Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

THE DAILY EDGE: 28 JANUARY 2022: Bear…ish!

Prepare for an Unsettling Monetary Tightening Cycle Unlike in previous cycles, inflation is too high and the Fed isn’t holding the market’s hand

(…) First, when the Fed began raising interest rates in 1994, 1999, 2004, and 2015, inflation was near or below its desired level (now formally enshrined as 2%). The tightening was thus pre-emptive, intended to keep inflation from going up rather than to push it down. That gave the Fed considerable latitude about how fast to raise interest rates and how to respond to new data.

Today, inflation is too high. Even if December’s 7% rate is adjusted for temporary effects such as higher oil prices and used-car shortages, underlying inflation is well above 2%. With unemployment at 3.9% and falling, the economy is at maximum employment, putting upward pressure on inflation. This is normally where the Fed wants the economy to be when it finishes tightening, not when it starts.

The Fed is thus so far behind the curve that it needs to get interest rates up almost irrespective of what incoming data say about the economy or inflation. (…)

Markets have been assuming the Fed would raise rates at every other meeting as it did in its last cycle. On Wednesday, though, Mr. Powell refused to ratify that view. “It isn’t possible to sit here today and tell you with any confidence what the precise path will be,” he said. “Making appropriate monetary policy in this environment requires humility, recognizing that the economy evolves in unexpected ways. We’ll need to be nimble so that we can respond to the full range of plausible outcomes.”

He strongly hinted, though, that the rate path would be steeper, repeatedly noting growth is stronger and inflation much higher than in 2016 to 2018. He called the risks two-sided but only mentioned one side: higher inflation. (…)

Robert Eisenbeis, Vice Chairman & Chief Monetary Economist at Cumberland Advisors, astutely noted that AIT is no longer part of Fed talk:

A third theme, or rather policy issue, arose when a reporter asked whether, since inflation is significantly above target now, the Committee will keep rates high to drive inflation below its 2% target for a period of time. Powell indicated that there is no intent to drive inflation below 2%; but, rather, the goal as he sees it is to keep inflation expectations well anchored at 2%. He seemed to have forgotten that the FOMC is targeting average inflation, which would require rates to be below target for some time if the average is to be held at 2%. Does this mean that the average target has been abandoned by the Committee, or at least by Powell? None of the reporters picked up on this nuance.

America’s Economy: Stocking Up and Looking Up Growth in inventories boosted economic growth in the fourth quarter, which is usually seen as temporary—but not this time

The Commerce Department on Thursday reported that, adjusted for inflation, gross domestic product grew at a 6.9% annual rate in the fourth quarter. That was significantly stronger than the third quarter’s 2.3% and ahead of the 5.5% economists had penciled in.

Part of why GDP picked up was that Americans spent more, with consumer spending growing at a 3.3% rate in the fourth quarter versus 2% in the third. But the most important factor behind the GDP gain was an increase in inventories, which contributed 4.9 percentage points to growth.

Put otherwise, American businesses produced more than they sold in the fourth quarter, and since GDP is a measure of production, that counted as a plus. Normally, such a jump in inventories would get people worried that there would soon be a payback, with businesses drawing off excess stock and producing less. But over the course of the pandemic, as demand for goods surged and supply-chain issues hampered production, inventories became badly depleted. As of November, for example, retailers’ held 1.1 months-worth of sales in their inventories. Before the pandemic, that inventory-to-sales ratio was 1.4.

So there is reason to believe that, just as an increase in inventories added to fourth-quarter GDP, inventory accumulation will continue to contribute to economic growth over the course of this year. (…)

Maybe, but maybe not.

Business inventories are generally split roughly equally between manufacturers, wholesalers and retailers. Inventories got quickly depleted in the first half of 2020 as Americans splurged on goods. Wholesale and manufacturing inventories have since been restored back to trends.

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Retail inventories remain very low but:

  1. note the increase in November, the last data point, and expect December’s to also show a sharp gain given the already reported poor sales.
  2. yesterday’s GDP release revealed that real private inventories for retail trade jumped 3.6% QoQ in Q4’21 (+15.2% annualized) and are only 5.5% below their end of 2020 level.
  3. goods still afloat offshore L.A. are not counted until offloaded.
  4. real retail sales peaked in April 2021 and have declined 7.6% a.r. since, including a 3.0% sequential drop in November-December (-19.4% a.r.), the two most important months of the year. Recall that major retailers were boasting that they had ample inventory for the holidays.

