Tag: Venezuela

August 17, 2017

Perspective

FT – Nothing like this has happened in 323 years – Martin Wolf 8/15

  • “Prior to January 2009, the Bank (of England) had never lowered its lending rate below 2%. But it was then lowered to 1.5%, on its way to 0.5% in March 2009 and 0.25% in August 2016. This ultra-easy policy was further buttressed by a huge expansion of the Bank’s balance sheet, which now contains £435bn in UK government ‘gilt-edged’ securities and £10bn in corporate bonds.”
  • “Throughout this prolonged recent period of ultra-easy monetary policy, the concern has never been one of runaway inflation, but rather of the opposite. This time really has been different. What does it mean for the future? Nobody knows.”

WSJ – Household Debt Hits Record as Auto Loans and Credit Cards Climb – Josh Zumbrun 8/15

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – The Peculiar Parable of the Lyft (parking) Lot – Joshua Brustein and Dorothy Gambrell 8/9

  • Free parking obscures the true costs of driving to work… charge for parking and smarter behaviors prevail…

Economist – The Philippine president’s zany ideas have not hurt the economy 8/16

  • “When it comes to jobs and investment, Rodrigo Duterte is more reformer than wrecker.”

Markets / Economy

WSJ – Consumers Keep Spending, but Not in Stores – Justin Lahart 8/15

WSJ – Daily Shot: SPDR S&P Retail ETF – S&P 500 Relative Performance 8/15

WSJ – Daily Shot: Coach Stock Performance 8/15

WSJ – Daily Shot: Dick’s Sporting Goods Stock Performance 8/15

WSJ – Daily Shot: Bed Bath & Beyond Stock Performance 8/15

WSJ – Daily Shot: Bloomberg REIT Regional Mall Index 8/15

WSJ – Daily Shot: SPDR Technology Select ETF – S&P 500 Relative Performance 8/15

WSJ – Daily Shot: Nasdaq 100 Equal Weight Cap-Weight Ratio 8/16

  • Thank goodness for the FAANG stocks

Energy

Bloomberg Businessweek – As Venezuela Spirals, U.S. Oil Confronts a $10 Billion Threat – Alex Nussbaum and Sheela Tobben 8/3

  • “While companies have been trimming Venezuelan imports for months, the nation is still a key supplier for some of America’s biggest refineries. Last month, the country accounted for a more than a quarter of capacity at Valero’s Port Arthur complex in Texas, according to U.S. Customs data compiled by Bloomberg. It was 43% at Chevron’s facility in Pascagoula…”
  • The conspiracy theorist in me wonders (although it is highly unlikely) if OPEC members are issuing shadow loans to the Maduro regime to keep this chaos going. The intent being to limit production efficiencies from Venezuela (the country with largest known oil reserves) – which of course, helps ease the production cut burdens on the more stable OPEC members and Russia.

Shipping

Bloomberg Quint – Global Shipping Industry Bounces Back From Its Lehman Moment – Kyunghee Park 8/15

