As the IMF note, most $100 bills are held abroad
and geopolitical uncertainty may well be driving global demand for holding
plenty of “Benjamins”. (The Federal Reserve Bank of Chicago says
nearly 80% of $100 bills — and more than 60% of all US bills — are
overseas, up from roughly 30% in 1980.)
“The figures suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether. Kenneth M. Johnson, senior demographer at the University of New Hampshire, estimates 4.8 million fewer babies were born after the recession than would have been born had fertility rates stayed at prerecession levels.”
“One bright spot in Thursday’s figures, which are preliminary, is a continued sharp decline in teen births, which fell 7% last year. Since 2007, the teen birthrate has declined by 55%, and is down 70% since its peak in 1991. Children born to adolescents are more likely to have poorer educational, behavioral and health outcomes throughout their life.”
“Mr. Johnson estimates that lower teen fertility accounts for about one-third of the overall decline in births among U.S. women.”
“The increase in women attending college is another force behind the birth decline, researchers say. Those with more skills face a greater trade-off if they interrupt their careers to have children.”
WSJ – Daily Shot: US Continuing Jobless Claims 5/17
“The number of Americans receiving unemployment benefits hit the lowest level since 1973. Layoffs are becoming increasingly rare as the job market tightens further.”
WSJ – Daily Shot: FRED – US Job Vacancy Duration 5/18
“America’s housing wealth has staged a complete recovery since the financial crisis, but the holdings are increasingly skewed towards older borrowers and those with strong credit ratings and away from the young, the Federal Reserve Bank of New York said.”
“Home ownership rates among those under 45 have slid sharply since the previous boom. As a result, many younger Americans have missed out in a house price resurgence that has taken values up by 50% from the crisis-era trough.”
“The New York Fed’s finding suggest that, on an aggregate level, America’s stores of wealth have fully rebounded from the crash, buoyed by a recovery that has now been running for 106 months, one of the longest on record. Financial wealth, which includes stocks and other financial assets, now stands at more than $80tn, more than 75% above the 2009 trough.”
“Yet the prosperity boom has been concentrated in a relatively small sliver of the population. The top 10% of households own 84% of stock market wealth, for example.”
“Housing wealth tends to be more widely distributed, but here too there are signs that larger sections of the population are missing out, in part because mortgage lending standards are far tighter than before the crisis.”
“Malaysian police said they had seized 284 boxes of luxury handbags and more than 70 bags of jewelry from properties in the country’s capital as part of the new government’s probe into billions of dollars missing from the country’s 1MDB fund.”
“The most troubling takeaway from two days of congressional hearings on Facebook Inc. was this: Mark Zuckerberg didn’t want to explain how the social network operates.”
“Zuckerberg found it hard to plainly acknowledge that Facebook tracks users from device to device, collects information on websites people visit and apps they use, gathers information on people’s physical locations, collects phone call logs from Android smartphones and pulls in some online activity from people who don’t even have Facebook accounts.”
“Zuckerberg declined to acknowledge that Facebook’s ad system and products are informed by all of this information gathering on and off the social network. If Facebook were a true bargain with users — they get a useful, free service in exchange for seeing advertising based on their interests and activity — then Zuckerberg should be comfortable explaining how it all works.”
“Instead, given the option to articulate Facebook’s relationship with users (and non-users), he dodged. A lot.”
“He said he couldn’t answer queries from Senator Roy Blunt, who asked on Tuesday whether Facebook tracks users across their computing devices or tracks offline activity. The answer to both is yes. During the House committee hearing on Wednesday, Zuckerberg claimed not to know what ‘shadow profiles’ are, even though this term has been used for years to describe Facebook’s collection of data about people who don’t use its services by harvesting the inboxes and smartphone contacts of active Facebook users. (Zuckerberg reluctantly acknowledged that Facebook gathers information on people who aren’t signed up for Facebook for what he said were ‘security purposes.’)”
“Most people do not understand the scope of Facebook’s data collection. Lawmakers tried more than once to get Zuckerberg to say this, but he never did. Here’s a piece of evidence lawmakers could have showed the CEO: In a survey conducted recently by Digital Content Next, a trade group of news organizations that is frequently critical of Facebook, a majority of respondents said they didn’t expect the social network to track use of non-Facebook apps to target ads, collect their physical location when they’re not using Facebook or harvest information from non-Facebook websites that people visit. Spoiler alert: Facebook does all of those things.”
