Media worth consuming – May 2019

Jonathan Rochford

Narrow Road Capital

Global trade and air freight volumes have gone negative. New York City has a glut of luxury apartments for sale. Ten year returns look fantastic now that the losses of 2007-2009 have washed out. As equities become more expensive, insurance against falls is getting cheaper. Smaller Japanese banks are looking to international structured finance debt for yield. Synthetic CDO volumes are soaring as institutional investors chase yield.

The first four months of 2019 were tracking towards record pace for US IPOs. This year’s crop of US IPOs is making tech stocks listed in 2000 look tame. The cash burn rates of today’s big tech IPOs look like Tech Wreck failures not Apple, Facebook or Google. A Morgan Stanley analyst goes from bullish to “Tesla is not seen as a growth story, it's seen as a distressed credit and restructuring story”. Tesla’s directors and institutional investors have been selling out whilst the company forces some employees to supply their own toilet paper.

Supply chain financing is a legitimate and growing method of financing, but some companies are using it for accounting shenanigans. Vanguard has a patent on its tax dodging strategy for ETFs. Berkshire Hathaway invested in a now bankrupt company thought to have been a “Ponzi-type investment fraud scheme”. A metals company faked test results ultimately causing $700 million in damages and the failure of two satellite launches. The UK’s Metro Bank has had a bank run after understating its risk weighted assets. Shares in Greek banks have jumped but they are still chock full of bad loans.

Hedge fund Appaloosa is closing down but its record of generating 25% annualised returns over 25 years is one of the best ever. How to find hedge funds worth investing in. Fund manager returns fit four profiles, with the best the least common. The amount invested in passive management has reached parity with active strategies for US equities. Catastrophe bonds are a good diversifier but aren’t safe haven assets. Factor investing isn’t working for institutional investors. An interview with the fund manager who buys stocks that make other people feel sick.

Chinese bond defaults this year are running at 3.4 times the rate of 2018 with buyers of bad loans getting flooded with offers. Large depositors are expected to lose 20-30% of their deposits on Baoshang Bank’s failure. China’s bond defaults are being understated as undisclosed private restructurings increase. A disproportionately large share of China’s international loans have needed to be restructured or written off.

China’s Kangmei Pharmaceutical Co has admitted it overstated its cash position by $4.3 billion. How the collapse of Hong Kong’s network of cross ownership and stock manipulation unfolded. Two Chinese stocks have soared due to the meat substitute boom, but neither makes any meat alternatives. Yield chasing investors are buying bonds from Chinese cities they’ve never heard of.

Pakistan reaches initial agreement with the IMF for a $6 billion bailout. Venezuela’s government is selling its gold so it can keep paying the military and stay in power. Puerto Rico has set a precedent in arguing you can’t rely on disclosures from government borrowers. A veteran emerging market debt lawyer sees a wave of defaults ahead as immature borrowers can’t meet bullet repayments on loans made in sunny times.

Jim Grant: Sack the PhD holders at the Federal Reserve and replace them with historians, philosophers and a physician. Jerome Powell has drunk the Kool-Aid and now claims that “low inflation is one of the major challenges of our time”. The Federal Reserve is ripping off Americans, creating inflation when deflation should be occurring. The Dutch central bank found that low interest rates increase wealth inequality. There are strong arguments for a clean out of senior staff at the Reserve Bank of Australia.


Huawei has a long history of stealing intellectual property. Baltimore’s hack and subsequent shutdown shows the perils of government developed hacking tools and failing to regularly apply software updates. If you love paying a lot of tax, Chicago is the place for you. The city also regularly impounds cars of innocent people and blackmails them for their release. Idaho is about to rescind 8,200 pages of regulation, forcing its legislature to re-pass any regulations it wants to keep.

Nancy Pelosi accuses Facebook of being Russian stooges for failing to remove an altered video that makes her look drunk. Facebook was shutting down pages by Italian populist political groups two weeks before an election. Google employees are rebelling against their company that has repeatedly broken its “don’t be evil” motto. The nine principles that would restore credibility to journalism.

Rachel Maddow has condemned the US government for the recent charges laid against Julian Assange. China is now cracking down on economic think tanks. 130,000 people protested China’s attempts to strangle democracy in Hong Kong.

Americans have become markedly less racist since the election of Trump. American colleges are increasingly offering racially segregated commencement and graduation ceremonies. Germany has a free university system, but it is much lower quality as a result. A Chicago Cubs fan has been banned for giving the ok hand sign. The evidence against Darwinian evolution is becoming overwhelming.

The best way to honour fallen soldiers is to stop engaging in war. The US Army asked people to respond via tweet to “how has serving impacted you” and was hit with a wave of responses of people mentally and psychically broken by war. The Swedish government has no concerns about hundreds of returning ISIS fighters.

The Nordic countries are often considered models for gender equality but have higher rates of domestic violence than many other European countries. Feminists are upset that virtual assistants almost all have female personas, even though the evidence is clear that people respond better to them. Why do Western feminists care so little for the suffering of non-Western women? When summing both paid (employment) and unpaid (home) duties, American men are working 4 hours per week more than women. Women achieve higher returns on share investments than men, but their higher allocation to cash negates that.


The new wave of teaching aiming to eliminate bias from economics is doomed to fail. Thomas Piketty’s wealth inequality data appears to have been substantially manipulated. The collapse in taxi medallion prices is a lesson in basic economics and government interference in markets.

The solution to crony capitalism is capitalism not socialism. The French are sick of being poor, but the answer isn’t more welfare. Despite what the mainstream media is saying, Argentina is far from a free market system under Macri. Modern Monetary Theory failed badly when tried in Latin America. In 1978 Chinese farmers switched from communism to capitalism and went from starving to surplus. There’s a downside to giving food as international aid.

Australia has the highest minimum wage in the world. Teenagers, minorities and ex-offenders are the worst impacted by higher minimum wages. McDonalds has given up fighting minimum wage increases, choosing to increase automation and cut workers in response. American fast food restaurants have a new tactic for attracting workers – pay them the same day they work. The poorest Americans are reaping big wage gains as the economy expands.


8 reasons it is hard to change your behaviour. People eat more and gain weight when their diet consists of highly processed foods, but lose weight when eating unprocessed foods. Mt Everest deaths have spiked this year due to human traffic jams. People typically drown silently not violently.

A journalist’s iPhone had 5400 app trackers using his data and giving away his private information. Hertz’s dodgy computer system has seen a growing list of customers arrested for driving stolen cars. Uber and Lyft drivers are teaming up to create fake surges. A Chinese company claims it has developed a car that runs on water and aluminium powder. Companies are wasting $20-50 billion a year on online ad fraud. An elderly Florida man has been fined $30,000 for failing to cut his grass.

A Chinese man was arrested for naming two of his dogs “City Officer” and “Traffic Warden”. A Charlotte brewery had their delivery van stolen, but an offer of free beer saw it located in 42 minutes. There’s an arms race for t-shirt cannons, with the current record holder firing 186 t-shirts in 15 seconds. The hilarious way to explain Brexit by using an analogy of a Burger King.

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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