skip to main |
skip to sidebar
Wind
Energy Now Competes Directly with Coal on Cost - (www.wolfstreet.com) Moody’s
Investor Services now estimates that
the falling costs of wind power directly threatens 56 GW of coal power, out of
87 GW surveyed. Moody’s report estimates the MW-hour cost of wind in the Great
Plains region at around $20, while coal comes in at $30. Total U.S. wind energy
capacity grew 19 percent in 2016 and reached 5.5 percent of total generating
capacity, outstripping hydroelectric as the nation’s largest source of
renewable energy. Much of the surge in added capacity came from power companies
and utilities eager to take advantage of the PTC before it is cut from 80
percent to 60 percent. The author of the report noted that it was economic, not
environmental logic that is driving utilities to adopt wind power, as Xcel
plans to do. “Yes, it’s good for the environment and the consumers benefit from
having cleaner power at a cheaper price, but at the end of the day, it is
pursued by the utility because it is much more cost-effective.”
NYC
Retail Vacancies Soar Prompting Massive Rent Concessions - (www.zerohedge.com) It used to be that taking a 10-minute walk
around SoHo meant passing by at least a dozen upstart, trendy fashion retailers
eager to sell you a $500 hoodie or $1,000 pair of sneakers. But these
days you're much more likely to see a whole bunch of this: As Bloomberg points
out this morning, in the wake of Manhattan's retail drought, commercial
landlords, who have seen retail occupancy levels plummet over the past 12
months, are doing everything possible to avoid big price cuts. Instead,
like residential landlords, commercial real estate owners are providing
massive rent concessions through things like interior redesigns and moving
expenses to keep storefronts from going empty.
Health-Care
Industry Debt Turns into “Systemic Recession Risk” - (www.wolfstreet.com) This
time, three sectors stand out where “a similar pattern of unsustainable growth
has driven rapid expansion” since the end of the Great Recession: technology,
automotive (whose current travails I keep dissecting), and health care. But health care poses the
biggest “systemic recession risk” to the US economy, according to the report.
After employment in the sector has soared 113% since 1990, it accounts for 16%
of private sector jobs, up from 10% in 1990. As so many times, it has to do
with debt. Health-care sector debt has soared 308% since 2009, the depth of the
Great Recession which elegantly bypassed the sector. Over the same period, GDP
has grown 30%, and overall jobs have grown only 18%. Thus health-care sector
debt has grown 10 times faster than GDP and 17 times faster than private-sector
jobs, “exceeding multiples of prior finance and energy sector boom-and-bust
cycles.”
Critic
of World Bank and IMF eyed for key role at Treasury - (www.ft.com) Conservative
economist Allan Meltzer has railed against the World Bank and the International
Monetary Fund for decades and in Donald Trump’s nomination of a former protegee
he sees hope that Washington may finally be heeding his calls for reform. While
Mr Trump’s naming this month of Adam Lerrick as the next assistant secretary
for international finance at the Treasury has yielded a nervous reaction inside
both the IMF and the World Bank, Mr Meltzer is effusive. “There is not to my
knowledge a person in the world better qualified for that job,” he says. Mr
Lerrick, a former investment banker, served as Mr Meltzer’s top adviser on a
1990s congressional commission examining the role of the two institutions in
the global economy. The “Meltzer Commission” report that Mr Lerrick went on to
help draft called for a more limited IMF that focuses exclusively on plugging
the short-term liquidity needs of countries facing crises rather than
protracted bailouts.
How
China's Bank Behemoths Make Money on the Debt War - (www.bloomberg.com) As
China ramps up its quest to conquer leverage, the banking sector is finding out
that being a big fish pays -- literally. While smaller lenders grapple with
soaring money-market rates -- some are said to have defaulted amid
the tight liquidity -- their larger counterparts are poised for a windfall.
Bigger banks are benefiting from higher borrowing costs given their status as
net lenders in the interbank market, a situation that has Citigroup Inc. to
Morgan Stanley favoring their shares. Large bank stocks have already returned
double that of their smaller brethren so far this year. “Investors can long big
banks, while shorting the small ones,” said Hao Hong, chief strategist in Hong
Kong at Bocom International Holdings Co., a brokerage owned by Shanghai-based
Bank of Communications Co., a medium-sized bank. “Large lenders might be
secretly happy at what’s going on, while the smaller ones are hoping the
central bank will always save them during cash squeezes.”
