Notations On Our World (W-End Edition): Out & About in America This Week

Please enjoy this curated Snapshot of the week that was in America: 

 

The property complex

How a housing downturn could wreck China’s growth model

Evergrande’s woes expose the economy’s unhealthy dependence on property

Why Hedge Funds Are Turning to Private Markets Drawn by higher returns and a growing opportunity set, hedge funds are increasingly investing in private markets, according to a new report, Going Private: Hedge Funds and the Convergence of Private and Public Equity Investments, from Goldman Sachs’ Global Markets Division. “We believe there is a confluence of factors at play here,” Kristin Kramer, head of U.S. Capital Introduction in Prime Services, explains in the latest episode of Exchanges at Goldman Sachs. “The first is that there’s been a pretty significant shift in the capital formation process for companies.” Companies are raising almost twice as much capital pre-IPO as they did a decade ago, leading to a dramatic rise in valuations and an increasing number of so-called “unicorns,” private companies valued at over a billion dollars. Although hedge funds typically invest in public markets, they're better able to secure an allocation to initial public offerings by investing in late-stage private companies, explains Freddie Parker, co-head of Prime Insights & Analytics in Prime Services. “If you look at the public companies and private companies, you can use the insights derived from one to inform the other,” he adds. “So it enables you to have this much more holistic view of what’s going on across the public/private divide. But also, hopefully investing in privates informs your opinion on your public market investments.” Listen to podcast SHARE:

'See the World' Now Beats 'Stay at Home' Source: Marquee PlotTool Pro as of 28 Sep 2021; past performance is not indicative of future returns. Leisure and travel are making a comeback. According to data from Goldman Sachs' Global Markets Division, companies that help you see the world are now outperforming those that help you stay at home. As the chart above shows, equities with exposure to reopening themes are rising in the U.S. and E.U. compared to businesses that benefit from consumers spending more time and money around the house. In Asia, the trend is lagging, in part due to a slower vaccine rollout in Japan and Australia. The GS reopening baskets consist of U.S., E.U. and APAC-listed equities predominantly in the leisure and travel industries, which are expected to outperform as more people begin to leave home and the vaccine rollout makes further progress. Stay-at-home baskets, meanwhile, consist of companies that benefit from at-home activities, including food delivery, internet marketing, streaming services and at-home fitness services. From Matthieu Martal’s weekly Movers & Trending publication on Global Markets Insights, September 26, 2021.

