Media Worth Consuming – August 2018

Jonathan Rochford

Narrow Road Capital

Global trade is slowing, commodity prices are falling and global liquidity is drying up, pointing to weak GDP growth ahead. S&P 500 earnings growth estimates are well above normal and closing in on the tech bubble peak. The longest bull run ever continues with stretched valuations. Stocks in more indices are more expensive than those in few indices. Momentum strategies are doing poorly now that they are popular. Smart beta strategies often ignore trading and tax costs. Hedge fund managers hold their positions longer than many investors think.


This Japanese CEO has a track record of outstanding shareholder returns by putting customers and employees first. To be a productive money manager break some of the unwritten rules. Fidelity announces two fee free index funds. The hedge funds you really want to invest in won’t take your money. Litigation funding is booming as an alternative asset class. 15% of new Canadian mortgages are on properties that already have a mortgage. The rejection rate for refinancing applications has jumped from 5% to 40% in Australia.


After a decade of operation, it’s not clear when or if Uber will become viable. Moody’s withdraws its B3 rating for WeWork citing lack of information. 86% of Tesla cars need rework, compared to 20-35% for other manufacturers. Tesla is slowing down payments to suppliers who are worried about its viability. Tech companies are burning cash like it’s 1999 with tech valuations a micro bubble rather than a macro bubble. Now all the cryptocurrency stories are about how much people lost.


China’s first default of a local government financing vehicle is a lesson for lenders. A Chinese rating agency has been suspended from providing ratings after being caught inflating ratings for money. China’s high speed rail network has been built on debt, with interest costs exceeding operating profit. Chinese banks are adding options to their deposits (structured deposits) to boost returns. Two-thirds of peer to peer lenders have failed in the last three years, with 15% failing since June. Chinese asset management companies are being asked to buy assets from peer to peer lenders. There’s a massive gap between official and actual industrial profit. China is following Russia’s pathway on malinvestment. China’s banks dominate the list of the world’s largest banks, just like Japan’s did before their multi-decade malaise began. The average recovery rate on a defaulted Chinese bond is a measly 17%.


Emerging market carry trades have been hammered in August. The 608 page report on Puerto Rico’s bankruptcy finds no one is to blame. Pakistan doesn’t want the IMF poring over its financials as sweetheart deals for China would be axed. The IMF is considering faster disbursement of Argentina’s $50 billion bailout. Greece’s bailout has ended but it remains an inefficient economy with little prospect of growth or structural reform. India’s efforts to clear non-performing loans are a shambles. Venezuela’s devaluation slashed 5 zeroes off the currency. 10 observations on the Great Depression.


Politics & Culture

James Comey lied about and botched the Clinton email investigation, checking only a tiny percent of the actual emails before clearing Clinton. Trump has good reason not to trust the intelligence community after the unmasking scandal. Newspapers collude to criticise Trump over free speech issues but ignore Obama’s legacy of problematic behaviour and are strangely quiet on Julian Assange, a free speech hero. A US judge threatens a newspaper with controlling what it can publish. Louisiana locks Bank of America and Citigroup out of a bond raising for anti-gun policies. If politicians can’t balance a budget what right do they have to tell businesses how to allocate capital?


Racism by “progressives” is still racism. “Progressives” preach on inequality but implement policies that worsen it. America is beating poverty but vested interests aren’t happy. Soda and snacks are on the top ten list for food stamp spending.


The trials of being a rare female barrister. A Tokyo university deliberately reduced women’s scores in the medical entrance exam for six years. A female hero of the MeToo movement paid a man to settle claims she sexually assaulted him when he was underage. Feminists defend a female Professor found guilty of sexually harassing a male student. Refugees in Germany are taking holidays in the countries they have “fled” from.


Denmark became rich and grew faster when its taxes were lower, and it isn’t a good example of socialism as it has some strong capitalist features as well as high taxes and welfare payments. South Africa is trying to drive out capital and expertise from its mining sector. Naivety and idealism led an American couple to be stabbed to death in Tajikistan. Pacific Islands are talking about grouping together to press China to forgive development loans. Russians aren’t happy about Putin’s proposal to raise the retirement age.


Google staff are angry that it is selling out with a censored search engine for China. Some Facebook employees are getting sick of its left leaning bias as illustrated by shutting down PragerU videos, then claiming it was an accident. Twitter is caught out for double standards on racism again.


Economics & Work

The rapid growth of the global middle class is a massively ignored success story. Excerpts from Ray Dalio’s book on debt cycles. Rent controls ultimately make housing more expensive. How “cheap” renewable power forces out truly cheap baseload power, pushing up power prices. A single payer system in the US could drive down the cost of hospitals, doctors and drugs. Non-economists easily build a better forecasting model for GDP than the IMF. Economists are finally looking for and finding a strong correlation between credit growth and future recessions.


Tech firms are lobbying Californian politicians for exemptions from minimum wage laws. The US has over 2,000 regulations mandating training for low income jobs, but none for training for politicians. What does society owe able bodied people who are unwilling to work? Australian wage growth remains low as there is plenty of underutilisation in the labour market.



Technology for faking people’s voices and faces is getting remarkably accurate. What it’s like for global corporation to be shutdown by a computer virus. China blocks Winnie the Pooh movie after memes compare the lead character to President Xi. 6 ways to get more out of reading books. How optimists and pessimists see luck differently.


A New Zealand supermarket promotes beer as part of Good Health Week. Ryan Air cancelled their flight then sent them cheques that bounced. It’s not a work of art, it’s just a hole in the floor. Police called after a man eats raw meat at a vegan festival. An amateur golfer hits three holes in one in a day. The challenge to squeeze 49 Disney rides into one day. The crazy stuff people try to take on board planes.

Jonathan Rochford
Portfolio Manager
Narrow Road Capital

Narrow Road Capital is a credit manager with a track record of higher returns and lower fees on Australian credit investments. Clients include institutions, not for profits and family offices.

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