  • “A massive consolidation is underway in the $500 billion global industry and the survivors now enjoy big economies of scale and increased demand, one year after excess capacity caused the sector’s worst-ever crisis — the bankruptcy of South Korea’s Hanjin Shipping Co.”
  • “The five biggest container lines control about 60% of the global market, according to data provider Alphaliner. Shipping rates are climbing, and an index tracking cargo rates on major routes from Asia is about 22% higher than it was a year earlier.”
  • “’Container shipping is now a game only for big boys with deep pockets,’ said Corrine Png, chief executive officer at Crucial Perspective, a Singapore-based transportation research firm. The rising market concentration will ‘give the liners greater pricing and bargaining power,’ she predicts.”
  • “Hanjin’s collapse, in August last year, upended the industry in much the same way that the bankruptcy of Lehman Brothers roiled the financial sector during the 2008 crisis. One of the world’s largest shipping firms at the time, Hanjin faced a cash crunch as supply outstripped demand in the industry, weakening pricing power and profits for carriers.”
  • “’Since the demise of Hanjin Shipping, flight to quality has become more noticeable in the container shipping business,’ said Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul. ‘That’s why the market is becoming more and more dominated by top players with big ships and those that don’t have could become more and more obsolete.’”
  • “The growing use of mammoth ships is key to the turnaround. Companies who own them are able to deploy fewer vessels and move more cargo on a single journey to benefit from higher rates, said Um.”
  • “By her estimates, there are now about 58 of these huge carriers worldwide that can transport more than 18,000 containers, and the number is expected to double in two years. About half the new vessels will be added by the biggest firms.”
  • “The excess supply that derailed growth last year hasn’t completely disappeared as new entrants expand and as older vessels still remain. Capacity in the container shipping industry is expected to grow 3.4% this year and 3.6% in 2018, according to Crucial Perspective.”
  • “Still, recovery in demand seems to be on track. After posting losses in 2016, companies are seeing signs of business picking up.”
  • “Earlier this year, Maersk, South Korea’s Hyundai Merchant Marine Co. and other shipping lines reached agreements with their customers to raise annual rates from May for cargo headed from Asia to U.S. stores like Wal-Mart and Target. Retailers in the U.S. usually increase inventory during the third quarter, ahead of the year-end holidays, and Lee said freight rates are expected to rise further as the peak season for the container shipping industry kicks off.”
  • “For retailers, ‘if container costs go higher, obviously it’s a headwind,’ said Brian Yarbrough, an analyst at Edward Jones. ‘Retailers have three choices: They can pass that through to the customer or find efficiencies to offset that within the organization, or they come out and say gross margins will be pressured due to higher freight costs.’
  • “BIG SHIPPING DEALS:”
    • “In 2015, Cosco Group and China Shipping Group announced a merger to create Asia’s biggest container line, Cosco Shipping Holdings Co.”
    • “In 2016, CMA CGM SA bought Singapore’s Neptune Orient Lines Ltd.; Maersk agreed to buy Hamburg Süd and Japan’s three shipping companies agreed to consolidate their container shipping businesses.”
    • “In 2017, Hapag-Lloyd AG completed its acquisition of United Arab Shipping Co. and Cosco Shipping offered to buy Orient Overseas International of Hong Kong.”

August 14, 2017

If you were to read only one thing…

FT – China ‘granny gang’ jailed in lending clampdown – Emily Feng 8/10

  • “A Chinese court has sentenced 14 members of a roving band of elderly female debt collectors to as many as 11 years in jail, in the latest sign of the country’s clampdown on informal channels of lending.”
  • “A court in the mountainous province of Henan this week found that members of the ‘granny gang’, as local media dubbed them, used loudspeakers to publicly cajole and intimidate borrowers into paying up.”
  • “The women, aged 50 to 70, were found guilty of engaging in ‘provocative and disturbing behavior’ that resembled ‘participating in gangster-like organizations’.” 
  • “The women were largely unemployed and looking for work when local debt-collection agencies recruited them at outdoor dancing classes in 2013. In return for helping secure loan repayments, the ‘grannies’ received Rmb200 ($30) per day as well as meals.”
  • “’I had nothing to do every day. When I was asked to help, I did it as a kind of fun,’ Gao Yun, one of the women, told a local newspaper.”
  • “The grannies employed a variety of tactics, including hitting and spitting at borrowers. A more common method was to give debtors an aggressive verbal dressing down until they handed over the money.”
  • “On their most recalcitrant targets, the women took more creative measures. In one 2015 incident, eight of the women began stripping to intimidate male borrowers to pay up, according to an interview that a debtor surnamed Zhao gave to local media.” 

Perspective

Howmuch.net – Do You Want the Best Bang for your Tuition Buck? Check out this College Rankings – Raul 8/10

Bloomberg – Venezuelan Currency Madness Valued Local Bank More Than Apple – Christine Jenkins 8/11

  • “What does it take to surpass Apple Inc. as the world’s most valuable traded company? One way is to be listed in Venezuela, with its massively overvalued currency.”
  • “Venezuelan stocks are ascending the ranks of the most valuable companies on Earth, with lender Mercantil Servicios Financieros CA briefly topping Apple’s market capitalization last week, and now back in the No.2 spot. Five other top-20 companies are also Venezuelan, a mirage caused by currency controls combined with the world’s fastest inflation.”
  • “Most of the lender’s theoretical $775 billion market capitalization evaporates if you stop using the official exchange rate of 10 bolivars to the dollar. The value would be 0.1% of that at the black-market rate that most Venezuelans have to use if they want hard currency.”

