Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 334

Media worth consuming - November 2019

A monthly look at dozens of global media articles that often do not receive mainstream coverage in Australia.

Finance

Freight volumes continue to point to miserly global economic growth ahead. Global business sentiment is at its lowest since the financial crisis. US margin debt has dropped but stocks are at a record high. Australian insolvency firms are seeing higher demand for their services.

The Vatican Bank has been raided by police and kicked out of the global network for financial intelligence. The FBI warned Bank of America that it was about to lend money to a company engaged in widespread fraud, the bank went ahead anyway and the borrower is now bankrupt. 13 bankers have been hit with jail terms for helping Monte Dei Paschi hide losses. A professor who wrote the book on money laundering has been charged with it. Investment banks are engaging in bait and switch behaviours on bond marketing.

The CLO whale has gotten indigestion, sending prices down. The graph that shows what it takes to break a US CLO. An example of how business development companies are the wild west of private debt. US CCC bond spreads are back above 10%. American BB bonds trade at a very small yield premium to BBB bonds. The very high level of B- rated debt today could make for a greater corporate default wave than seen in the financial crisis.

JP Morgan’s $2 billion loan to WeWork was 100% cash collateralised. Japanese banks are pushing back against Softbank’s request to borrow more to fund its WeWork bailout. One third of American auto trade-ins have outstanding loans that are rolled into negative equity on the subsequent loan.

Lebanon’s debt yielding over 100% points to default being almost inevitable. Lebanese banks are seeing riots and citizens armed with guns demanding their money as withdrawal limits are imposed. Turkey is pushing its banks to lend more at the same time they are dealing with a spike in non-performing loans. Argentina might want to give different recovery rates to different bonds, but it would be legally tricky to do so. There’s $15 billion of Asian high yield bonds maturing next year with current yields of at least 15%.

Bonds defaults are rapidly rising in China, but they’re being covered up. China is fudging the statistics on SME lending growth. China’s corporate credit spreads are starting to reflect credit risk, but spreads on government entities remain unchanged. The $89 billion Harbin Bank has received a government bailout. China’s top two universities have debt trading at or near distressed prices. There’s a growing list of Chinese skyscrapers that have halted construction when half built. China’s government has ordered almost all peer to peer lenders to cease writing new business and exit the industry.

China’s local governments have guaranteed $842 billion of private sector debt and are facing a wall of debt maturities in 2020. Local governments are also buying shares of and non-performing loans from small banks to prop them up. The Chinese city of Ruzhou begged healthcare workers for loans so it could build a new hospital. A Hong Kong stock dropped 98% after MSCI reversed a decision to add it to an index.

Small private equity funds deliver better returns but many capital allocators can’t be bothered doing the work and only invest in large funds. Private equity managers make their best investments early in a fund’s life and their worst investments when they are raising capital for the next fund. US non-core real estate strategies are underperforming with high fees a key reason. Most US debt managers underperformed their benchmarks in the year to June 30.

The call centre doing the grunt work of initial prospecting for asset managers. A summary of the book about Renaissance Technology, the greatest hedge fund in the world. Those who exit first in a run on a fund do best. Over the last decade value stocks have delivered in line with their historical return, but growth stocks have grown well above their historical return. Meal delivery companies don’t scale well, expect them to have to hike prices dramatically to survive. Uber continues to lose money, especially on food deliveries.

Politics & Culture

The Trump Administration is planning to force price disclosure onto the healthcare industry but vested interests will fight hard to stop it. Democratic Presidential candidates have great plans to spend more but no plans to deal with the already large debt and deficit. America’s most racist city could be Oak Park Illinois. Washington State legislators wanted to bring in racist hiring policies, but the citizens voted them down. Two Ivy League colleges are dropping admission tests claiming that tests are racist. Some Japanese corporates have banned women but not men from wearing glasses to work.

