Thursday, February 23, 2017

Richest Scandinavians Aren’t Working as Much in New Millennium


Social harmony is at risk in the land of egalitarianism. Burnt by the recent oil glut, more and more Norwegians are pulling out of the labor force. Left unchecked, it could be detrimental for one of the world’s most generous welfare states.
According to Statistics Norway, the percentage of people of working age in employment fell to 70.6 percent in 2016, a 21-year low. The decline started with the financial crisis of 2008 and has hardly stopped since. It’s not just the number of unemployed that’s going up -- the jobless rate reached 5 percent last year -- the number of people giving up trying to find a job is also rising.
Jeanette Strom Fjare, an economist at DNB ASA, Norway’s biggest bank, says that while the recent depression in oil prices "reinforced the downturn," long-term factors are also impacting on workers’ participation in western Europe’s biggest crude producer. They include an aging population and the growing use of automation and robotics to replace low wage jobs.
Reduced employment levels mean lower tax receipts. The government is constrained by law on how much it can compensate for any funding shortfalls by dipping into its massive oil kitty, so lower tax receipts risk impacting on the supply of welfare, potentially widening social differences -- a capital offence in a country that treasures equality.
"The current set-up of the welfare state will become a heavy burden to carry going forward given the taxation and expenditure approach that we have today," Marius Gonsholt Hov, an economist at Handelsbanken said.
The government has nevertheless been on a spending rampage, causing concern at the central bank.
A breakdown of the jobless figures suggests the oil-dominated regions along the country’s south-western coast have taken the hardest punch.
What’s more, the growth in unemployment has particularly affected men in low income classes with little education. Strom Fjare points to figures showing marked increases in the number of recipients of work assessment allowance in the oil regions, a possible sign that the downturn has increased sick leave. That’s a real problem for country which offers a sick leave equivalent to 100 percent of the worker’s salary for up to a year. Incidentally, disability benefits in Norway are universal, not just for affected workers, meaning someone who has never worked can still expect to receive help from the state in the region of 40 to 50 percent of the national average wage. 
Vibeke Madsen, head of Norway’s largest employer organization for service and retail businesses, says things are bound to get worse. Virke estimates that 30 percent of "traditional" jobs are set to disappear as the economy transitions away from manual labor to machines. Rune Bjerke, head of DNB, says he expects the number of employees working at his bank to be more than halved within the next five years.
"We have known about these problems for a long while now," Gonsholt Hov said. "If we want to achieve something, then we have to reach major agreements, particularly on the pension side and labor participation," he said.

Wednesday, February 22, 2017

The Next Financial Crisis Might Be in Your Driveway


Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged. 
The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco. 
It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.
Another way to look at: Every licensed driver in the U.S., on average, owes about $6,100 in car payments.
But the market for cars is a lot different than that for houses. For one, vehicles are a much more fluid asset—they are far easier to repossess and resell. What’s more, car payments tend to be cheaper than mortgages and people tend to use their vehicles a lot, so when it comes time to prioritize bills, the auto loan typically takes precedent over other things.
Indeed, delinquencies on vehicle loans, though rising, are still lower than late payments on student loan debt and credit card balances. So preppers getting ready for global economic collapse shouldn’t panic about car payments just yet.
But they should worry—just like executives at the big automakers. Barring a few finance startups, the manufacturers are the ones loaning money to the riskiest buyers. They have more incentive to push a sale and, unlike a bank, make money on both the loan and the product, if all works out right.
Recently, carmakers have been focused on moving SUVs and trucks, which tend to carry higher profit margins than vanilla sedans and cost a little more as well. Lowering credit standards a bit and stretching repayment windows up to six or seven years has helped drive business to record levels, with 17.55 million vehicle sales in all last year.
In the past two years, U.S. drivers with credit scores of less than 620 borrowed $244 billion to buy cars, a tally not matched since 2006 and 2007 when the same strata of buyers rolled off with $254 billion in auto loans. 
The problem is that a lot of those drivers have a record of not handling their finances particularly well. Car companies—and their captive finance units—make about half of all car loans these days, but they underwrite three-quarters of the ones going to subprime vehicle buyers. As delinquencies rise, these are the first companies that will feel them. Indeed, the Fed says recent delinquencies are inordinately hitting carmakers, while bank and credit unions have actually seen an improvement in late payment data.
In other words, every time a dealer upsells someone into swanky SUV, they have more in common with the buyer than one might think: both may be paying for it later.

Monday, February 20, 2017

Big Batteries Coming of Age Prompt Bankers to Place Their Bets


The idea that giant batteries may someday revolutionize electrical grids has long enthralled clean-power advocates and environmentalists. Now it’s attracting bankers with the money to make it happen.
Lenders including Investec PlcMitsubishi UFJ Financial Group Inc. and Prudential Financial Inc. are looking to finance large-scale energy-storage projects from California to Germany, marking a coming-of-age moment for the fledgling industry. The systems help utilities solve a longstanding clean-power conundrum: managing the unpredictable output from wind and solar farms, and retaining electricity until it’s needed.
Battery costs have declined 40 percent since 2014 and regulators are mandating storage technology be added to the grid. That’s encouraging utilities to offer longer contracts and developers are expected build $2.5 billion in systems globally this year. These trends are changing the risk profile, giving lenders confidence in batteries in much the same way that power-purchase agreements opened banks’ doors years ago for wind and solar power.
“Having big money come in is the first step to widespread deployment,” Brad Meikle, a San Francisco-based analyst for Craig-Hallum Capital Group LLC, said in an interview.
That’s a shift from many of the storage projects we’ve seen to date as expensive components and unproven revenue potential made commercial lenders leery. Developers typically have financed systems from their own balance sheets, cobbling together revenue from short-term utility contracts or wholesale electricity markets.