The
Biggest Risk From the Dollar's Drop May Not Be What You Would Guess - (www.bloomberg.com)
America's
Housing Inventory Problem, Explained in Four Charts - (www.bloomberg.com)
Here
are the nation’s healthiest—and unhealthiest—housing markets - (www.cnbc.com)
Bundesbank's
Weidmann calls for "less expansive" ECB policy - (www.reuters.com)
Time
to Redo the Math on Tax Reform Prospects - (www.wsj.com)
Forget
Trump v. Congress. The Real Political Danger’s Still in Europe - (www.wsj.com)
Huishan
Dairy Fallout Spreads as Chinese Bank's Stock Falls - (www.bloomberg.com) Jilin Jiutai Rural Commercial Bank Corp. shares slumped by a record amid concern
over its exposure to the embattled dairy-product manufacturer China Huishan
Dairy Holdings Co. Shares of Jiutai Bank, based in the northeastern Chinese
city of Changchun, tumbled 8.7 percent in Hong Kong trading on Monday, the
biggest drop since it listed 2 1/2 months ago. A mysterious collapse in
Huishan Dairy’s shares on Friday that erased about $4 billion of its market
value and prompted a trading halt has hurt other firms linked to the dairy
company. Jiutai Bank is Huishan Dairy’s second-biggest creditor with 1.83
billion yuan ($266 million) of loans, Caixin reported Saturday. Champ Harvest
Ltd., Huishan Dairy’s largest shareholder, owns 17.9 percent of the lender’s
Hong Kong-listed shares, data from the city’s exchange show. Champ
Harvest is controlled by Huishan Dairy’s Chairman Yang Kai.
Auto
Industry Resorts to Biggest Incentives Ever Just to Slow the Decline in Sales - (www.wolfstreet.com) In
a few days, automakers are going to report their new vehicle deliveries for
March. TrueCar, Kelley Blue Book, and LMC Automotive are predicting total
vehicle sales slightly above the flat-line compared to March a year ago, though
sales were down year-over-year in both January and February. TrueCar forecasts
an increase of 0.2% year-over-year to 1.586 million new cars and light trucks,
with retail deliveries (excluding fleet sales) growing 1% to 1.276 million
units. J.D. Power and LMC Automotive said on Friday that they expect an
increase of 1.9%, to 1.62 million units, with retails sales up 1%, boosted by
record incentives. If sales nevertheless fall, everyone will blame the winter
storm that arrived in the winter – “unexpectedly” or something. And it is
possible that sales might fall. There was no winter storm in February, which
was one of the warmest Februaries on record. Yet, sales in February fell 1.1%
year-over year. They edged down in January too. And sales in both months
combined fell 1.4% from the same period a year ago.
Perhaps even more brazen than the infamous theft of a bucket full of gold woth $1.6 million from an armored truck in broad
daylight in Midtown Manhattan last September 29, moments ago local German
press has reported that thieves broke into Berlin's Bode Museum and made off with
a massive 100-kilogram (221-pound) gold coin worth millions. According to
German media, the stolen coin is the "Big Maple Leaf", a
commemorative piece issued by the Royal Canadian Mint in 2007. The
three-centimeter (1.18-inch) thick coin, with a diameter of 53 centimeters
(20.9 inches), has a face value of $1 million. By weight alone, however,
it would be worth almost $4.5 million at market prices. The Bode Museum,
located on the German capital's UNESCO-listed Museum Island, houses one of the
world's biggest coin collections. The holding includes 102,000 coins from
ancient Greece and about 50,000 Roman coins.
The
end of global QE is fast approaching - (www.ft.com) One of the most dramatic monetary
interventions in recent years has been the unprecedented surge in global
central bank balance sheets. This form of “money printing” has not had the
inflationary effect predicted by pessimists, but there is still deep unease
among some central bankers about whether these bloated balance sheets should be
accepted as part of the “new normal”. There are concerns that ultra large
balance sheets carry with them long term risks of inflation, and financial
market distortions. In recent weeks, there have been debates within the FOMC
and the ECB Governing Council about balance sheet strategy, and it is likely
that there will be important new announcements from both these central banks
before the end of 2017. Meanwhile, the PBOC balance sheet has been drifting
downwards because of the large scale currency intervention that has been needed
to prevent a rapid devaluation in the renminbi. Only the Bank of Japan seems
likely to persist with policies that will extend the balance sheet markedly
further after 2017.