Briefly…on What's Pushing Gas Prices So High Bundle up this winter. Rising power and natural gas prices are pushing up bills for households across Europe and the U.S. At the Goldman Sachs Asset Management Forum, Kaelyn Lucas and Joanna Saw from the corporate credit team explain the drivers that are moving prices up and the outlook for corporates and consumers.  What’s driving power and natural gas prices to record highs across Europe? Joanna Saw: Soaring natural gas prices are feeding into power prices, so as gas prices have jumped by 2.5 times year-to-date, we’ve seen power prices roughly double across Europe over that period. It’s really due to a perfect storm of events: A long winter drove demand during key periods when gas supplies are normally refilled and stored for the winter; cargoes of liquefied natural gas have been redirected from Europe to Asia; and Russia, a key exporter of gas, has slowed exports to Germany and the rest of Europe. All of these factors are resulting in higher power prices and, in fact, generating stronger demand for coal which is also seeing higher prices due to carbon pricing. The U.K. is being particularly squeezed given that the country is a net importer of power from France and Ireland, which have both been tightening exports. What are the implications in this case for investors? Joanna Saw: Invariably there will be winners and losers from these record commodity prices. We think the net winners will be investors who are long energy prices, such as large energy and power generation companies, while the net losers and those who will be most exposed are the buyers and suppliers. Households can also expect to pay higher utility bills given that 30% of the costs are tied to gas and power prices. U.K. utility bills, for example, are set to increase by 12% for the winter period due to price increases over summer 2021. And, with current forward prices, bills are expected to jump 25% further for the summer of 2022, which will hurt households’ disposable income and boost inflation expectations for next year. The utilities in the U.K. are particularly hampered by a consumer energy price cap that was introduced in 2019 by the regulator Ofgem, which limited utilities’ ability to pass on rising wholesale prices to customers (the price cap is reviewed by Ofgem every six months). As a result, many utilities are now struggling to absorb the higher costs; in some cases, the smaller utilities are shutting down.  And what does the situation look like in the U.S.? Kaelyn Lucas: In the U.S., natural gas prices are approaching levels that we haven’t seen since 2014, with a 30% run-up in U.S. Henry Hub natural gas prices. In fact, this is the first time gas prices have broken above the $5 per million BTU threshold since then. Overall, we can also expect to see higher winter heating bills for customers and higher costs for utilities. Similar to what Joanna notes, this is really a perfect storm of events in the U.S., where an unprecedented heat wave reduced the availability of gas to store for the winter months. We’ve also seen relatively flat gas production and record exports. How will the electric and gas utilities manage the higher costs? Kaelyn Lucas: The impact on gas utilities should be relatively neutral, as costs are likely to be shouldered by their customers. In fact, we haven’t seen much bond price reaction because the expectation is that utilities will pass on the higher prices to consumers via regulatory mechanisms. Transmission and distribution utilities—which have less coal and gas exposure—will tend to fare better than natural gas utilities, which cannot switch fuels to more economic inputs such as coal and wind. But to the extent this situation persists, it could make investments in decarbonization and other capex more challenging for the vertically integrated electric utilities, while increasing the utilization of coal—and carbon emissions across the industry—in the near term. The main impact, of course, will be customer affordability: The gas utilities have benefited from a decades-long tailwind of a declining cost environment, resulting in lower customer bills. Across the U.S., the average heating bill is around $60 a month and 40% of that can be attributed largely to purchased gas costs. So a 50% increase in the cost of gas would equate to a 20% bill increase. Over the long term, if higher prices persist and become the new equilibrium, this could potentially force U.S. households to allocate more of their income to paying gas bills while limiting utilities' ability to raise rates absent regulatory intervention.

Celebrating Hispanic American Heritage Month The Hispanic American population increased 23% from 2010 to 2020, reaching 62 million. But this population isn’t just growing, it’s becoming more diverse. To mark the last week of National Hispanic American Heritage Month, USAFacts gathered government data on Hispanic Americans from diverse backgrounds to provide insight into families, educational attainment, and more.   Hispanic populations grew by more than 50% in 12 states between the last two censuses. In 2010, North Dakota had the third-smallest Hispanic population (33,000), but it more than doubled by 2020. New Mexico had the smallest percentage of Hispanic population growth: 5%. Thirty-nine percent of Hispanic Americans with South American backgrounds, including 56% of Venezuelan Americans, have a bachelor’s degree or higher. Overall, 33% of the US population has a bachelor’s degree.   With a median age of 41, Cuban Americans are the oldest Hispanic group. Seventeen percent of Cuban Americans are older than 65, while 21% are younger than 18. Dig deeper into the facts on Hispanic Americans with this special break down of the data.   There are 1 million fewer kids in the US Census data also reveals that there are 1 million fewer children in the US now than in 2010. And yet, the nation’s overall population grew 10% from 234.6 million to 258.3 million in that time. What states are most affected by this decline? USAFacts sorted the metrics county by county in this new report and interactive map. Here are some key takeaways: From 2010 to 2020, the number of people under 18 dropped 1% from 74.2 million to 73.1 million. By the end of 2020, Texas added more children than any other state, growing by 6% to 7.3 million. Overall, the state’s population grew 16%.   West Virginia’s population declined the most (down 3%) and had a 7% decline in people under 18. Mississippi’s population was down 0.2% but had a 10% decrease in children.   The under-18 population grew among Hispanic, Asian, and non-Hispanic multiracial children. Multiracial, non-Hispanic children increased the most of these groups, up 76% to 4.9 million in 2020.   Non-Hispanic white children dropped 13%, from 39.7 million in 2010 to 34.6 million in 2020. Trace growth and declines in your county. You can also learn more about the declining US birth rate (last year’s rate was the lowest since 1979) right here. The debt ceiling debate The Senate reached an agreement late last week to raise the nation's debt ceiling through early December. If you're curious why this debate seems to come up fairly often — and it'll be back in the national spotlight this winter — here are the basics. For more, read this explanation from USAFacts.  The debt ceiling, or debt limit, restricts how much the government can borrow to pay its bills. This limit strictly relates to spending already approved and appropriated by Congress.   In 1939, Congress removed various separate limits on government debt and replaced them with a general restriction now referred to as the debt limit.                                                    Congress stopped passing annual debt limit increases in fiscal year 2008, using short-term increases instead. It enacted the Budget Control Act in 2011 after multiple failed attempts to raise the debt limit. The act raised the ceiling but imposed automatic, comprehensive cuts proportional to debt limit increases. Learn more here, including the extraordinary actions the Treasury Department has taken in this century to keep the government funded.    One last fact Last year, Chinese imports to the US were worth $172.5 billion more than Mexican imports. The nation's trade deficit with China has decreased since 2018 while the trade deficit with Mexico, the nation's second-largest trading partner, has increased.