If I “normalize” sales through November, I get a retail inventory/sales ratio of 1.27x, still below pre-pandemic but higher than the 1.1x reported ratio. The known decline in December sales coupled with the expected rise in inventories from unsold and to-be-offloaded goods could well take the ratio back to normal or even above desired levels.

With manufacturing and wholesale inventories on trend, any weakening in sales would trigger “stop orders” and inventory realignment. Markit’s December PMI survey revealed “softer demand conditions” in manufacturing as “new order growth slowed to the softest rate since July 2020”.

Here are the GDP details courtesy of Haver Analytics. Note the Final Sales number:

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Mondelez Mulls More Price Hikes for Snacks as Inflation Eats Into Profits As the global supply chain continues to struggle, shortages are causing suppliers to raise prices, says Chief Executive Dirk Van de Put.

Mondelez International Inc. MDLZ 1.28% said higher prices for its snacks weren’t enough to make up for the rising ingredient and transportation costs it faced in the latest quarter.

The global food giant said it would likely raise prices further around the world this year, while also negotiating with its suppliers and hedging to reduce costs. Mondelez’s profitability continues to get squeezed as issues like commodity inflation, trucking shortages and labor challenges persist, especially in the U.S., executives said.

“This is the biggest challenge for us,” said Mondelez Chief Executive Dirk Van de Put.

He said the global supply chain continues to struggle as the pandemic persists, and shortages are causing suppliers to raise prices. “They don’t have enough for all of their customers, so they basically say, you’ll have to pay what I tell you to pay,” Mr. Van de Put said. “It’s all out of whack.”

Mondelez’s latest round of price increases in the U.S., totaling 6% to 7%, took effect this month. But those moves were based on cost projections made in October, Mr. Van de Put said, and the company’s expenses have grown further since then.

In the quarter that ended Dec. 31, Mondelez’s adjusted gross profit margin dipped nearly 1 percentage point to 38.7% of sales. (…)

Mr. Van de Put said U.S. shoppers haven’t been deterred by grocery stores charging more for the company’s Oreo cookies, Triscuit crackers and other snacks so far. (…)

Kraft Heinz (KHC) said in a recent letter to its customers that it will raise prices in March on dozens of products, including Oscar Mayer cold cuts, hot dogs, sausages, bacon, Velveeta cheese, Maxwell House coffee, TGIF frozen chicken wings, Kool-Aid and Capri Sun drinks.

The increases range from 6.6% on 12oz Velveeta Fresh Packs to 30% on a three-pack of Oscar Mayer turkey bacon. Most cold cuts and beef hot dogs will go up around 10% and coffee around 5%. Some Kool-Aid and Capri Sun drink packs will increase by about 20%. (…)

Kraft Heinz has already raised prices on some of these same foods in recent months. (…)

Last week, Procter & Gamble (PG) said that it was raising prices for its retail customers by an average of about 8% in February on Tide and Gain laundry detergents, Downy fabric softener and Bounce dryer sheets. Conagra (CAG), which makes such brands as Slim Jim, Marie Callender’s and Birds Eye, recently said it will raise prices later this year as well. (…)

It marks the fourth earnings miss for the company in eight quarters. (…)

Operating costs and expenses rose by 14% in the quarter. Those higher costs include wage hikes by McDonald’s and many of its franchisees to attract and retain workers in a tough labor market. The ingredients for menu staples like its Big Macs and McNuggets are also becoming more expensive.

CFO Kevin Ozan said on the conference call that commodity and labor inflation is expected to continue in the near term. In 2022, the company is forecasting U.S. food and paper costs to rise by high single or low double digits. For comparison, those costs rose just 4% in 2021. International markets will likely also see higher food and paper costs, although not as dramatic as U.S. inflation.

The company’s general and administrative expenses also rose, ticking up 9%, primarily due to higher incentive-based compensation as McDonald’s exceeded its own performance expectations. (…)

In McDonald’s home market, same-store sales rose 7.5%, topping StreetAccount estimates of 6.9%. (…)

Axios quotes franchisees surveyed by Kalinowski Equity Research.

“Price increases are really hurting traffic,” wrote one respondent.

“I am resisting any more price increases as I’m feeling some resistance from customers,” another wrote.

High inflation to stick this year, denting global growth: Reuters poll

Persistently high inflation will haunt the world economy this year, according to a Reuters poll of economists who trimmed their global growth outlook on worries of slowing demand and the risk interest rates would rise faster than assumed so far.