Rich
Chinese Race to Apply for a U.S. "Golden Visa" - (www.bloomberg.com) As members of Congress in Washington debate
raising the minimum required to obtain a U.S. immigrant investor visa from
$500,000 to $1.35 million, concern about the hike has set off a scramble among
wealthy would-be participants in China. ... At stake if the EB-5 is curtailed
is a program estimated to have played a role in creating at least 200,000 U.S.
jobs and drawing as much as $14 billion from Chinese investors alone, based on
data provided by Rosen Consulting Group and the Asia Society. Past projects taking
advantage of EB-5 include New York's Hudson Yards, Hunter's Point Shipyard in
San Francisco, and a Trump-branded tower in Jersey City.
Internal
White House battles spill into Treasury - (www.politico.com)
Dow
Poised for Longest Losing Streak Since 2011 - (www.wsj.com)
Is
Bankruptcy For Illinois The Answer? - (www.zerohedge.com) Could
a formal bankruptcy proceeding for the State of Illinois be the answer to it’s
fiscal crisis? If you think that’s out of the question, as many do, you’re
wrong. On the contrary, though Congress isn’t working on it now, the
option is quite viable, though subject to obstacles and open issues. The
question is certain to gain growing national attention as a number of states
sink further into insolvency, so it’s time to get up to speed. I have yet to
see a single Illinois politician or reporter raise the question, but plenty of
others outside the state are talking about it for Illinois. More on that later.
This article summarizes the
basic issues. First, why? Why would Illinois or any other state consider bankruptcy?
Just as for insolvent corporations and municipalities that reorganize, a
successful state bankruptcy would provide a fresh start by putting a state on a
sustainable path that frees up funding for needed services — funding that’s
getting crowded out by legacy debts. It would do that in three primary ways:
More
Than Obamacare Repeal, Small Businesses Want Congress to Rein In Costs - (www.nytimes.com)
LaRonda Hunter, a business owner in Fort Worth, Tex., views the Affordable Care
Act as a literal job killer. Fearful of triggering the law’s employer mandate,
which requires businesses with 50 or more workers to offer health insurance or
pay penalties, Ms. Hunter has held off on expanding her small chain of hair salons. She voted
for President Trump with the hope that he would quickly make good on his
promise to strike down the health care law.
On Friday, she watched in despair as the Republicans’ replacement plan unraveled — leaving the law, commonly known as
Obamacare, in place “for the foreseeable future,” according to Paul D. Ryan,
the House speaker. “I’m disappointed,” Ms. Hunter, 57, said. “I’m mostly mad at
my party for being so disorganized. I’m hoping Trump has learned something
about how the government works.”
Will
US healthcare failure shake investor confidence? - (www.ft.com) Scrutiny
of Trump’s tax plans will increase now he has failed to roll back Obamacare. After
a week dominated by questions over whether Donald Trump will be able to push
his economic agenda through Congress, here are the questions FT markets
reporters are asking in the final trading week of March. Will investors keep
faith in Trump’s ability to drive tax cuts? That is the question facing equity
markets after the White House failed to muster the support needed in the House
of Representatives to pass an alternative to Obamacare. With Mr Trump and Paul
Ryan, the speaker of the House, pulling the bill shortly before the stock
marked closed on Friday, there was little time for reaction.
Italy
at the Grim Edge of a Global Problem - (www.wolfstreet.com) To
be young, gifted, educated and Italian is no guarantee of financial security
these days. As a new report by the Bruno Visentini Foundation shows, the average 20-year-old will have
18 years to wait before living independently — meaning, among other things,
having a home, a steady income, and the ability to support a family. That’s
almost twice as long as it took Italians who turned 20 in 2004. A Worsening
Trend: Eurostat statistics in October 2016 showed that less than a third of under-35s
in Italy had left their parental home, a figure 20 percentage points higher than the
European average. The trend is expected to worsen as the economy continues to
struggle. Researchers said that for Italians who turn 20 in 2030, it will take
an average of 28 years to be able to live independently. In other words, many
of Italy’s children today won’t have “grown up” until they’re nearing their
50s.