Markets / Economy

FT – The credit crisis did not lead to deleveraging – Martin Sandbu 8/10

Real Estate

Why Department Stores Remain on the Down Escalator – Miriam Gottfried 8/10

Energy

Vox – Solar eclipse 2017: how the solar power industry is prepping for a huge sunlight blip – Annette Choi 8/9

  • “The total solar eclipse passing over the United States on August 21 is going to be disruptive. Authorities are predicting huge traffic jams, strained cellphone networks, and insufficient bathrooms for the masses driving to the center of the show.”
  • “But there’s another disruption that will be brought on by the eclipse: power.”
  • “Since the last total solar eclipse passed over part of the US in 1979, we’ve grown a lot more dependent on solar to electrify our homes and businesses. According to the Solar Energy Industries Association, solar energy has grown by an average of 68 percent per year in the past decade. The country now has about 45 gigawatts of solar capacity installed, with 260,000 Americans employed in the industry.”
  • “The solar eclipse will significantly diminish that capacity for a couple of hours on August 21, especially in California and North Carolina.”
  • “The federal Energy Information Administration expects 1,900 utility-scale solar photovoltaic (PV) power plants in all will be affected.”
  • “Solar facilities have long been anticipating this eclipse, mapping out step-by-step demand management for the day of and arranging substitute energy sources to dispatch depending on various demand scenarios. Thanks to the unusually wet winter in California, hydroelectricity is abundant this year, says Greenlee (Steven Greenlee, spokesperson for the California Independent System Operator – CAISO).”
  • “In the past few months, CAISO — which manages 80% of California’s electric flow — has been busy seeking advice from German solar facilities.”
  • “During a 2015 solar eclipse that passed over Europe, 80% of Germany’s sunlight was cut off. For a country whose electricity is 40% powered by solar, it was hit hard. But despite the dramatic seesawing of solar production, the eclipse came and went without major disturbance.”

August 10, 2017

Perspective

NYT – Public Works Funding Falls as Infrastructure Deteriorates – Binyamin Appelbaum 8/8

FT – Who was convicted because of the global financial crisis? – Kara Scannell and Richard Milne 8/8

Worthy Insights / Opinion Pieces / Advice

NYT – The Political Payoff of Making Whites Feel Like a Minority – Lynn Vavreck 8/8

NYT – Our Broken Economy, in One Simple Chart – David Leonhardt 8/7

A Teachable Moment – Do You Own this Ticking Time Bomb in Your Retirement Account? – Anthony Isola 8/8

  • Watch out for single entity stable value products.

Real Estate

WSJ – The Best Place for a New Warehouse? An Old Mall – Esther Fung 8/8

  • “The pressure for speedy online package delivery is prompting companies to look for distribution facilities closer to residential areas or highways.”
  • “Some of the best locations, it turns out, are dead malls.”
  • “Warehouse landlords say they like former malls because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.”
  • “But it isn’t easy to convert a mall into logistics space quickly. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.”
  • “The dramatic shift in the retail industry and growth of e-commerce have led some analysts to estimate that 400 or so of the roughly 1,100 malls in the U.S. will close in the coming years.”
  • “Meanwhile, the appetite for industrial space continues unabated. Roughly 247 million square feet of industrial space is expected to be delivered this year, according to real-estate services firm JLL.”

Finance

WSJ – Daily Shot: TheAtlasInvestor.com – Euro Junk Bonds & US Treasuries 8/9

South America

NYT – As Maduro’s Venezuela Rips Apart, So Does His Military – Nicholas Casey and Vanessa Herrero 8/8

  • “A growing number of Venezuelan officers are openly breaking ranks with the president and taking up weapons.”
  • “Venezuela has a history of coups and attempted overthrows at times of crisis, and many in the country now wonder if this is one of those times.”
  • “But the nation’s leaders are keenly aware of that, too, and as they face their greatest turmoil in years, they appear to have come prepared: The government has spent years ensuring that the military’s top commanders are deeply invested in the status quo.”
  • “In a single day Mr. Maduro promoted 195 officers to the rank of general. Venezuelan generals, more than 2,000 strong, enjoy a range of privileges, from lucrative control of the food supply to favorable rates for exchanging dollars.”
  • “Eleven of the 23 state governors in Venezuela are current or retired generals, along with 11 heads of the 30 ministries, giving them an extraordinary stake in preserving the government’s control over the country.”
  • “And the defense minister, Vladimir Padrino López, an army general, has been granted an even more lucrative arrangement, with expanded powers to control the country’s ports, as well as parts of the oil and mining industries.”
  • “’Maduro has made sure to give many rewards to senior military officers in exchange for loyalty,’ said John Polga-Hecimovich, a political scientist who studies Venezuela at the United States Naval Academy. ‘While he is completely dependent on them to stay in power, they have much to lose if he is gone.’”
  • But…
  • “Most midlevel officers, however, are far removed from the high ranks or patronage systems on offer from the government. Instead, said Raúl Salazar, a retired general who served as defense minister under Mr. Chávez, they see a deepening poverty caused by the food and medicine shortages that are plaguing the country.”
  • “’Their families, their friends, their acquaintances, everyone is suffering and they begin to ask themselves if it’s getting better or worse,’ General Salazar said. ‘Everyone has the same voice that talks to them each day, and that is their conscience.’”