This represents a sea change from just three months ago, when most economists were siding with central bankers in their then-prevalent view that a surge in inflation, driven in part by pandemic-related supply bottlenecks, would be transitory. (…)

After expanding 5.8% last year, the world economy is expected to slow to 4.3% growth in 2022, down from 4.5% predicted in October, in part because of higher interest rates and costs of living. Growth is seen slowing further to 3.6% and 3.2% in 2023 and 2024, respectively. (…)

The growth outlook for over 60% of the 46 economies covered in the polls was either downgraded or left unchanged for 2022 and about 90% of respondents, 144 of 163, said there was a downside risk to their forecasts. (…)

IMF Says China’s Economic Imbalances Have Worsened Chinese growth in 2022 now forecast at 4.8%, down from prior outlook of 5.7%

(…) “Growth momentum has slowed considerably, with consumption lagging every other part of the GDP,” said Helge Berger, the IMF’s mission chief for China. (..)

“The investment-driven recovery has reversed earlier, hard-won progress in rebalancing, adding to the challenges of achieving sustainable high-quality growth over the medium term.” (…)

China’s productivity growth has declined markedly in recent years, as the state sector gets bigger, crowding out private firms that tend to be nimbler and more profitable.

The report shows that state-owned enterprises are, on average, only 80% as productive as private firms in the same sector. Yet, state companies are playing an increasingly important role in China’s economy, with authorities turning to them to ensure supplies during the pandemic and implement Beijing’s technological self-sufficiency drive amid increased tensions with the West. (…)

EARNINGS WATCH

We now have 145 reports in, a 79% beat rate and a +3.2% surprise factor. 27 of the 45 Industrials have reported: beat rate 89%, surprise factor -23.3%!!

Q1’22 estimates: +6.9% from +7.5% on Jan. 1.

Let’s see how this +6.9% behaves in coming weeks. Let’s hope it holds…

TECHNICALS WATCH

This headless-hen of a market is worrisome.

The S&P 500 Large Cap Index 13/34–Week EMA Trend has hooked down and needs to be watched. It has been a very good indicator of major trend changes.

Sellers have taken over. Poor odds of positive equity returns:

  • What the Treasury Bear Flattener may mean for stocks and other assets: The quick rise in Treasury yields, especially on the short end of the curve, has pushed us into a Bear Flattener regime. During those periods, the S&P 500 has showed the weakest growth. Other assets haven’t done much better. Real Estate, Financials, and Value stocks have typically performed the best.

(…) The gyration in Treasuries has been dramatic. Yields have skyrocketed, especially on the short end of maturities, and especially especially on Wednesday, with the biggest jump in 2-year yields in almost a year. (…)

The chart below shows the growth of $10,000 (using next-day returns) based on which regime the Treasury curve was indicating at the close of each trading day. Through 2000, the S&P 500 showed the best returns, by far, during a Bull Steepener regime, when yields were declining and 2-years more than 10-years.

Since 1976, the worst regime has been a Bear Flattener, which unfortunately is where we find ourselves now. Like we saw with the McClellan Summation Index when it’s below zero and declining, this kind of regime has resulted in almost no gains over nearly 50 years. Over the past 20 years, it has produced a net loss.

We’ve been stuck in a Bear Flattener for the past 2 months, or 42 trading days. The table below (here) shows how the S&P 500 performed going forward once we’d gone this long into the regime.

It’s not like returns were terrible, they just weren’t very good. Over the past 20 years, the S&P’s performance was “meh” over a medium- to long-term time frame. Only a few of them ended up preceding imminent, and lengthy, bear markets or extreme volatility. (…)

Steve Blumenthal’s Fixed Income Trade Signals are all red:

  • CMG Managed High Yield Bond Program: Sell Signal – Bearish High Yield Corporate Bond Trend
  • Zweig Bond Model: Sell Signal – Bearish on High Grade Corporate and Long-Term Treasury Bonds
  • 10-Year Treasury Weekly MACD: Sell Signal – Rising Rates: Bearish on Bonds
  • Extended Duration Treasury ETF: Sell Signal – Rising Rates: Bearish on Bonds 

J.P. Morgan is seeing the bear:

Investors have shed equities at the fastest pace since March 2020 with major indices in correction or outright bear market territory as Fed expectations have quickly and aggressively pivoted (i.e. expectations of 8 hikes and ~$1.2T balance sheet reduction by end of 2023). Average stock in Russell 3000 is down -35% and in the growth heavy Nasdaq Composite it is down almost -50%.