What
Happens to the U.S. Midwest When the Water's Gone? - (www.nationalgeographic.com) In
the coming decades this slow-speed crisis will unfold just as the world needs
to increase food production by 60 percent, according to the United Nations, to
feed more than nine billion people by mid-century. The draining of North
America's largest aquifer is playing out in similar ways across the world, as
large groundwater basins in Asia, Africa, and the Middle East decline rapidly.
Many of these aquifers, including the southern Ogallala, have little ability to
recharge. Once their water is gone, they could take thousands of years to
refill.
Subprime
Auto Loans Crushed Worse than in 2009, Auto Industry Bleeds, Knock-on Effects
Commence - (www.wolfstreet.com) Subprime
auto loans, a big force behind booming car sales in recent years, are getting
crushed by defaults, particularly those originated between 2013 and 2015 when
the proportion of subprime loans began to surge while underwriting standards
became loosey-goosey, as private-equity-backed auto finance companies with
a ravenous appetite for risk, subprime, and securitization elbowed into the
market, amid the exuberance of the greatest credit bubble in history. “Bad
deals are made in good times,” says the old banking saw. Auto lenders package
their loans into asset-backed securities (ABS) and sell them as bonds to
yield-hungry institutional investors. Fitch Ratings,
which rates auto lenders and auto-loan ABS, just reported on the state of
the industry. The Fitch Auto ABS Indices show that 60+ day delinquencies were
relatively low for prime auto loans at the end of Q4, but for subprime loans they’ve
surged to 5% of outstanding balances, the highest since at least 2008, during
the depth of the Financial Crisis!
Ford
Warns "Used Car Prices Will Drop For Years" - (www.zerohedge.com) Earlier this morning we noted Ford's "CFO Let's Chat"
meeting with analysts before which Ford announced weak 1Q adj. EPS
guidance of 30c-35c, coming in well below analyst estimates of 47c, which
they blamed on higher costs, lower volume & unfavorable exchange
rates. With the call now concluded,
here are a couple of the key takeaways: First, the bad...
- Volumes will start to fall
off this year, next year
- Used car prices will drop
for several years
- European profit will fall
this year
- China sales down sharply
in 1Q
- India more difficult than
expected
Your
Pension Will Be At The Center Of America's Next Financial Crisis - (www.zerohedge.com) But the next financial crisis that rocks
America won’t be driven by bankers behaving badly. It will in fact be driven by
pension funds that cannot pay out what they promised to retirees. According
to one pension advocacy organization, nearly 1 million working and retired Americans are covered by pension plans at the risk
of collapse. The looming pension crisis is not limited by geography or economic
focus. These including former public employees, such as members of South
Carolina’s government pension plan, which covers roughly 550,000 people —
one out of nine state residents — and is a staggering $24.1 billion in the red. These include former blue collar workers such
as roughly 100,000 coal miners who face serious cuts in pension payments
and health coverage thanks to a nearly $6 billion shortfall in the plan for the United Mine Workers
of America. And when the bill comes due, we will all be in very big
trouble. It’s bad enough to consider the philosophical fallout here, with
reneging on the promise of a pension and thus causing even more distrust of
bankers and retirement planners. But I’m speaking about a cold, numbers-based
perspective that causes a drag on many parts of the American economy. Consider
the following.
Europe
Prepares for Tough Brexit Negotiations - (www.spiegel.de) The
official divorce proceedings between Britain and the European Union are
expected to begin on Wednesday, when Prime Minister Theresa May triggers
Article 50. So far, the UK and the EU haven't even agreed on the first issues
they intend to negotiate. Michael Barnier is Europe's divorce lawyer, the
man charged with negotiating Britain's departure from the EU. It's a divorce
unlike any seen before -- it will be expensive, protracted and closely watched
by the entire world. Everyone wants to talk to him these days -- national
leaders, politicians, members of parliament -- and when they get the
opportunity, the Frenchman pulls out a presentation. It is, if you will, the
secret strategy for the divorce proceedings.
GOP
Eyes Tax Overhaul -- And Lessons From Health-Care Failure - (www.bloomberg.com) Moments
after their hopes of undoing Obamacare unraveled, President Donald Trump and
top Republicans said in unison that they’re moving on to another ambitious goal
-- overhauling the U.S. tax code. “We will probably start going very, very
strongly for the big tax cuts and tax reform,” Trump said to reporters Friday
after the House bill was pulled from a scheduled floor vote. “That will be
next.” House Speaker Paul Ryan told reporters that Republicans will proceed
with tax legislation -- and said he met with Trump and Treasury Secretary
Steven Mnuchin earlier on Friday to discuss taxes. Ryan sounded a note of
caution: The health bill’s failure “does make tax reform more difficult,” he
said, “but it doesn’t in any way make it impossible.”