August 8, 2017

Perspective

FT – US haul from credit crisis bank fines hit $150bn – Kara Scannell 8/6

  • “A single bank, Bank of America, has paid more than one-third of all recoveries to US authorities, according to an analysis by the Financial Times. Its $56bn in settlements with state and federal regulators and the DOJ cover its own mortgage sales and actions by two companies it acquired — subprime mortgage lender Countrywide and broker Merrill Lynch.”
  • “JPMorgan Chase, which acquired Bear Stearns and Washington Mutual, has paid the second-largest amount, with $27bn in fines and relief.”

Worthy Insights / Opinion Pieces / Advice

NYT – The Debt-Ceiling Crisis Is Real – Edward Kleinbard 8/7

FT Alphaville – Electric vehicle realities – Izabella Kaminska 8/3

  • “Electric vehicles (EVs) are all the rage. But they’re also fast becoming the sacred cows you can’t criticize for fear of being shredded by the EV, renewable, and tech lobbies.”
  • “Questioning the cost structures of the industry in general is not allowed in public forums. My colleague Jonathan Ford discovered this recently when he dared to question the economic realities underpinning the renewable sector.”
  • “Brian Piccioni and team at BCA Research offer a good starting point to our questions on Thursday, in a report entitled Electric Vehicles Part 1: Costs of Ownership.”
  • “The bad news for EV fans is their work determines that the cost of ownership of an EV still far exceeds that of an internal Combustion Engine Vehicle (ICEV), even after subsidies are accounted for.”
  • A couple of points.
    • Battery packs are expensive and more expensive than generally claimed.
    • Batteries degrade and the cost of replacing them are expensive (more so than the manufacturers let on).
    • Additionally, think of your experience with the value of your old cell phones or computers. While the hardware may still work, the value of your device tends to decline rapidly with an old battery.
  • Back to the subsidies.
  • “Nevertheless, most people are encouraged to buy EVs because of the fuel subsidies or free parking promises. Yet is difficult to assess how long EV subsidies will persist. Fundamentally, the economics dictate that they can only really be affordable to governments as long as the number of vehicles sold remains small. If EV sales accelerate swiftly, these subsidies would get very costly for government coffers very quickly — straining public finances if not creating massive implied contingent liabilities.”
  • “On that basis, when electric car subsidies start eating into the funding that’s available for other vital government services, public perceptions of EV efficiency will change markedly.”
  • All for EV adoption, just trying to be more aware of the factors in play.

Bloomberg Gadfly – OPEC’s Existential Sucker Punch – Julian Lee 7/30

Markets / Economy

WSJ – Daily Shot: FRED – US Prime-Age Labor Force Participation 8/7

WSJ – Daily Shot: FRED – US Civilian Labor Force Participation by Gender 8/7

Environment / Science

NYT – Let Forest Fires Burn? What the Black-Backed Woodpecker Knows – Justin Gillis 8/6

  • “Scientists say that returning forests to a more natural condition would require allowing 10 million or 15 million acres to burn every year, at least.”
  • “Today, closer to four million or five million acres burn every year.”

Agriculture 

WSJ – Daily Shot: CBOT Soft Red Winter Wheat 8/7

  • “The US wheat rally has been fully reversed on improved crop conditions.”

India

FintechFT – India’s fintech revolution – Don Weinland 8/7

Bloomberg Gadfly – Indian Banks’ Soaring Price-to-Truth Ratio – Andy Mukherjee 8/7

  • Several Indian banks have more non-performing loans in their books than they are letting on and are aware of. Worse, there a quite a few loans issued to companies (i.e. Videocon) with too few restrictions, who are then using the funds to pursue moonshot projects out of their core competencies.