More so, the average drawdown for the largest 10 US stocks is -20%. With this in mind, S&P 500 drawdown of -11% is masking the severity of this sell-off given its hefty bond-proxy / low-vol stock exposure (e.g. low-vol stocks are trading back at record premium. For these reasons, the stock market is not only in correction, it is already in bear market territory without a recession in sight.

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As of yesterday’s close, the average S&P 500 stock is down 17.8% from its 52-w high. The median drawdown is -15.4%.

The equal-weighted S&P 500 index is only down 8.6% from its January 5 high but its feeling heavy:

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Even inflation beneficiaries are heavy:

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Except Energy:

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(Data: FactSet; Chart: Axios Visuals)

THE DAILY EDGE: 27 JANUARY 2022: Focused Blind Hawks.

The best headlines on yesterday’s FOMC and Powell presser belong to the FT:

‘No more Mr Nice Guy’: Fed chair signals tougher stance on inflation

The WSJ’s is a close second:

  • Fed Grabs the Market’s Punch Bowl Chairman Jerome Powell’s language sent stocks into reverse as it became clear that a series of rate hikes is on the way barring worse economic news

What struck me listening to the press conference was how many times Mr. Powell described the economy and the labor market as “very, very strong” and acknowledged that his, and “everybody else’s”, reading of inflation has proven wrong. A key sentence right at the beginning of the presser: “both sides of the mandate are calling for us to move steadily away from the very accommodative policies in place”.

Later:

  • “there is quite a bit of room to raise rates without threatening the very strong labor market”.
  • “the economy has underlying strength”
  • “there is considerable uncertainty about the inflation outlook” but
  • “inflation risk is still on the upside, it could be prolonged and even higher”
  • “I don’t think it’s possible to say exactly how this is going to go,”
  • “We will need to be nimble so that we can respond to the full range of plausible outcomes,”
  • “long term growth requires price stability”

Clearly, they now know that they don’t know but he wants us to know that they now know who the real villain is: inflation.

Goldman Sachs:

Powell specifically highlighted two inflation risks that we also highlighted recently, the possibility of persistently strong wage growth and the possibility that further supply chain problems could emerge, perhaps related to China’s efforts to suppress the Omicron variant.

(…) the FOMC would move “steadily” away from its current highly accommodative policy stance.We take “steadily” to mean at least once a quarter, but with the option to go faster.

Comments from Chair Powell today reinforced our view that high inflation could push the FOMC to consider hiking at consecutive meetings this year, and that the risks around our baseline forecast of four hikes in 2022 are therefore tilted to the upside. The market also took Powell’s comments as hawkish, and 2-year yields rose 13bp during and after his press conference.

While Powell did not directly address hiking at consecutive meetings, he hinted at the possibility of a faster pace in three ways. First, he emphasized that the economy is in a very different place than when the FOMC hiked last cycle. Second, he acknowledged the uncertainty about the inflation outlook and said that monetary policy needs to be in a position to address different outcomes, including one in which inflation runs higher. Third, he said that the FOMC would move “steadily” away from its current policy stance, avoiding the term “gradual” used last cycle.

From my lens, the economy and the labor market are not that strong, certainly not “very, very strong”. You can blame Omicron and call it transitory, but Covid-19 will be soon 2 years old. We cannot simply assume it will simply pass.

fredgraph - 2022-01-27T074647.907

We know that holiday sales were weak raising the risk of an inventory overhang. We know that very high inflation is quickly eroding spending power. And if Goldman Sachs is half right in its forecast of a 4% drop in real disposable income this year, the economy could get much, much weaker.

But never mind the economy, we now know that the U.S. monetary policy is firmly focused on fighting inflation. At least that’s what Powell and friends are saying.

But the WSJ editorial board is not so sure of that resolve:

The Federal Reserve on Wednesday showed new determination to fight rising prices, but the fledgling inflation hawks are only learning to fly. The central bank’s moves were modest given inflation of 7%, and it isn’t clear how much resolve the central bank will have if asset prices keep falling in response to the prospect of rising interest rates.

As expected, the Federal Open Market Committee signaled an end to its bond purchases and a rate increase in March from near-zero today. This is hardly monetary tightening. The Fed could have gone cold turkey on bond buying, but it chose to keep assisting asset prices for a half dozen more weeks or so.

