My Posts (14-20 July, 2024)

The last two charts in this article were quite interesting. This week, somehow, I found many articles on Japanese companies this week. "The Folly of Certainty " from Howard Marks of Oaktree Capital is a must read, as usual. 3 articles on UBS, not directly related but all interesting. Toyota knows the importance of diversification. ?

Chart of the week

Working Population in Decline (The Daily Shot ):?East Asian countries are clearly declining. Americas are quite interesting.

INVESTING

Macro

The Folly of Certainty (Oaktree ): "The rare person who in October 2022 correctly predicted that the Fed wouldn’t cut interest rates over the next 20 months was absolutely right... and if that prediction kept them out of the market, they’ve missed out on a gain of roughly 50% in the SP500 index. The rate-cut optimist, on the other hand, was absolutely wrong about rates but is likely much richer today. So, yes, market behavior is very tough to gauge correctly."

Rate Cuts Could Make Things Worse for Banks Before They Help (WSJ ): If the Federal Reserve Board is cutting interest rates, that probably means things are already quite ugly with some momentum. If the market is challenging, US treasuries seems to be a good place to be.

USD/JPY Hedging Cost (Daiwa Asset Management ): It is coming down

UBS

UBS Global Wealth Report 2024 (UBS ): "Wealth is steadily growing throughout the world-albeit at different speeds-with very few exceptions. The proportion of people in the worlds with the lowest wealth (under USD 10,000) has nearly halved since 2000, while the proportion of people in every other wealth bracket has grown."

The Bankers’ New Clothes (Amazon ): I just finished reading "The Bankers' New Clothes: New and Expanded Edition." It is updated with the authors' analysis on SVB and other recent events in 2023. Overall, the book gives a very detailed and convincing argument on reducing leverage by the banks. Also has extensive analysis of UBS.

Greensill investors challenge UBS redress offer over missing documents (FT ): Low risk and high returns rarely co-exists. But besides that, why are the documents seeked by the investors not disclosed?

Fund Business

Private equity firms slash use of risky debt tactic to fund payouts (FT ): This is good news. “Private equity firms have sharply curtailed their use of a controversial debt financing manoeuvre to return cash to investors, after institutions raised concerns about how some groups have embraced new forms of leverage to compensate for a lack of deals.”

The increasing complexity of the ETF universe (FT): A summary article by Financial Times based on J.P. Morgan's annual Global ETF Handbook .

US Fund Fee Study 2023 (Morningstar ): Their observation that the "move toward fee-based models of charging for financial advise has been a key driver of the shift towards lower-cost funds, share classes and fund types-most notably exchange-traded-funds" is good news to investors and financial advisors, bad news for asset managers.

Swiss asset manager GAM set to close Hong Kong office (Nikkei Asia): "Speaking to Nikkei Asia on the sidelines of a news conference, Rossen Djounov, GAM Investments's global head of distribution and client solutions, said the firm's employees in hashtag#Hongkong will join SHK & Co. as part of the deal. The two managers' Hong Kong offices are in the same building but on different floors."

Miscellaneous

BofA private clients all in T-bills, no one in Treasury Bonds (The Daily Shot ): Some are crowded, others are not. I hate congestions.

Pork Producer Smithfield Plans U.S. Stock Listing (WSJ ): If they list, it would be an interesting stock to watch. It would give investors another way to get exposure to the pork market.

Japan Inc.

Japan fintech tapped to build Palau's first bond issuance platform (Nikkei Asia ): "A Japanese financial technology company that helped create Cambodia's digitalcurrency will build the Pacific island nation of Palau's gateway to the bond market.”

Florida and Texas property markets draw Japanese homebuilders (Nikkei Asia ): “Sekisui House, Ltd., Daiwa House Industry Co., Ltd. and Sumitomo Forestry together sold around 30,000 single-family homes in the U.S. in fiscal 2023, about 30% more than in Japan.”

Japanese retail investors rally around activism (Nikkei Asia ): “The shifting tide is driven in part by the Tokyo Stock Exchange’s move in March 2023 requesting publicly listed companies to keep a return-on-equity ratio of at least 8% and a price-to-book ratio of at least 1, or come up with plans to achieve these benchmarks. Another factor is a decline in stable shareholders amid pressure from the TSE and the Financial Services Agency against corporate cross-shareholding.”

Japan's M&A market thrives despite global deal downturn (Nikkei Asia ): "Global M&A activity declined in both volume and value in 2023, according to Pitchbook data, but the number of transactions involving Japanese targets held steady, with 186 deals worth $12.1 billion compared with 188 for a cumulative $21.1 billion in 2022. Bain & Company's recent report, 'M&A in Japan: Resilient Activity -- But Now It's Time for More,' also highlights a record level of acquisitions by private equity investors in 2023."

Tokyo airport trials driverless cargo vehicle (Japan Times ): "Tokyo's Haneda Airport is trialing a driverless vehicle to tow cargo containers in an attempt to get around labor shortages as the number of tourists flying into Japan soars. The vehicle at one of the world's busiest airports can tow up to 13 metric tons of containers, joint developers All Nippon Airways (ANA) and Toyota Industries Corporation said in a statement."

How Subaru maneuvered to set global safety rules for drones (Nikkei Asia): "Subaru's collision avoidance procedures work in six stages. They include constantly checking for potential obstacles, detecting an aircraft, taking evasive maneuvers, checking to see if there are other aircraft approaching, returning to the original route, and proceeding along that route."

Toyota’s Pratt Wisely Puts Automotive Eggs in Many Baskets (Real Clear Energy ): "Toyota Motor Corporation, he (Gill Pratt, chief scientist at Toyota) said, recognizes the difference between decarbonization – which is the goal – and electrification, which is one means of reaching that goal. Toyota therefore is building hybrids, electric vehicles (EVs), and internal combustion engines that use hydrogen rather than gasoline or diesel as a fuel. In the developing world where electricity is in short supply, he added, the best choice may be low-carbon liquid fuels."

Emerging Markets

10th Pacific Islands Leaders Meeting: 5 things to know (Nikkei Asia ): “Pacific leaders will gather in Tokyo for the 10th Pacific Islands Leaders Meeting (PALM10) from Tuesday to Thursday. climate change, fisheries and commitments to support development from the host nation will be among Pacific island countries’ interests, along with concerns about the release of treated wastewater from the disabled Fukushima nuclear plant.”

Fact of the day from China (The Daily Shot ): Chinese control / operation of overseas terminals. ?

Corporate Tax Rate of G20 (The Daily Shot ): Singapore and Hong Kong are not part of G20. The corporate tax rate is 17% and 16.5%, respectively.