Middle East

WSJ – Egypt’s Leader Makes a Risky Bet on the Healing Power of Economic Pain – Yaroslav Trofimov 8/6

  • “Egypt’s President Abdel Fattah Al Sisi is cutting food and fuel subsidies, a program long plagued by waste and corruption, in a high-stakes gamble to aid the stalled economy that none of his predecessors dared execute.”
  • “The economic shock therapy, coupled with a steep currency devaluation, has rocked the Arab world’s most populous country. Fuel prices went up 50% in June, cooking-gas prices have doubled and the annual inflation rate has surpassed 30%.”
  • “Every day, millions of Egyptians line up at government bakeries to buy five loaves of bread for less than two U.S. cents, a fraction of the wheat’s cost. The food subsidies extend to some 80% of Egypt’s families and were first instituted as part of rationing during World War II.”
  • “Farmers across Egypt nurture their crops with water pumps operating on diesel that, even after June’s 55% increase, still retails for 77 cents a gallon, less than a third of retail prices in the U.S.”
  • “The government’s goal is to end the subsidies in three to five years, according to Mr. Kabil, the trade and industry minister. ‘The right thing to do is to lift them totally,’ he said. ‘But you cannot do it today because you cannot correct 40 years of problems in one day.’”
  • The question is whether or not the people of Egypt will be able to make to that point without changing course?

South America

WSJ – Daily Shot: Caracas (Venezuela) Stock Exchange Market Index 8/4

  • If you live in Venezuela, there is nowhere else to preserve your money (outside of hard currencies – if you can get them).

WSJ – Daily Shot: Black Market Bolivar (Venezuela) USD Exchange Rate 8/7

Other Links

NY Post – Hedge fund manager (Raymond Montoya) charged for scamming investors out of millions – John Aldan Byrne 8/5

August 7, 2017

If you were to read only one thing…

FT – Venezuela suspended from South American trade bloc – Andres Schipani 8/5

  • “South American trade bloc Mercosur has suspended Venezuela indefinitely in a symbolic show of force following President Nicolás Maduro’s decision to push ahead with an election for an all-powerful constituent assembly, which critics fear will crush the last vestiges of democracy in the crisis-ridden nation.”
  • “Foreign ministers of Argentina, Paraguay, Uruguay, and Brazil said after a meeting in São Paulo on Saturday that they have triggered its ‘democratic clause’ and decided ‘unanimously to suspend Venezuela from the bloc for a rupture of the democratic order’. They said they would not allow it back in the group until democracy is restored.”
  • “Mr. Maduro’s move to install the assembly has met widespread international condemnation, including from the Vatican on Friday. The two biggest exceptions are China and Russia. Beijing, which has loaned Caracas $60bn, said the elections were ‘generally held smoothly’, though noting ‘the reaction from all relevant sides’.” 
  • “Venezuelan attorney-general Luisa Ortega Díaz, who has become a vocal critic of Mr. Maduro’s government, had also filed a motion for a court order to block the constituent assembly’s installation. But on Saturday, Ms. Ortega Díaz was sacked as members of the constitutional assembly moved ahead with vows to swiftly punish foes.”
  • “For Raúl Gallegos, a Venezuela analyst at Control Risks: ‘The new assembly will give a new lease on life to the unpopular Maduro government. Maduro is far from cornered, despite violent anti-government protests and a hostile international community.’”

Perspective

NYT – Short Answers to Hard Questions About the Opioid Crisis – Josh Katz 8/3

Worthy Insights / Opinion Pieces / Advice

Bloomberg Quint – Paul Singer Says Passive Investing Is ‘Devouring Capitalism’ – Simone Foxman 8/4

