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Media worth consuming - February 2020

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


The New York and Philadelphia Federal Reserve surveys have the US economy in rude health. However, the Cass freight readings for January were ugly and are likely to get worse once the coronavirus impacts flow through. Global shipping rates have collapsed from a combination of the coronavirus and seasonal slowdowns. If the virus doesn’t clear soon a wave of Chinese SMEs will run out of cash, with some already taking drastic measures to reduce employee costs. Chinese car sales fell 92% in the first two weeks of February as the infection kept employees and customers away. Chinese steel mills are sitting on close to record high levels of finished product as demand has plummeted. China has warned its citizens not to expect large scale stimulus to offset the virus impacts.

The Chinese government is taking over the heavily indebted HNA Group. China’s FX reserves are only half of what the IMF recommends. Argentina is talking up a deep restructuring with the IMF supporting substantial debt haircuts for bondholders in order to sure up recovery of its loans. Greece sold €2.5 billion of 15-year bonds at 1.9% and its 10-year bonds traded below 1% yield. Despite an enormous debt load, investors are now talking about Greece having a pathway to investment grade in coming years.

American investors are splurging on call options. Low volatility strategies aren’t working as expected, perhaps due to their popularity. Stocks with high ESG ratings trade at a 30% premium to those with the lowest ratings. Natural gas is getting cheaper and in some places they will pay you to take it. Online mattress seller Casper saw its valuation slashed in its IPO. Germany’s banks are building bigger safes as cash holdings have tripled in four years from investors trying to avoid negative interest rates.

Buying insurance against investment grade bond defaults is the cheapest it has been since the financial crisis. Deutsche Bank’s $1.25 billion, 6% hybrid note sale was 11 times oversubscribed. LVMH is getting paid to borrow money to buy Tiffany & Co. The use of secured corporate debt is declining as business assets increasingly become intangible. Private credit is fuelling the next crisis by making loans that otherwise wouldn’t get funded. Bond funds are hotter than Tesla. American auto dealers are telling customers to default on their old loans, rather than trying to trade in.

UBS’s flagship real estate fund has been hit with $7 billion of redemptions. Two Irish property funds gated after asset write-downs spurred redemptions. Since 2003, hedge funds as a group have subtracted value from diversified portfolios. Executives at firms subject to SEC investigations have long been using their non-public knowledge of the investigations as an opportunity to sell shares and avoid losses.

Politics and culture

Trump boasted that no Americans were injured by the Iranian missile strikes, but the wounded count is now over 100. He also campaigned on cutting spending and paying off America’s national debt but has failed miserably. The Russian conspiracy theories are back, this time used to smear Democratic Presidential candidates. The Washington Post was widely mocked for running an article that argued for elites to choose the presidential nominees. Democrats changed the rules to allow Michael Bloomberg to participate in debates.

Parts of Vermont are giving parents wide choice in their children’s schooling options, whilst spending less and getting better learning outcomes. After including pension benefits, American teachers are arguably overpaid. US taxpayers look set to pick up the tab for $200 billion in student loan forgiveness.

Canada raised the tax rate for higher income earners and then collected less revenue from them. The Davos conference is full of billionaires mouthing platitudes they don’t act on. America barely bothers to prosecute and punish white collar crime anymore. The Australian High Court has invented a new class of citizenship, overruling existing legislation. Women can also have a mid-life crisis, but it looks different from men. The Japanese government badly handled the Coronavirus afflicted cruise ship, making the situation far worse.

When young people say they support socialism, they typically don’t know what it means and they wouldn’t want to pay the cost for it. It is understandable that young Americans want free stuff when they see their parents getting social security and Medicare, after also getting cheap college. 9 basic questions democratic socialism ignores. Free speech isn’t just about being free to speak, it is also about not being forced to speak. China has kicked three Wall Street Journal reporters out of the country after they called China “the sick man of Asia”.

Economics and work

When looking at consumption rather than income, the poorest American households are doing surprisingly well. In aggregate, US consumers are seeing growing earnings and savings, but this hides a minority that are getting deeper into debt. How Costco delivers cheaper products and higher minimum wages. Technology has greatly reduced the time spent on household labour, just as John Maynard Keynes predicted.

Critics of neoliberalism choose to ignore that government spending and regulation are growing not shrinking. Supporters of MMT ignore the nearly perfect correlation between the growth in money supply and inflation and that government debt is far from a free lunch. The predictions of economic doom following Brexit were completely wrong. A World Bank Paper finds that corrupt elites siphon off 7.5% of foreign aid upfront.

A large scale, 12-year American experiment with UBI found that it dramatically reduced the incentive to work, despite the intention of the program to do the opposite. It’s another reminder that if you kill the incentive to work, hard work disappears. In the US (and Australia as well) unaffordable rental housing has become entrenched. Berlin is trying to solve the problem by taking a very radical approach with rent controls.


You can save $300 on an airfare to Hong Kong, if you are willing to have a brief stopover in Wuhan. Taiwanese gaming machines are offering face masks and hand sanitiser as prizes. Thieves in Hong Kong stole a truck loaded with toilet paper. Chinese police published the names and photos of people who wore pyjamas in public. Criminals are using car-sharing app Getaround to hire and steal cars for crimes. Hackers are attacking satellites to use them for ransom or as weapons to attack other satellites. Ransomware is so easy to use a journalist did it and wrote about it. Citigroup suspended a highly paid bond trader after allegations he was stealing from the canteen.

The economics of a buffet. Avocados are now worth enough to attract organised crime. Would you rather buy a packet of cigarettes or several days of food? Online food delivery services are taking orders for restaurants they have no relationship with. A Heston Blumenthal restaurant is accused of stealing $4.5 million from its workers. 60,000 people apply to be Chick-Fil-A franchisees each year but less than 100 make the cut. A central coast man wouldn’t let floodwater get in the way of takeaway food going through the drive through on his jet ski.

What you give up in exchange for “free” software. Many businesses claim to be disruptive, but few really are. The CIA used a seemingly independent Swiss encryption firm to spy on government and military clients. Two criminals were busted after police looked inside their bag which was labelled “bag full of drugs”. The makers of the swag bag for the Oscars is being sued by its disabled workers for wage theft.

Temperature records have been broken in Antarctica with one base recording a balmy 18.3C. The mostly negative impacts of warmer weather on Norway’s landscape. James Hanson’s 1988 “middle of the road” temperature forecast turned out to be quite accurate. While the science of global warming is generally agreed, the economic consequences aren’t. Transition bonds take greenwashing to another level. Drilling geothermal wells might cause earthquakes, but it offers the possibility of large scale cheap and clean power.

The things we often miss when we think something is easy. 12 tips on being a great leader. In 1849, New Yorkers rioted over a Shakespearean play. Some funny translations of what fund manager sales pitches really mean. The latest craze in endurance events involves climbing the same level of altitude as Mount Everest and taking the chairlift down.


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

This article has been prepared for educational purposes and is not a substitute for professional and tailored financial advice. The accuracy of the material 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.



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