“It’s not people’s fault if they don’t know how Facebook works. If Zuckerberg and Facebook were comfortable with the data-based bedrock of their business, he should be able and willing to explain all the ways Facebook collects data on everyone and how it uses it.”
“It felt as though the company made a calculated decision to deflect rather than talk openly about the scope of Facebook data collection and its data-based ad system. And to me, that was a sign that Facebook is embarrassed about what it does for a living.”
“The parents of teen internet celebrities get a crash course in a new kind of fame while trying to maintain boundaries for their newly rich and powerful children.”
“Hyperinflation is disorienting. Five or six years ago, the 500 bolivars on the floor would’ve bought you a meal for two with wine at the best restaurant in Caracas. As late as early last year, they would’ve bought you at least a cup of coffee. At the end of 2016, they still bought you a cup of café con leche, at least. Today, they buy you essentially nothing … well, except for 132 gallons of the world’s most extravagantly subsidized gasoline.”
“Prices are now rising more than 80 percent per month, according to the opposition-led National Assembly’s Finance Committee. (The government itself stopped publishing official inflation data long ago.) At that rate, prices double every 34 days or so. Salaries lag far behind, leaving more and more of the country to face outright hunger. Thus, the looting.”
“Rule No. 1 of surviving hyperinflation is simple: Get rid of your money. Given the speed with which money is shedding its value, holding on to it means you’re losing out. The second you’re paid you run out as fast as you can to buy something – anything – while you can still afford it. It’s better to hold almost any asset than money, because assets hold their value and money doesn’t.”
“I think this is what’s so hard to wrap your mind around if you’ve never experienced hyperinflation. It sounds like it’s about prices rising fast, but it really isn’t. It’s about money breaking down. Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. It stops being something you want to have and turns into something you’ll do anything to avoid having: something so worthless you won’t even bend down and scoop it up off the floor while you’re looting.”
“For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.”
“The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.”
“It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.”
“The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.”
“Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come — an expense that taxpayers would ultimately have to bear.”
“And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595% this month.”
“Of course, it’s important to understand that for most multinationals, offshore cash is really only ‘offshore’ for accounting purposes. Under the old tax system, earnings attributed to foreign subsidiaries, often based in jurisdictions with low taxes or lax regulations like Ireland or Luxembourg, could be repatriated and remain earmarked as ‘held overseas’ — so long as it was stashed in U.S. securities. Apple, for example, manages its hoard from Reno, Nevada, where its internal investment firm, Braeburn Capital, is located.”
“’The term overseas cash can be a bit of a misnomer, as it doesn’t have to be overseas and in fact a lot of it isn’t,’ said Michael Cahill, a strategist at Goldman Sachs Group Inc. That should limit any appreciation in the dollar related to repatriation over the longer term.”
“Big multinationals have good reason to bide their time, according to Richard Lane, a senior analyst at Moody’s Investors Service. Because their debt investments are so extensive, companies could end up inflicting losses on themselves with any large-scale selling.”
“’I don’t think there will be a rush to the door by these companies to sell this debt and causing increasing yields and lower pricing,’ said Lane.”
“It also said Wednesday it would spend more than $30 billion to create 20,000 jobs and open a new campus at a U.S. location to be announced later this year.”
“According to figures released on January 4th by Munich Re, a reinsurer, global, inflation-adjusted insured catastrophe losses reached an all-time high of $135bn in 2017. Total losses (including uninsured ones) reached $330bn, second only to losses of $354bn in 2011.”
“A large portion of the losses in 2011 was caused by one catastrophe: the earthquake and tsunami in Japan. Losses in 2017 were largely traceable to extreme weather. Fully 97% were weather-related, well above the average since 1980 of 85%.”