Coop Scoop: The Democrats Are Down To Their Last Two Outs Either dismantle the Trump conspiracy and give Americans a reason to vote for you or prepare foe catastrophe The Coop Scoop Oct 15 October 15, 2021 By Marc Cooper Barely a year out from the crucial midterms, the Democrats have two do-or-die tasks immediately in front of them. 1) Get to the bottom of and break up the conspiracy that led to January 6 and that continues to push America toward authoritarianism and 2) give an angry, confused and cynical electorate some good reasons to vote Democratic in 2022. On both counts, the party is miserably failing and threatening to take down the rest of us along with its own future. Among all the Weak Sisters who populate the Biden Administration, it looks like Attorney General Merrick Garland might emerge as the Prima Donna. Unfortunate it is, as living with four years of a politically corrupt and frankly immoral Justice Department under the purview of such characters as Jeff Sessions and Bill Barr, a lot of hope was invested in Garland, thinking he would right the ship. After four years of the DOJ working closely with Donald Trump, blindly defending the lawlessness of Trump, and enabling a number of other Trumplican zealots, Garland seemed like the guy who would impose an 180 degree reversal, that he would revitalize Justice as a true defender of universal law and a democratic order. Mostly, there was optimism that DOJ would stop covering up for political criminals that infested the prior administration and would, indeed, finally crack down on them. That moment is now upon us. An opportunity and really an obligation to throw the weight of the DOJ into the battle to break up the conspiracy that brought us January 6 and that continues to chisel away at the Republic is now wide open. The case of Steve Bannon, Trump’s neo-fascist Rasputin who is to be tagged for criminal contempt by the January 6 Select Committee, will land like a thud on Garland’s desk next week. Garland alone will decide with what haste and what vigor he will actually prosecute Bannon (or not) for his failure to comply with a congressional subpoena. It would seem a slam dunk. But Garland’s first nine months in office have shown him to be excessively cautious, slow-moving, not fully transparent, and he seems to be taking the vow of DOJ “independence” to mean he should do little to piss off Republicans and Trumpers. Garland should be praised for pushing the DOJ to take police abuse more seriously, and he should be congratulated for joining the fight to overturn the noxious Texas abortion ban. along with several other policy reforms that Garland has put in place. Then there’s this other side of the ledger… what appears to be Garland’s reluctance to actually prosecute or even investigate any of the egregious lawbreakers of Trumpdom, including the boss, Donald Trump. Consider some of the AG’s recent record: He let Trump off the hook in the alleged rape case against him lodged by E. Jean Carroll. He punted on taking any action regarding the Trump-Barr violent clearing of Lafayette Square last year. Garland helped bury Barr’s obstruction and distortion of the Mueller Report by refusing to release the Office of Legal Counsel memo that Barr used to untruthfully defang the report. He defended former Trump Counsel Don McGahn against congressional subpoenas. He has appealed the ruling that Democrats secured that would reveal malfeasance at the Trump Hotel in Washington D.C. Most egregious, Garland appears to be abstaining on any serious legal inquiry into the actions of Trump and his closest advisors. Leaving the investigation solely to the January 6 committee is a sorry cop-out as that committee lacks any real power to eventually indict. Just look at what it must go through now just to get a subpoena enforced. Sorry to remind everybody, but Part Two of the Mueller Report is nothing less than a detailed blueprint of how to prosecute Trump on multiple counts of obstruction of justice. Barr lied when he presented the report to the public (without presenting it). So, are we supposed to just forget all about this? We just leave it hanging? As the Justsecurity site reminds us: “Indeed, it was over 1,000 former prosecutors who reached the conclusion that “the conduct of President Trump described in Special Counsel Robert Mueller’s report would, in the case of any other person not covered by the Office of Legal Counsel policy against indicting a sitting President, result in multiple felony charges for obstruction