FT – Venezuela shows how not to run a socialist government – Alan Beattie 8/3

  • “‘Venezuela shows that socialism always fails’ is perhaps one of the most common and least interesting reactions to the collapse of that country into economic and political chaos.”
  • “Without doubt, radical leftism accompanied by massive state intervention in the economy has a terrible record in Latin America, and indeed elsewhere — though whether that constitutes the entirety of ‘socialism’, given the prevalence of successful center-left, self-styled socialist parties in western Europe, is highly tendentious.”
  • “More interesting is whether progressive redistributive governments can ever succeed in poor countries marked by deep inequality. This particularly applies to those rich in minerals and hence vulnerable to the ‘resource curse’ that unbalances their economies and poisons their politics.”
  • “Venezuela shows what happens when it all goes wrong.”
  • “Meanwhile Bolivia, another, much poorer, South American country, has shown that it is perfectly possible to use oil and gas revenue to achieve widescale redistribution. In the 11 years that Evo Morales has served as Bolivia’s president — and despite a similar line in frothy revolutionary rhetoric to Messrs. Chávez and Maduro — he has managed to reduce the poverty rate in the country by a third while maintaining economic stability.”
  • “Mr. Morales must be one of the world’s few presidents who inveighs fervently against the iniquities of global capitalism while receiving regular plaudits from the International Monetary Fund. Like Mr. Chávez, he has increased social spending, though not always efficiently. Unlike Venezuela, Bolivia has maintained fiscal buffers, cushioning public spending from falls in the oil and gas price.”
  • “Meanwhile, although the rest of the economy remains under-developed, Mr. Morales’s government has been restrained in taking over private businesses, including those owned by foreign investors, and the currency has been pegged against the dollar at a reasonably competitive rate with free movement of capital.”
  • “The point is not that Mr. Morales is a technocratic wizard who has come up with an unprecedented way of managing natural resources. He has simply been one of the few leaders who has — thus far — managed to stop a mineral-rich country becoming an all-out scramble for loot.”
  • “There are serious reasons for concern about the political situation, including Mr. Morales’s plans to ignore a referendum barring him from seeking a fourth term in office, and some high-profile instances of corruption.”
  • “But economically, there is no particular reason that Bolivia’s redistributive model, whether or not called socialism, must collapse.”
  • “Venezuela is what happens when a corrupt and thuggish socialist regime gets hold of oil revenues and then destroys the economy. But it does not follow that large-scale income redistribution in a natural resource state must necessarily end in disaster.”

WSJ – Why Jobs, Wages and Savings Mean Weaker Profits – Justin Lahart 8/4

  • “Weak wage growth has Americans saving less. That can’t go on forever.”

Real Estate

FT – Debt investors cool on ailing US retail sector – Joe Rennison 8/3

  • The prophecy is becoming self-fulfilling. Want to see retail landlords really struggle… It probably won’t be from tenant fallout. However, if you cut off access to credit, it will only be a matter of time.
  • “The inclusion of loans to bricks-and-mortar retailers in commercial mortgage-backed securities has halved since 2010, as investors cool over providing financing for an industry under siege from ecommerce.” 
  • “The retail sector has accounted for an average of just over 24% of the loans underlying newly issued CMBS assessed by the credit rating agency Fitch. That is down from 31.4% last year and 51.5% in 2010. Figures from S&P Global, another rating agency, illustrate the same trend.”
  • “’The entire investor community is definitely more conscious of retail exposure and the quality of that retail exposure,’ said Darren King, a portfolio manager at Semper Capital. ‘There are fewer secondary and tertiary quality assets appearing in CMBS because of those concerns.’”
  • “As retail concentration has declined, mortgages on office properties have increased as a proportion of CMBS, in part thanks to investor demand. Offices comprise 43.3% of the CMBS transactions rated by Fitch so far in 2017, up from 28.7% in 2016.” 
  • “Following the election of Donald Trump in November, expectations of a stronger economy prompted analysts to forecast the need for more office space.”
  • “But Tracy Chen, head of structured credit at Brandywine Global Investment Management, said the prices of office-backed loans have begun to falter given the combination of tepid economic data and the new administration’s struggles to pass stimulative economic policies through Congress.”
  • “‘Office exposure has been increased to compensate the decline in retail. But business needs for space have reduced,’ she said. ‘You have multiple sectors to worry about.’”

August 3, 2017

If you were to read only one thing…

WSJ – Indexers Push Back Against Wall Street – Ken Brown 8/1

  • “Give a small cheer to the index nerds at S&P. Their decision to ban companies that have different classes of stock is a rare instance of Wall Street protecting investors.”
  • “S&P said Monday that it would no longer consider companies with multiple share classes for its main U.S. stock indexes. The one that matters is the S&P 500, which is tracked by about $2.2 trillion worth of assets and which serves as a benchmark for more than $7.8 trillion of investments. The share structures S&P is targeting usually grant insiders control of the company by giving their shares far more votes than shares held by outside investors.”
  • “FTSE Russell, another big index provider, issued a proposal last month that requires a minimum amount of shares be in public hands, a step in the same direction as S&P.”
  • “The shift mainly targets Silicon Valley, where companies from Facebook to Google and, most recently, Snap , have sold shares while giving investors virtually no say in how the companies are run. Snap, now down more than 20% from its IPO price, was seen as the tipping point because it gave investors no say at all. Companies already in the index will be allowed to stay.”

Perspective

Knoema – World’s Most Visited Cities – 7/24

NYT – Debt-Ridden Chinese Giant Now a Shadow of Its Former Size – Keith Bradsher 8/1

  • Basically, at some point businesses and real estate development need to make money on their own accord… Ordinarily, lenders and investors don’t fund on the strategy of ‘if you build it, they will come.’