Sears
Enters Death Spiral: Vendors Halt Shipments, Insurers Bail - (www.zerohedge.com) As
it turned out, we wouldn't have long to wait, because overnight Reuters
reported that the worst case Sears scenario we envisioned for Sears is now
taking shape and that suppliers to Sears have told Reuters they are doubling down on defensive measures,
such as reducing shipments and asking for better payment terms, to protect
against the risk of nonpayment as the company warned about its finances. The
company's disclosure turned the focus to its vendors as tension is expected to
mount ahead of the key fourth-quarter selling season amid rising concern about
a potential bankruptcy, they said. Quoted by Reuters, the managing director of
a Bangladesh-based textile firm said his company is using only a handful of its
production lines to manufacture products for Sears' 2017 holiday sales. Last
year, nearly half of the company's lines in its four factories were producing
for Sears. "We have to protect ourselves from the risk of
nonpayment," said the managing director, who declined to be
identified for fear of disrupting his company's relationship with Sears.
Is
this the Sound of the Bottom Falling Out of the Auto Industry? - (www.wolfstreet.com)
Not quite, not yet, but it’s not good either. Let’s hope that the problems
piling up in the used vehicle market — and their impact on new vehicle sales,
automakers, $1.1 trillion in auto loans, and auto lenders — is just a blip,
something caused by what has been getting blamed by just about everyone now:
the delayed tax refunds. In its March report, the National Association of Auto Dealers
(NADA) reported an anomaly: dropping used vehicle prices in February, which
occurred only for the second time in the past 20 years. It was a big one: Its
Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from
January, “by far the worst recorded for any month since November 2008 as the
result of a recession-related 5.6% tumble.”
The
Four Biggest U.S. Banks Top $1 Trillion - (www.bloomberg.com) The
four biggest U.S. banks were worth the most on record versus China’s "Big
Four" this month, as JPMorgan Chase & Co., Wells Fargo & Co., Bank
of America Corp. and Citigroup Inc. rallied 30 percent since Donald Trump was
elected president. The American quartet’s combined market value closed above $1
trillion for the first time last month, a milestone Industrial & Commercial
Bank Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural
Bank of China Ltd. surpassed in 2015. The four Chinese banks, the world’s most
profitable, were worth about the same as the U.S. foursome as recently as June.
Debt
piles add to risk for China’s property groups - (www.ft.com) Balanced
between their reliance on ballooning debt markets, which Beijing wants to bring
under control, and a housing boom that authorities want to cool, developers
have defied predictions of collapse for years. Even now, few analysts are
predicting disaster but they say high leverage is a rising risk as margins come
under pressure. “China’s more heavily indebted developers are living on a
knife’s edge,” says Andrew Collier, managing director of Orient Capital
Research, an investment research group in Hong Kong. Real estate developers are
facing a funding squeeze just as they are entering their first downturn in
three years. House prices rose 40 per cent in big cities last year but
have stalled in 2017. Single-digit price declines are expected this year and
sales revenues for the bigger developers could fall by as much as 10 per cent,
according to S&P Global Ratings, as transaction volumes decline. Last year,
revenues rose 20 per cent.
Iron
Ore Takes a Battering as Bear Market Engulfs China Futures - (www.bloomberg.com) Iron
ore is getting battered. After rounds of warnings that this year’s rally may be
overdone, the raw material is in retreat as doubts gather about the strength of
demand in China as steel sells off and record port stockpiles put a spotlight
on rising supplies. In China, futures on the Dalian Commodity
Exchange sank into a bear market as steel in Shanghai posted the
longest run of declines this year, while the SGX AsiaClear contract in
Singapore fell for a fourth day. Benchmark spot prices from Metal Bulletin Ltd.
extended a loss below $90 a dry metric ton to the lowest since Feb. 9. “Steel
demand in China is clearly robust, but iron ore prices remain very elevated
versus fundamentals, and it’s only a matter of time before they normalize to
below $60,” Ian Roper, an analyst at Macquarie Group Ltd., said in an email.
“We’ve had a negative view on prices for a while but they’ve held up longer
than we expected.”