of justice.” “In essence, volume 2 of the Mueller report contained a bill of particulars based on factual findings that constitute a prima facie case for charging obstruction of justice. These included finding that Trump attempted to persuade then FBI Director James Comey to “see your way to letting this go,” his firing FBI Director Comey for refusing to shut down the investigation, his suborning perjury by the White House Counsel Don McGahn, his pressure on Attorney General Jeff Sessions to curtail the probe, and his efforts to have the Special Counsel removed.” And what about Trump’s actions since the election? Is Garland the last man in America to not at least suspect that Trump played, um, a major role in the January 6 assault on the Capitol? Does he not care to even investigate? And then just last week Trump was out there calling upon his toadies to not comply with their subpoenas from the House, one more act of obstruction of justice. We’ll see next week if Garland can work up enough courage to enforce the contempt charge against Bannon. That would, at least, be a baby step. That said, make no illusions. Steve Bannon is not about to go to jail. The criminal contempt charge against him that will be levied next Tuesday by the January 6 committee sounds a lot nastier than it is. This is not the sort of contempt of court deal where the bailiff immediately carts you off behind bars. No. After the January 6 committee approves the charge, it then must go to a vote before the full house, where it is expected to pass. Next, the referral goes to the US Attorney in Washington DC who is theoretically obligated to take it before a grand jury. But Garland can kill the move or approve it. If approved, Bannon would be formally charged, he might be briefly arrested (unless he surrenders) and then…we go to trial! And then appeals. By the time that case is resolved both Trump and Biden will probably be dead. We are talking not days or months but, potentially, years. And if eventually convicted, Bannon would pay a small fine and would most likely do no jail time. I can’t figure out what is in the collective head of the January 6 committee. Are they scared? Do they also just want all this to go away? Or do they mean well but are simply hemmed in by process? Good question. There were two other options available for the committee regarding Bannon. They could declare him in “inherent contempt,” an obscure but legal channel that would allow the House Sergeant of Arms to grab Bannon and throw him in the cooler till he complies. The other, more agile option, would be to declare him in “civil contempt,” the option known to many brave reporters who have been on the receiving end of this measure. You go to a judge who declares Bannon in contempt, he is put in jail without trial, and gets out when he decides to comply or 18 months later, whichever comes first. Two schools of thought have arisen among pundits observing this case. On one side are those who think the committee chose the criminal contempt option knowing they would never really get to Bannon but would scare the other witnesses into cooperating. The other school of opinion guesses that the committee (and the House Leadership) just doesn’t have the cojones to have Bannon literally tossed into the clink next week, thereby provoking some horrible and violent reaction from the Trumplicans. Not that the neo-fascists need any provocations. They continue to go about their business in the light of day, without concern or consequences. This past week has seen yet another rash of threats leveled against local health, election and school officials. These are now the preferred targets of our domestic Brown Shirt brawlers. The GOP has further cemented its position in the Right Insurgency by now forcing almost all local candidates to swear fealty to the lie that Trump won in 2020. “Mainstream” Republicans are now denying that Biden is actually president and many of them are now backing new (and ridiculous) state vote audits of the election held 12 months ago. A watered-down, Manchin-friendly voter rights bill comes up for a vote next week and you can bet the farm there won’t be ten Republican votes to break a Republican filibuster. You can pretty much be sure that Manchin will still not support blowing it up even though it will be used to kill his own bill. And as to the Sphynx of Phoenix, Miss Sinema, only her psychiatrist knows for sure what’s rolling around in her noggin. I, on the other hand, feel secure in declaring: There