The Wall Street Journal Recap: January 9-15, 2017

/ Richard Lewis / Leave a comment

My full notes on the Wall Street Journal from the past week: January 9-15, 2017 (Week 2).  Please Enjoy.

  1. China Troubles

    1. The End of the Asian Century: Book Review (link)
      1. “(China’s) economy is still dominated by massively indebted and usually inefficient state-owned enterprises that engage in wholesale theft of intellectual property.”
      2. …towering garbage heaps reveal the almost inconceivable environmental harm,”
      3. “There are, on average, 180,000 reported demonstrations against the regime every year.”
      4. “…nearly 50% of the country’s wealthier citizens say they plan to move overseas within five years…”
    2. McDonald’s sells Chinese restaurants to “a sprawling state-owned conglomerate that boasts a suite of financial services.” (link)
      1. “McDonald’s struggles in China as “many people have turned to cheaper local restaurant joints as China’s economy has slowed.”
        1. 51% of Chinese consumers had eaten at western fast food in 2015, down from 67% in 2012.
      2. “Getting cash out of China will be a ‘top-quality problem’“…”Previously McDonald’s reinvested most of its profit from China back into the country.”
    3. Time to Start Worrying Again About Chinese Property (link)
      1. Property prices in the Middle Kingdom surged 18% in the first 11 months.
      2. A price meltdown will hurt local governments as land sales are a major source of government revenue.
      3. The state-owned banking system is heavily exposed both (1) directly to home buyers and (2) property projects, and through (3) the use of property as collateral in business loans.
      4. Property related loans grew 25% in the first three quarters in 2016 & Mortgages grew at an even faster pace of 33%
      5. New home buyers are much more leveraged.
      6. UBS estimates the loan-to-value ratio for new home purchases at close to 70%, high by Chinese standards, where cash buyers used to be common.
      7. Some of the biggest property developers have also loaded up on debt.
    4. Chinese Insurers are aggressively selling Universal life insurance plans and aggressively investing the premiums. (link)
      1. “Chinese insurers are tapping huge amounts of cash raised from sales of newfangled investments to take big stakes in other Chinese companies and to fund international expansion.”
      2. Driven by rising sales over the internet, industry-wide insurance premium income rose 20% in 2015 to more than $370 billion and is projected to hit $700 billion by 2020
      3. “…many customers see insurance as a path to profits rather than a way to seek shelter.”
      4. “…analysts estimate that as much as a fifth of bank loans are bad.”

  2. Unintended consequences of Government Programs (These examples should give us pause the next time we think we can predict the impact of actions on a complex system.)

    1. Import tariffs on magazine paper made in Canada triggered a cascade of unintended consequences. (link)
      1. “The tariffs inadvertently hurt Maine outposts of Canadian paper producers that employ 1,200 people.”
      2. “In the end, the tariff…wasn’t a cure-all for the two American mills that advocated for it.”
      3. “You mess with the market, there are always unexpected developments.”
    2. New York providing $7 billion in subsidies to nuclear plants threatens the coal industry. (link)
      1. “Someone needs to let them know that you’re killing coal if you through billion-dollar subsidies to nuclear.” 
    3. Government loan program to bring clean energy to the masses are being hawked irresponsibly to unsophisticated homeowners. (link)
      1. “Some local governments embraced the loans as a way to bring clean energy to the masses didn’t anticipate the consequences.”
    4. The Chinese government’s escalator policy backfired.  They couldn’t foresee the negative impact of getting people to side on the right side of the escalator. (link)
      1. “Beijing and Shanghai struggled for years to convince escalator riders to stand to the right to let those in a rush pass on the left.”
      2. “Nanjing’s subway operator issued a social media post that cited statistics saying 95% of escalators experienced severe wear and tear on the right side.”
    5. The “Chicken-tax” resulting from a 1960’s trade dispute turned Mexico into an auto manufacturing powerhouse. (link)
      1. Introduced in the 1960’s, the Chicken-Tax was a 25% tax on all imported pickup trucks to the U.S. Then, in the 1990’s, NAFTA made Canada and Mexico exempt from the Chicken Tax.  Therefore, trucks could be imported from Mexico into the U.S. without incurring the tax.   Nafta, combined with the chicken-tax, opened the door for Mexico to become a dominant auto manufacturer.
    6. Afghanistan‘s “double-digit growth rates collapsed to almost zero a year after (U.S.) withdrawal.” (link) Additionally, “The Sunni Muslim terror group emerged…establishing a foothold in districts in eastern Nangarhar province.” (link)
      1. This story of the U.S. leaving Afghanistan reminds me of the British with Singapore. Except the U.S. left much more haphazardly than Britain, and there was no Lee Kuan Yew in Afghanistan to lead it out of its terrible predicament.

  3. People will exploit whatever is exploitable…and they ruin it for everybody else.  This goes for politicians, corporations, and civilians.  This should give us insight into how we design laws, oversight, incentives, etc.