The Washington Post calls the dead Islamic State leader “an austere religious scholar” in an obituary, largely ignoring his history of torture, executions and rape. CBS fired an employee who allegedly exposed the company’s suppression of evidence of Jeffrey Epstein’s crimes. New Jersey has issued Uber with a $650 million tax bill after workers were wrongly classified as contractors rather than employees. A list of major brands that have grovelled to China after triggering its offense mongers. Chick-fil-A has capitulated to the small but noisy mob.

Connecticut’s law against ridicule direct violates the right to free speech. Google’s management is cracking down on employee dissent by narrowing the all hands meetings and allegedly retaliating against employee dissention. YouTube is giving itself the right to shutdown “commercially unprofitable content” as a backdoor way to close down opinions it doesn’t like. A New York county has passed legislation that punishes behaviour that merely annoys first responders with up to a year in jail.

Denver police refuse to act against vagrants trespassing and defecating in public but are happy to fine a business owner for not cleaning up their mess. San Francisco police don’t act against public defecation but arrested a man for eating a sandwich. New York City is paying homeless people to move out of the state. Baltimore is subsidising Lyft rides for residents to go to the supermarket.

Economics & Work

America has given up on free markets with industry concentration making goods and services much more expensive. Microsoft’s Japan office saw a 40% increase in sales per employee after moving to a 4 day week and introducing productivity initiatives. Modest CEOs are good at outperforming expectations. Basic economics shows that marketers are wasting millions on online advertising, but they don’t stop when they are shown the evidence.

Wealth taxes (excluding property tax) have never worked, but politicians keep proposing them. New York’s rent controls will reduce the quality and supply of housing, as well as reducing property tax. On average, Americans paid more in taxes than they spent on food, clothing and healthcare combined. Five European countries have effective top marginal tax rates over 70%. The fall of the Berlin Wall was in large part due to the bankruptcy of the USSR. The war on terror has cost the US government $6.4 trillion, which is around one-third of its debt.

Central banks have injected so much liquidity into stock markets it is impossible to withdraw it without causing a market crash. Pensioners in the Netherlands are facing payment cuts with negative interest rates copping the blame. Germany’s banks struggle to make a profit and remain solvent, negative interest rates make it much worse. As bad as it is so far, the damage from negative interest rates is only just starting. The US government deficit is MMT in all but name. The Federal Reserve is now effectively buying debt directly from the US Treasury. A 2015 study from the BIS found that goods and services deflation isn’t a problem, but debt and asset price deflation following bubbles is.

Miscellaneous

Amazon is happy to sell fake, illegal and dangerous products on its website and deny all responsibility. Airbnb is happy to let scammers use their system to rip off their customers. Tesla smashed the “shatterproof” glass on its new pickup as part of the vehicle launch. An electricity company threatened a consumer with debt collection processes after she failed to pay the $0.00 owing. An Instagram account is mocking scammers who claim to be rich but aren’t.

11,000 scientists have signed a declaration that there is a climate change emergency and the earth needs to reduce its population. 500 scientists have signed a declaration that calls for reasoned debate on climate change and stating that “there is no climate emergency”. Air based protein is the next stage of food technology. The history of veganism and why some people hate vegans.

Deep sleep helps clear away the toxins that lead to Alzheimer’s. Alcohol breath testing devices are unreliable with American courts regularly throwing out drunk driving cases. A study of loan sharks in Singapore found that they rarely cause physical damage to their clients as it would harm their prospects of getting repaid.

5 errors successful people often make. Tips from financial advisors on how to avoid or manage difficult clients. A study of tipping by Uber users found that men tip more and women drivers receive more. It’s not just a hippo shaped bathtub, it’s a piece of art that sold for $4.3 million. An American high school football coach was suspended after his team “won by too much”. Rock band Rage Against the Machine is reuniting to rage for the machine.

 

Written by Jonathan Rochford of Narrow Road Capital. Comments and criticisms are welcome.

Disclosure

This article has been prepared for educational purposes and is not a substitute for professional and tailored financial advice. It contains information derived and sourced from a broad list of third parties but the accuracy of this information cannot be verified in all cases. Narrow Road Capital advises on and invests in a wide range of securities, including securities linked to the performance of various companies and financial institutions.

 

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.