Chairman Jay Powell stated clearly in his press conference that the economy no longer needs this monetary accommodation. Yet he ducked questions about whether the FOMC would consider a 50-basis-point increase in March, rather than its usual 25 points. The bigger bazooka is what previous chairmen have fired when inflation was this high.

John Authers:

The central bank has also shown that it can live with the amount of equity market turbulence that it’s created so far. The strength of the reaction to Powell’s press conference was driven in large part by the prior speculation that the market selloff would force him into offering a “dovish olive branch” and walk back some hawkish speculation. That he deliberately and conspicuously refused to rule out any of the options that worry the market showed that the “strike price” of the Fed’s “put option” under the stock market (in other words, the index level at which the Fed would feel compelled to ease up) is lower than traders had thought.

Meanwhile, in the real world:

  • “Bank of America increased base salaries for its managing directors in investment banking and markets to $500,000 from $400,000, according to people with knowledge of the matter. Directors are getting a bump to as much as $350,000 this year from $250,000.
  • “The needs of our employees were paramount in our mind.” — KPMG U.S. CEO Paul Knopp to Nathan on how inflation factored into the company’s decision to announce pay increases for the second time in three months.

I would venture to say that there was also increasing poaching by competitors…

The fact is that compensation is not only boosted at the lower end of the pay scale…

Also in the real world:

  • Imports Drop at Southern California Ports as Ship Backup Grows Combined inbound volume fell 14% in December at the ports of Los Angeles and Long Beach as the queue of vessels waiting to unload surpassed 100 ships and reached a record 109 ships in early January. Ships can’t unload quickly because terminals are full of containers. Truckers can’t pick up loads due to a shortage of drivers and the steel trailers used to pull boxes. Warehouses near the ports and at nearby logistics hubs are short workers and don’t have space for more deliveries.
  • The Case for $100 Oil: More Driving, Less Drilling Wall Street’s summer forecast calls for $100 oil. Dwindling inventories in the developed world, rising demand and doubts about OPEC’s output are supporting predictions for higher crude.

(…) “The oil market is heading for simultaneously low inventories, low spare capacity and still low investment,” Morgan Stanley analysts wrote in a research note, lifting their price forecast for the summer quarter by $10 a barrel, to $100 for Brent and $97.50 for West Texas Intermediate.

Goldman Sachs raised its estimate for the period by $20 a barrel, also to $100 for Brent and slightly less for U.S. crude.

Bank of America predicts that West Texas Intermediate will hit $117 by July and that Brent will reach $120. (…)

November traffic in the U.S. wound up the highest in a decade, with 12% more miles traveled than a year earlier, when the Delta variant was rampant, and 2.8% more than in November 2019, before the pandemic, the Federal Highway Administration said this week.

As air traffic recovers and still-restricted economies reopen around the world, supplies will be stretched thin, analysts say. Goldman anticipates that by summer the developed world’s oil inventories will have drained to their lowest level in two decades. (…)

Angola, Nigeria and Iraq have production problems. Russia has blamed lower output on delays in developing oil fields. (…) Saudi Arabia, among the few exporters that can quickly increase production, has declined to make up for its market allies’ unmet quotas. (…)

With larger energy producers under pressure from investors to stick to their drilling budgets and return excess cash to shareholders, smaller, closely held producers led the rebound in drilling last year. Without the scale, bargaining power and quick-to-pay-off gushers of larger firms, smaller producers bear the brunt of rising costs for oil-field services and are unlikely to repeat last year’s production growth spurt, analysts say. (…)

Copy-paste among central bankers:

Bank of Canada Says Rate Increases Are Coming The Bank of Canada held its main interest rate steady at 0.25%, but said rate increases are on the horizon to deal with elevated inflation and an economy running at or near full tilt.

(…) He characterized the decision to drop forward guidance as a “significant” shift in policy  — a bid to sound hawkish even as he bucked market expectations for a rate hike.

“Everybody should expect interest rates to be on a rising path,” Macklem told reporters after the decision.

Still, he acknowledged the central bank wanted first to deliver an advance signal that borrowing costs are going to rise as part of a “deliberate series of steps.” (…)

U.S. New Home Sales Strengthen in December

New single-family home sales rose 11.9% (-14.0% y/y) in December to 811,000 (AR) from 725,000 in November, revised from 744,000. During all of 2021, sales fell to 765,000 from 828,000 in 2020. December sales remained below the January 2021 peak of 993,000. The Action Economics Forecast Survey expected 763,000 sales in December.

