Media Worth Consuming – August 2019

Jonathan Rochford

Narrow Road Capital

The heavy fall in global semi-conductor sales looks very similar to the fall during the financial crisis. US manufacturing and services PMIs have slumped in August. American RV sales have been a very accurate recession indicator and are now pointing to another recession. The charts that point to the global economy being in or close to a recession. American leveraged loan issuers are pulling deals as the market catches a cold. The global economy is heading towards a debt end.

Hainan province has bailed out HNA Group on a defaulted bond payment. China’s Hengfeng Bank is the third midsize Chinese bank to receive a bailout in three months. Chinese developers are getting looser covenants on their debt. Chinese companies are regularly selling new debt at yields well below where their existing debt trades. Chinese companies could be exposed on foreign currency loans as the Yuan slumps. A Chinese cryptocurrency Ponzi scheme has collapsed after taking in $3 billion from investors.

Argentina is asking for maturity extensions on its debts as its foreign exchange reserves plummet. The IMF has to decide whether to throw good money after bad in Argentina. Argentina’s bonds plunged after the first round election result and its shares fell 48%. Fitch cut Argentina to CCC, S&P cut it to B-. Spain’s banks and companies are facing trouble from Argentina’s distress. Even with a 20% yield, Ghana could only raise one-third of its debt issuance target. Ghana’s banks and fund managers have been hit with a run, with one-third of banks closed. Healthy borrowers are strategically defaulting in Bangladesh after a debt amnesty was announced. Zimbabwe’s economy is collapsing again.

A very tongue in cheek skewering of WeWork’s IPO. WeWork is likened to a “combination of Uber, Tesla, Fyre Festival & Theranos”. WeWork’s IPO document is hilarious in a bad way. Softbank is providing loans to its employees so that they can invest in the next Vision Fund. Uber and Lyft are lying to their drivers, customers and investors, taking more than one-third of customer billings. Uber and Lyft recorded losses larger than their revenue. The start-up that is losing money lending to other start-ups.

US private equity funds buying companies at more than 12 times EBITDA is the new normal. A quant group is marketing a liquid alternative to private equity investments, charging a small fraction of the usual private equity fees. Insiders are selling record amounts of their stock, just like they did in 2006 and 2007.

The data that shows the relentless rise of index funds. Michael Burry sees a bubble in passive, with great opportunities for active managers in smaller value stocks. AQR argues that managers beat the bond index partly because the bond index is poorly constructed. 99% of listed companies disappear worthless. Hedge funds with insider capital outperform, but are more likely to be closed to new investors. Cornell’s endowment has gone through massive change to try end its perennial underperformance. The reasons why so many have failed to match Yale’s endowment returns.

Rating agencies are inflating ratings again. The whistleblower who outed Bernie Madoff claims GE is cooking its books. A profile of Rene Rivken, Australia’s most notorious inside trader. Chase bank is exiting its credit card business in Canada and has forgiven the remaining customers their debts. Why central banks are stepping up gold purchases. Jerome Powell has temporarily banned all Fed Board members from making public appearances or comments.

German savers are right to be angry at the ECB for negative interest rates. Germany’s entire yield curve is negative. 12 reasons negative rates are terrible economic policy. Germany failed to sell its targeted volume of 30 year, zero coupon bonds. $15 trillion of global debt now has a negative yield, with 12 countries having negative yields on their 10 year bonds. 30% of global sovereign debt is trading at a negative yield. UBS is going to start passing on the -0.75% interest rate to large Swiss depositors. Danish banks are offering 10 year mortgages at -0.5% and 20 year mortgages at 0%.

Today’s monetary and trade policies bear strong resemblance to the Great Depression. Developed economies need to learn monetary and fiscal restraint, just like emerging economies did in the Asian Financial Crisis. MMT is old news, it destroyed the reserve currency status of several empires. After negative rates have failed, the IMF is proposing deeply negative rates to fight recessions. If QE had worked as promoted we wouldn’t need negative interest rates. Central banks have learnt nothing from the bursting of low interest rate fuelled bubbles in 2001 and 2008. 20 questions that central banks have no good answers for. Fighting recessions after they arrive makes the cure worse than the disease.