Worthy Insights / Opinion Pieces / Advice

Forbes – The Good Times For The Bulls May Be Coming To A Close, Here’s Why – Bert Dohmen 8/1

Markets / Economy

WSJ – Daily Shot: FRED – US Total Construction Spending YoY Change 8/2

WSJ – Daily Shot: FRED – US Total Nonresidential Construction Spending YoY Change 8/2

Real Estate

WSJ – Luxury Condos on ‘Billionaire’s Row’ Are Slow to Sell Out – Josh Barbanel 8/2

Finance

Economist – Bitcoin divides to rule – 8/2

  • “On August 1st, without much agonizing or awkward negotiation, a group of Bitcoin activists and entrepreneurs managed to create a second version of the crypto-currency. It immediately gained a following: in less than a day of existence, the value of a unit of ‘Bitcoin Cash’ jumped to over $600, and tokens worth more than $10bn were in circulation (although that is still much smaller than Bitcoin classic, which stood at about $2,700 and nearly $45bn).”
  • “This ‘fork’, as such events are called, came earlier than foreseen. But it is broadly how insiders had expected a two-year-old conflict over the future of Bitcoin to end. At the heart of this ‘civil war’ was the question of how to increase the capacity of the system, which can only handle up to seven transactions per second. The new version is able to process 56 per second, but otherwise works much like the original one.”
  • “This week’s fork has made bitcoin holders richer: they get an amount of the new version equal to their holdings of the old sort; and at least for now, both together are worth more than the old one alone. For this reason only, expect another split in November when an upgrade of the old Bitcoin system will kick in.”  

Environment / Science

NYT – Blistering Heat Wave Threatens Seattle, Where Only a Third Have Air-Conditioning – Maggie Astor 8/1

Health / Medicine

NYT – In Breakthrough, Scientists Edit a Dangerous Mutation From Genes in Human Embryos – Pam Belluck 8/2

South America

WSJ – Venezuelan Officials Tampered With Election, Voting-Software Firm Says – Kejal Vyas 8/2

  • “Based on the robustness of our system, we know, without any doubt, that the turnout of the recent election for a National constituent assembly was manipulated.” – Antonio Mugica, Smarmatic’s CEO

August 1, 2017

Perspective

FT – Apple removes apps that bypass China’s censors – Hannah Kuchler and Max Seddon 7/30

  • “Apple has removed from its Chinese app store applications that enable users to bypass China’s ‘Great Firewall’, in a move that developers have condemned as ‘censorship’.”
  • “The Silicon Valley company has withdrawn virtual private network (VPN) apps from the store, as it pulls all software that do not comply with local law, even if the makers are based outside the country.”
  • “VPNs allow users to access content banned by Chinese censors to control access to information online. This has, in effect, created a ‘Chinese internet’, without many western social media or search engine sites.”

Project Syndicate – Venezuela’s Unprecedented Collapse – Ricardo Hausmann 7/31

  • “In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.”
  • “Venezuelans clearly want out – and it’s not hard to see why.”
  • “But is this just another bad run-of-the-mill recession or something more serious?”
  • “The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.”
  • “Put another way, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe, or the rest of Latin America. And yet these numbers grossly understate the magnitude of the collapse…”
  • “Inevitably, living standards have collapsed as well. The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017. Measured in dollars at the black-market exchange rate, it declined by 88%, from $295 per month to just $36.”
  • “Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Could Football Ever End? – Jason Gay 7/30

  • “A new concussion study provokes more existential worry in the NFL – and, reportedly, an early retirement.”

FT – With oil prices, half a step is not enough – Nick Butler 7/30

  • Saudi Arabia’s additional production curbs are a step in the right direction, but there are just too many other producers that they don’t control.

Markets / Economy

WSJ – Daily Shot: FRED – Velocity of M2 Money Stock 7/31

Real Estate

WSJ – Supermarkets Face a Growing Problem: Too Much Space – Heather Haddon and Julie Jargon 7/31

  • “A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.”
  • “Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group, a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.”
  • “To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.”
  • “But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.”
  • Additionally, this article doesn’t mention the increasing foot prints of these grocers. Many are resembling department stores, but with an emphasis on food.