By region, December sales in the Midwest rose 56.4% (-23.2% y/y) to 86,000 after falling 16.7% in November. In the South, sales rose 14.9% (-17.5% y/y) to 456,000 following a 1.5% November gain. In the West, sales edged 0.4% higher (2.1% y/y) to 242,000 following a 47.9% November surge. Falling by 15.6% (-34.1% y/y) to 27,000 were sales in the Northeast after they rose 10.3% in November.

The median price of a new home declined 9.2% (+3.4% y/y) in December to $377,700. It was the lowest price in six months. The average sales price of a new home fell 4.6% (+13.8% y/y) to $457,300. These sales price data are not seasonally adjusted.

The supply of new homes for sale fell to 6.0 months in December from 6.6 months in November. This compares with 3.8 months in December 2020. The median number of months a new home stayed on the market eased to 2.8 from 2.9 months in November. The record low was October’s 2.5 months. These figures date back to January 1975.

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EARNINGS WATCH

We now have 100 companies in: the bat rate is 81% and the surprise factor +4.8% with only Industrials showing negative surprise (-1.4%).

Trailing EPS are now $207.31. Forward: $223.28.

Q1’22 growth is seen at +6.8%, down from +7.5% on Jan. 1.

Yesterday, Kimberly-Clark offered weaker than expected earnings guidance for the fiscal year thanks to rising input costs. “The company expects its cost of sales to rise by $750 million to $900 million for fiscal 2022. That would represent the second-highest annual growth rate in Kimberly-Clark’s 150-year history, analysts at KeyBanc write, after last year’s $1.5 billion leap in input costs.” (ADG)

SENTIMENT WATCH
  • Goldman Sachs: “Our bear market risk indicator has increased and points to low future returns. While it has not reached danger zone levels that typically precede a bear market (a fall of at least 20%), it has reached levels which have typically been consistent with corrections and relatively low returns over the next one and five years”.
  • Bridgewater Sees ‘Much Bigger’ Drop in Stocks Before Fed Blinks How much further is the Federal Reserve willing to let stocks slide? That’s the burning question of the moment for financial markets, and Greg Jensen, co-chief investment officer at Bridgewater Associates, has an answer: as much as 20% more.

(…) Anyone who expects the Fed to blink, as it did after the last pre-pandemic selloff in late 2018, is misreading the economy, Jensen said. Things were different then. Inflation was below the Fed’s 2% target and big companies were buying back shares instead of adding capacity, stockpiling supplies and raising wages. (…)

“Since the 1980s, problems have always been solved by easing. That was true fiscally and monetarily, and the countries that eased more did better than the countries that eased less,” he said. “We’re at a turning point now and things will be much different.” (…)

Jensen said he figures the 10-year Treasury yield has to reach 3.5% or even 4% — up from less than 1.9% today — before private investors are ready to absorb all the government debt that the Fed has been monetizing. (…)

(…) “There’s only a certain amount of cheap oil, cheap nickel, cheap copper, and we are beginning to hit some of those boundaries,” said Grantham, co-founder of Boston asset manager GMO. “Climate change is coming with heavy floods, serious droughts and higher temperatures — none of these make farming easier. So, we’re going to live in a world of bottlenecks and shortages and price spikes everywhere.”

Grantham, 83, insists that’s all inevitable because, along with the scarcity of raw materials, baby boomers are retiring, birth rates are declining, emerging markets are maturing and geopolitical tensions are flaring — all trends decades in the making and almost unstoppable. (…)

Breakup Plans; China Property Stocks Tumble: Evergrande Update

Chinese authorities are considering a proposal to break up China Evergrande Group by selling the bulk of its assets, according to people familiar with the matter. Developer stocks slumped after two firms announced plans to issue fresh equity.

Evergrande’s restructuring proposal calls for the developer to sell most assets except for its separately listed property-management and electric-vehicle units. The builder has told creditors it aims to issue a preliminary restructuring plan in the next six months and intends to treat all categories of bondholders equally, people familiar with the matter have said. U.S. investment firm Oaktree Capital is moving to seize a plot of land used as collateral by Evergrande, the Financial Times reported. (…)

China's property stocks are near lowest valuation on record