will be no voting rights bill this session of congress. The filibuster will not be dismantled and, so, I will note once again that NONE of the remaining Biden Agenda will be passed… except “infrastructure.” Earlier this week, I caught Nicole Walllace on MSNBC introducing John Heilmann as her guest and asking “What is the state of the play?” Heilmann paused for a moment and then drolly said, “You know, it’s a mobius strip.” Indeed! The state of play has been more or less frozen for months as Biden tries to push forward his alphabet soup of twin infrastructure bills. This will be Biden’s only chance to get anything at all done before the midterms, and the whole process has been a PR and messaging disaster. Frankly, I am confounded on a daily basis. The “human infrastructure” bill, that “reconciliation Building Back Better bill,” even at reduced funding, would be the greatest investment in the social safety net since the New Deal. Why has Biden and the Democrats so fantastically bungled the messaging on this? The poor framing of this bill, the lack of concerted Democratic agitation around the substance of the bill, has enabled an already muddle-headed media to distort the measure as some sort of obscure and expensive “spending bill.” Whenever Biden, Pelosi, Schumer or any of the other Ancients walk up to a podium and start droning on about the bi-partisan but not partisan reconciliation infrastructure measure, you can hear thousands of TV’s clicking off . In perhaps the single most significant poll of the last month, CBS revealed that only an anemic ten percent of the population says they know anything at all about what’s in that $3.5T Build Back Better Bill. Ten percent?! Worse, the bill has majority support anyway, somewhere around 54% but that figure rises 10% more among those who know that an expansion of medicare is included. “Stop selling the recipe and start selling the brownie! “ says Anat Shenker-Osorio, a progressive communications consultant. Imagine, she said, if Martin Luther King had said, “I have a multi-bulleted memo.” Biden has been terrible in selling this package. As late as this Friday he was on the air emphasizing that the BBB bill would make the US more “competitive” as if this is any concern among struggling American families looking at stratospheric housing costs along with all the other perks of this twisted economy. Bernie Sanders wrote an op-ed for Fox News (good for him) laying out exactly what is in this human infrastructure bill and how popular it would be: “Some 88 percent believe we should lower the cost of prescription drugs, 84 percent believe we should expand Medicare to include dental care, hearing aids and eyeglasses, 73 percent support establishing Paid Family and Medical Leave, and 67 percent want universal Pre-K. Further, 67 percent believe the federal government should raise taxes on high-income people and corporations to help pay for these desperately needed programs — which is what this legislation does.” Some defenders of the Biden administration now argue that it is too early to fret over the messaging of the bill, that once it passes Democrats will have a whole year to talk about it and sell it. This is a foolish notion. It should be obvious that entire narratives can be created free of fact…and not just negative ones. Further, once that narrative is set, it might be impenetrable by future facts. The Democratic bungling of the BBB bill has already allowed a false, Trumplican narrative to gel around this proposal: It’s a runaway big spending bill being pushed by progressive radicals over the common sense of moderates. Anybody who thinks it will be easy to knock down this crap has apparently been off the grid since 2015. As I write, there should be a literal army of Democrats —not just Biden— out in all 50 states, beating the drum about the concrete measures in this package that will directly improve the lives of tens of millions. There should be ads running in every state, no matter the cost. Democrats should be relentlessly talking about the substance of this bill just as they need to escalate and maintain movement against the rising fascists. I suppose I will file this among many other “what is to be done” fantasies. I don’t really expect much rectification in the coming weeks and months. How can I? The Democrats have shown remarkable consistency in strategic failure. I sometimes wonder if congressional Democrats have already resigned themselves to an inevitable Republican wave next year? It sure feels like it. ++