Finance

WSJ – Private Equity Takes Fire  as Some Retailers Struggle – Lillian Rizzo 7/30

  • “A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.”
  • “Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”
  • “In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.”
  • “Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.”
  • “In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.”
  • “Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.”
  • “Bankruptcy cases are messy by nature, and creditors—typically facing losses—are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.”

China

Bloomberg – China Asks Waldorf Owners Anbang to Sell Assets Abroad, Sources Say 7/31

  • “Chinese authorities have asked Anbang Insurance Group Co., the insurer whose chairman was detained in June, to sell its overseas assets, according to people familiar with the matter.”
  • “The government has also asked Anbang to bring the proceeds back to China after disposing of holdings abroad, said the people, who asked not to be identified because details are private. It is not clear yet how Anbang will respond, the people said.”
  • “Anbang was among the most prominent of Chinese insurers that went on a buying binge across the globe, fueled by soaring sales of investment-type insurance policies, with its 2014 acquisition of New York’s Waldorf Astoria hotel catapulting it into the public eye. Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators.”
  • “Anbang’s rise in recent years was fueled by sales of lucrative investment products that offered among the highest yields compared with peers. China’s insurance regulator this year started clamping down on what it termed ‘improper innovation’ and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.”
  • “One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.”

FT – One of China’s biggest P2P lenders quits ahead of clampdown – Louise Lucas and Sherry Fei Ju 7/30

  • “China’s pending regulatory crackdown on the $120bn peer-to-peer lending industry has claimed its first scalp before it has even begun, with one of the biggest players saying it will wind up its business in an industry full of bad loans and no profits.”
  • “Beijing this month said it would delay regulations that will bar online lenders from guaranteeing principal or interest on loans they facilitate, cap the size of loans at Rmb1m for individuals and Rmb5m for companies, and force lenders to use custodian banks — a requirement only a fraction of the industry has met so far.”
  • “Imposition of the new rules has been delayed from next month until June next year to give companies more time to comply.”
  • “But Hongling Capital has already thrown in the towel, with founder and chairman Zhou Shiping last week admitting that ‘P2P lending is not what we are good at, neither is it something we see potential in. This [P2P lending] business of ours would always be cleared out eventually — it’s only a matter of time.'”
  • “Hongling, which has Rmb17.6bn ($2.6bn) in loans, plans to wind down its eight-year online lending business by the end of 2020.”
  • “According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015, while 3,795 platforms have collapsed since 2011.”
  • “Outstanding loans from China P2P lending platforms totaled Rmb816.2bn ($121bn) at the end of December, double the figure of a year earlier, according to P2P consultant WDZJ.com.”

WSJ – Chinese Banks’ Dash for Capital Gets Under Way – Anjani Trivedi 7/31

  • “Investors have long questioned when China’s banking system, with its heaps of bad loans and hidden leverage, would resort to raising much-needed equity. From the look of it, the weakest lenders are starting to do so.”
  • The method, convertibles. To start, “Ping An Bank, a midsize lender notorious both for selling piles of high-yielding investment products and for sitting on masses of overdue loans, said last week that it plans to issue 26 billion yuan ($3.9 billion) of convertible bonds—uncommon in China—that can be switched into its Shenzhen-listed shares. While convertibles don’t count as equity straight away, they could help improve Ping An’s equity levels when they are turned into stock.”
  • Debt is the green

South America

FT – Venezuelans snub Maduro vote on day marred by violence – Gideon Long 7/31

  • In a word, impunity…
  • “Venezuelans on Sunday largely snubbed Nicolás Maduro’s election for a new all-powerful political assembly, in a vote marred by violence that killed at least 10 people and left seven police officers injured by a bomb attack.”
  • “Opposition leaders rejected the electoral commission’s turnout figure of 8.1m — 41.5% of the electoral register — saying only about 2m had actually voted. Analysts estimated the turnout at 3m-4m.”
  • “The president’s critics say the new assembly, which will be convened within 72 hours, will snuff out the last vestiges of democracy in Venezuela after nearly two decades of populist leftwing rule, turning the country into a new Cuba. It will have the power to dissolve the democratically elected Congress, where the president’s opponents have a majority, rewrite the constitution, scrap future elections and draft new laws.”
  • “In the run-up to the vote, all reliable polls had suggested that between two-thirds and three-quarters of Venezuelans opposed Mr. Maduro’s assembly. One poll said only about 12% of the electorate would vote for it.”
  • The country’s decent continues.

WSJ – Daily Shot: Venezuela Money Supply YoY Change 7/21

  • “Venezuela’s money printing has accelerated. The broad money supply has risen 400% over the past year.”