“Last year’s disasters were particularly concentrated in North America (including the Caribbean), with 83% of global losses; half of those were in America alone, hitting that country’s insurers particularly hard. Fitch, a ratings agency, expects the ‘combined ratio’ for American property-and-casualty insurers to rise from 100.7% in 2016, meaning costs and claim payouts just exceeded premium revenue, to 104.4% in 2017. That implies a substantial underwriting loss for the industry. Even Warren Buffett’s Berkshire Hathaway looks poised for its first full-year underwriting loss in 15 years. It took a $3bn hit from the three hurricanes and an earthquake in Mexico.”
“For all the gloom, the 2017 losses were also proof of the resilience of the reinsurance industry. Insurers have long spread catastrophe risk by taking out reinsurance policies. This time, reinsurers had such ample capital buffers that they are expected to suffer only a small dent, of around 5-7% of capital.”
“Battered by losses, long-term-care insurers hit policyholders with steep rate increases that many never saw coming.”
“Only a dozen or so insurers still sell the coverage, down from more than 100. General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI.”
“When sales of long-term-care insurance were ramping up in the 1980s and 1990s, companies thought they had found the perfect product for middle-class families—and that’s how they pitched it.”
“The annual premium was designed to hold steady until a claim was filed and premiums then halted, though the rates weren’t guaranteed. Many policies paid out benefits for life.”
“Families flocked to what seemed like affordable peace of mind that would save them from draining their lifetime savings, leaning on children or enrolling in the federal-state Medicaid program for the poor.”
“Long-term care often costs more than $100,000 a year a person, financial advisers say. The nationwide total exceeds $200 billion, according to analysts at LTCG, a third-party administrator of long-term-care policies.”
“Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected.”
“After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.”
“A new crypto-currency is born almost daily, often through an ‘initial coin offering’ (ICO), a form of online crowdfunding. CoinMarketCap, a website, lists about 1,400 digital coins or tokens, including PutinCoin, Sexcoin and InsaneCoin (worth $7m). Most are no more than curiosities, but by January 10th, around 40 had a market capitalization of more than $1bn.”
“Might any of these one day replace bitcoin as crypto-land reserve currency, something insiders call the ‘flippening‘? Given bitcoin’s governance problems (another ‘fork’, or split, may be in the offing) and limited capacity (a transaction now costs nearly $30, on average, in fees), this cannot be excluded. But the others have problems, too. Ethereum’s user fees have soared and the system has again hit technical snags. As for Ripple, some question the extent to which XRPs are actually used.”
WSJ – Daily Shot: Ripple 1/17
WSJ – Daily Shot: Capital Economics – Transactions Per Second 1/17
Authorities in the Japanese city of Toyama are encouraging migration to its city center through incentives. The goal being to reduce the cost of maintaining lightly-used infrastructure as its population declines.
“About 30% of Toyama’s 418,000 residents are 65 or older, an even higher proportion than in Japan as a whole, where it is 27%. By 2025, the proportion in Toyama is projected to be 32%. In addition to greying, the population is also declining. The city had 421,000 people in 2005; by 2025, it will have 390,000.”
“As the population ages and shrinks, the services residents need have changed. The Kadokawa Centre, for example, is built on the site of a primary school that closed in 2004. But overhauling public services is costly, and the declining number of people of working age means there is ever less tax revenue to help pay for the shift. To remain solvent, the city has decided to shrink not just in population, but in size, concentrating residents and services in the center.”
“Most of Japan is in a similar quandary. About 400 schools shut every year; some are being converted into retirement homes. In 2016 there were 300,000 more deaths than births. If Japan continues on its present course, it will have shed nearly a third of its population (and four out of every ten workers) by … 2065.”
“Perhaps the recent IPOs will rebound, as Facebook did after its initial dip. Or maybe a stronger company, such as Airbnb, will manage to make a success of going public. The evidence so far is that private valuations are still inflated and should fall.”
“For banks and regulators, as flexible working grows, they will need to find other indicators of looming payment problems. Difficulties may already be happening. Delinquency rates on some forms of subprime credit and auto loans are rising according to New York Fed data, at a time when unemployment rates are still trending down.”
“That is very unusual, but it may be a sign of things to come.”
Finance
WSJ – Daily Shot: German 10yr Government Bond Yield 7/13
“While Treasury prices have stabilized, the selloff in Bunds persists. Here is the 10yr German bond yield approaching 60 bps.”
