Bitcoin has fallen in six of the last eight trading session.”
  • “The currency, which surged more than 1,300% last year, has lost about half its value so far in 2018, as more governments and banks signal their intention for a regulatory crackdown. Last week bitcoin suffered its worst weekly performance since 2013.”

Tech

NYT – Early Facebook and Google Employees Form Coalition to Fight What They Built – Nellie Bowles 2/4

Health / Medicine

Economist – A revolution in health care is coming – Leaders 2/1

Asia – excluding China and Japan

WSJ – Samsung Heir Lee Jae-yong Freed From Prison by Appeals Court – Eun-Young Jeong 2/5

China

The Sydney Morning Herald – China said to mull legal gambling on Hainan – Keith Zhai and Daniela Wei 2/4

India

Bloomberg Businessweek – India’s Phantom Flats Leave Homebuyers’ Dreams in Tatters – Pooja Thakur Mahrotri, Upmanyu Trivedi, and Dhwani Pandya 1/30

  • “Across the metropolitan area that surrounds New Delhi, a string of real-estate developers including Unitech, Jaypee Infratech Ltd. and Amrapali Group have been dragged to court by irate homeowners who shelled out payments for apartments that have yet to be completed. Many of these firms took money from a stream of buyers. As sales slumped and the once red-hot market cooled, their businesses unraveled — leaving them grappling with debt.”
  • “The fallouts from the shakeup in the $126 billion property market are reverberating across companies, markets and the broader economy. Unitech, once India’s largest developer, has plunged to a fraction of its previous valuation. Jaypee is in insolvency court. State-owned banks — the lifeblood of the economy — are grappling with a pile up of bad loans from the industry. Indian families, who have long poured their life savings into real estate, are now pulling back.”
  • “Indian real-estate businesses expanded as long as firm were able to draw new buyers for planned projects. But as the economy slowed and demand softened, many firms were left short of cash and struggling to manage their debt. The downturn only worsened last year after the government tightened regulations to protect homebuyers and separately introduced a new services tax across all industries. India’s residential sector appears to have shrunk to a fraction of its size in less than a decade, according to Shishir Baijal, managing director of Knight Frank India.”
  • “Prices dropped 3% on average across the top six cities, according to Knight Frank, with some declining as much as 15% after accounting for developer discounts. And in the capital region, last year’s prices were 9% below their 2015 peak. The outlook remains bleak.”
  • “The property developers are adding to a pile-up of bad loans in India’s banking sector, which is already struggling to manage a spike in stressed assets across several industries.”
  • “India’s government has stepped in to regulate the real-estate industry with new laws, including one that forces developers to use at least 70% of sale proceeds to complete residential projects, rather than funnel money to different jobs. Other measures prevent them from pre-selling apartments before all building approvals are obtained.”
  • “The pain hasn’t been restricted to the North. India’s financial capital, Mumbai, last year witnessed a decline in residential property prices for the first time in a decade. New residential launches across eight Indian cities dropped 41% last year and were down 78% from their peak in 2010, Knight Frank data show.”

South America

Bloomberg Businessweek – Venezuelan Pirates Rule the Most Lawless Market on Earth – Jonathan Franklin 1/30

Economist – China moves into Latin America – Bello 2/1

  • “The Asian giant is taking advantage of other powers’ lack of interest in the region.”