Politics & Culture

Elizabeth Warren has apologised for her false claims to have American Indian heritage. Joe Biden’s family is facing accusations of profiting from his position. Bernie Sanders and the Washington Post are taking turns at defaming each other. The Democratic National Committee’s case against Russia and Wikileaks was thrown out of court for lack of evidence. Miss Nevada was stripped of her title for supporting Donald Trump. Facebook has banned “Women for Trump” ads. Trump is right, Baltimore has high levels of crime and rats.

At Google Camp celebrities talk about climate change after travelling on private jets and mega yachts. A virtue signalling climate activist’s boat trip will result in greater emissions than if she had taken an airplane. Amazon and Walmart say Tesla’s solar panels started fires on their buildings. The parts of America that have seen the highest temperature changes in the last century.

Italy’s Deputy Prime minister mocks Richard Gere’s virtue signalling by telling him to fly migrants to Hollywood on his private jet and house them in his villas. Germany is fining citizens for commenting on an anti-migrant online video. Justin Trudeau was found to have pressured Canada’s attorney general to stop a prosecution against a company he favoured. 54% of Britons want Brexit to occur by any means necessary. 14 profoundly wise quotes on government from Frederick Bastiat.

The argument that the only way to win the war on drugs is to legalise and regulate them. It takes an average of 9 months to get approval to open a chain store in San Francisco. Venezuela and Uruguay warn their citizens against traveling to Detroit and Baltimore. Mass shootings in America aren’t becoming more common and rarely fit the stereotypes portrayed by the media. The US and its allies are killing more civilians in Afghanistan than ISIS and the Taliban combined.

China is incensed that France has granted asylum to the family of the jailed former Interpol leader. 2.65 million Chinese were blocked from buying plane or train tickets in July due to poor social credit scores. If you want to label people fascists, start with China. China has banned its filmmakers and movie stars from going to an awards ceremony in Taiwan. Hong Kong police are attacking journalists. Hong Kong activists are planning a bank run against Chinese banks.

The US Women’s soccer team earns more than the men, but still claim they are being discriminated against. A large American law firm is being sued for giving more favourable treatment to mums over dads. An Ohio boy is in trouble for saying that another boy is a boy.

Economics & Work

The benefits and challenges for people on the Autism spectrum working in finance. Australia will be a constant construction zone unless population growth slows. Walmart shoppers are seeing plenty of inflation. Capitalism works because it rewards productivity. One of the key reasons poor countries stay poor is a lack of entrepreneurship. Today’s Keynesians are the economic equivalent of flat earthers.


Dozens of Americans have been falsely charged with insurance fraud after their insurers provided dubious evidence to police. Wells Fargo told a business that their accounts were closed and paid out a final cheque, then charged fees and pushed the accounts into overdraft. Yelp is charging restaurants referral fees for customers that don’t place orders and is recording customer calls to restaurants without permission. Tesla has been making false claims about its vehicle safety test results aid its cars are frequently being sold for scrap after comparatively minor crashes as they are very difficult to repair. Amazon is facing a fresh wave of anti-trust allegations for bullying its sellers. How retailers use the “decoy effect” to increase their margins. What it is like to be an identity theft victim.

The guy who lost weight eating gas station food for a month. 6 reasons we make bad decisions. Scientists have discovered an economical way to extract hydrogen from oil. London has erected signs telling people not to urinate or defecate on the streets. How to make a few extra bucks running a phone farm. American parents are transferring legal guardianship of their children to relatives so the children can get financial aid for college. A baseball fan threw 96 mph pitches in a fan challenge at a Rockies game and has ended up with a major league contract.

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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