    1. Politicians:
      1. Venezuelan President Nicolas Maduro is playing shady games to hold on to power. (link)
        1. Maduro described efforts to remove him as “coup plots” and blamed Venezuela’s troubles on an unexplained “economic war” waged by his political rivals.
      2. Turkish President Erdogan (link)
        1. “The aim is to bring Turkey to its knees, to take over Turkey and to distance Turkey from its goals. Therefore, they are using the foreign exchange rate as a weapon,” Mr. Erdogan said.
      3. Congo’s President Joseph Kabila refuses to leave office. (link)
      4. Columbia Holds Odebrecht Graft Suspect (link)
      5. South Africa: Corruption within the ruling ANC party. (link)
    2. Companies
      1. Car Companies
        1. VW: Pleaded Guilty to a myriad of criminal charges. (link)
        2. Fiat Chrysler : U.S. regulators accused Fiat of using software that allowed them to cheat emissions standards. (link)
        3. Renault: “French prosecutors have opened an investigation into Renault SA on suspicion of emissions fraud,” (link)
      2. Shire PLC: Drugmaker to pay $350 Million to settle allegations that it illegally promoted Dermagraft.
      3. Korean Conglomerates: Dominate Korea’s landscape and questions are abound about influence peddling. (link) (link)
      4. Takata Corp. executives.
        1. “A federal grand jury indicted three former Takata execs with conspiring to provide auto makers with misleading test reports on rupture-prone air bags…” (link)
    3. People
      1. Select Cuban immigrants abused the “wet-foot, dry-foot” policy and ruined it for everyone. (link)
        1. “Cubans themselves provoked this…it was an abuse of that privilege.”
        2. “Some Cuban-American lawmakers have soured on the policy. They say many migrants are draining U.S. benefit programs while helping prop up the Cuban government with all the cash and goods they take back to the island.”
      2. Liu Zhongtian who is allegedly shipping his wealth around the world in the form of 6% of the world’s Aluminum inventories, proving that, where there’s a will, there’s a way. (link)

  4. VW: Mission Accomplished!?

    1. In 2007 Volkswagen set a lofty goal for itself: to become the world’s largest automaker by 2018. (link)
    2. Last week it was officially announced that VW is the largest car company in the world!  Mission accomplished!…But at what cost?
    3. In the very same week VW also plead guilty to criminal wrongdoing charges that spanned from 2006 to 2015, and agreed to pay a fine of $4.3 billion. (link)
      1. The U.S. indicted six current and former executives of VW for their alleged part of the company’s U.S. emissions fraud. 
      2. VW is expected to plead guilty to charges of, Conspiring to defraud the U.S., commit wire fraud, violate the clean air at, obstruction of justice, violating import rules.

  5. Insights from Various Articles

    1. New Zealand is a perfect place for launching rockets: “A small island nation in the middle of nowhere is pretty much exactly what you want.”
    2. Valeant generated fantastic returns with the two sales they just inked (link):
      1. Bought CeraVe in 2008 for $95 million. Sold it in 2017 for $1.3 billion.  
      2. Bought Dedreon in 2015 for $500. Sold it in 2017 for $820 million.
    3. Mental Model: Consistency and Commitment
      1. “Once shoppers start buying from QVC, their habits are remarkably stead; on average, its customers have bought 24 items a year in each of the last five years.” (link)
    4. Uranium demand is declining across the globe…except for in China.
      1. “A huge fleet of reactors” are being built in China. Meanwhile Japan has backed off nuclear since Fukushima, and “plant’s are closing across the U.S. and Europe.”
    5. Germany: “With inflation picking up markedly, there is really no argument left that speaks in favor of a zero-interest rate policy,” (link)
    6. Liquidity is always there…except when you need it. “People thought that forex markets were more safe from this because they’re so liquid.  That might not be the case.” (link)
    7. Demand for U.S. mortgages is down significantly in the third quarter, in the wake of higher rates, which were up 0.82% for the quarter. (link)
      1. Mortgage applications dropped 21% from the third quarter.
      2. Refinances fell 31%.

  6. Artificial Intelligence & Technology

    1. Call Centers are using AI to know more about you. (link)
    2. Restaurant app seeks to learn your preferences. (link)
    3. Lot’s of cool possibilities with AI and self-driving cars, with one exception: Traditional auto makers, unnerved by tech competitors, are “rushing toward self-imposed deadlines to bring self-driving cars to market in the next three to four years.” They’re ‘rushing’ to do this!?  Sorry guys, you can’t can ‘fail fast’ with self-driving technology. (link)
    4. AI can be used to “spot trends and patterns that wouldn’t be evident to the sharpest data scientist.” (link)
      1. “Massachusetts General Hospital plans to use a system that draws on a database of 10 billion images to identify anomalies on medical images.”
      2. “Quickly identify cracks in jet engine blades.”
    5. India’s new digital identification system is scary. (link)
      1. “The system, which relied on fingerprints and eye scans to eventually provide IDs to all 1.25 billion Indians, is also expected to…eventually facilitate daily needs such as banking and buying tickets.”
    6. Space-Based Flight Tracking would enable real-time flight tracking over oceans. (link)
      1. It would also “give pilots greater flexibility to change routes, avoid turbulence and cut flight times.”

Funniest Quote:

“Russian pilots have some-times broken their silence when contacted by a female air-traffic controller.  In early September, a female U.S. air-surveillance officer spotted an unidentified plane approaching allied aircraft over Syria.  ‘You’re operating in the vicinity of coalition aircraft,’ she warned the pilot.  A heavy Russian accent emerged through the static: ‘You have a nice voice, lady.  Good evening.'” (link)

Strangest Photo Award:

French President Francois Hollande.

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