“We see an opportunity in the space,” Ralph Cho, Investec’s co-head of power for North America in New York, said in an interview. “We’re attempting to be a first mover.”

Storage contracts to date in the U.S. and Canada rarely exceeded three years, said Bryan Urban, head of North American operations for the Yverdon-les-Bains, Switzerland-based storage developer Leclanche SA. Now utilities are signing agreements for three to seven years, and sometimes as long at 10 years, he said. And in the U.K., National Grid Plc is signing four-year contracts for storage services.
“Instead of these short uncertain revenue streams, you now have longer-term contracts that investors can get behind,” said Logan Goldie-Scot, head of energy storage analysis at Bloomberg New Energy Finance in London.
The industry still faces significant hurdles. While costs have fallen, batteries are still an expensive way to manage electricity. Developers have little data to demonstrate how their systems will perform over time. Also, existing rules for wholesale power markets were mostly written for traditional equipment that generates and delivers electricity, and the industry is still developing market mechanisms to determine how to value and pay for storage systems that offer different functions.
The market is fragmented with a variety of different technologies, including lithium-ion batteries, flow batteries and flywheels. They have different capabilities and developers offer different types of services. They can smooth the flow of power on the grid, absorbing power when there’s too much and delivering needed jolts when demand spikes.
That means the industry is still figuring out the best uses for storage systems, and banks don’t want to wind up backing the Betamax of storage. Plus, several one-time high flyers ended up filing for bankruptcy in recent years -- remember A123 Systems Inc.Xtreme Power Inc. and Beacon Power Corp. -- leaving lenders gun shy. 
Utilities have been experimenting with energy storage for decades, and while momentum has been slow, it’s starting to take off. It took 30 years to install enough systems to add up to a gigawatt, and Sekine expects 1.7 gigawatts expected to go into service in 2017 alone. State regulators are a key driver, with California ordering utilities to install at least 1.3 gigawatts of storage by 2020, and Massachusetts on track to set its own targets by July.
A handful of lenders have already backed storage deals. Prudential helped finance two 20-megawatt systems in 2015 that Renewable Energy Systems Americas Inc. built in Chicago. CJF Capital LLC and SUSI Partners AGbacked a 12-megawatt portfolio of storage projects last year in Canada. More are on the horizon.
“As you get into the latter half of this year, you’ll start to see a pick-up of activity,” Ric Abel, a Prudential managing director, said in an interview.
The new crop of battery suppliers includes companies with more resources and deep pockets. Tesla Inc.LG Chem Ltd.Samsung SDI Co. and Panasonic Corp. are giving lenders confidence that grid-scale energy storage is a bona fide industry. At the same time, the number of projects have surged around the globe, giving banks a broad choice of deals.
“We’ve had conversations with financing houses going back four or five years,” John Zahurancik, the Arlington, Virginia-based president of AES Corp.’s storage division, said in an interview. “They’ve gotten comfortable with the components. Now that the deal flow is increasing, I think it is starting to attract more attention.”

Saturday, February 18, 2017

YouTube And Netflix Are Altering The Media Landscape: Seeking Alpha


We all know about Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) - I think it is safe to say that I'm not reinventing the wheel here. These are two huge companies that share a lot in common.  

According to its latest 10-K, Netflix has its streaming services that now accounts for 47.9 million domestic paid memberships and 44.3 million international members. In total Global, Streaming Memberships are nearly 93.8 million. YouTube is on a whole different parallel, driven by very distinct in a user experience. Whatever the case may be YouTube and Netflix are vastly altering the media landscape and will cause significant problems for many of the traditional old school media companies.
At the heart of it, Netflix and YouTube are essentially on-demand services, no different than the on-demand feature you can access on your set-top box from your cable provider. The main difference is merely the content. For NFLX, it is in a sense a traditional mainstream media company. The one key difference in my opinion for Netflix is that it has a reach on a global scale. Something very few of the traditional media companies have. This range gives Netflix an ability to continue to grow well outside of the 115 million US domestic household. On the international front, Netflix is only at the tip of the iceberg, with 44.3 million users. According to Eurostat, there are nearly 219 million households in Europe alone, more than double the US. Also, according to Statita, there will be approximately 165 million households in Latin America. Between Europe and Latin America, we could be talking about nearly 385 million households. Does this mean, that ever home in these regions are going to have NFLX of course not? But it does mean we are likely to see continued growth. If we look at the US a model and say that NFLX gets to a 45% penetration rate in those two regions, you could be looking at nearly 173 million subscribers. I have not even factored in Asia, Africa or Australia yet. At approximately $8 per member per month, that would equate to about $16 billion revenue per year, not including the US. NFLX has a reach to an audience unlike any other media company. It goes direct into users' homes or mobile devices with no interruptions. I believe the scale and reach of NFLX are what differentiates it from its peers and the traditional media companies.
YouTube presents an even bigger challenge for traditional media than NFLX, but in a whole different light. YouTube is the place where anybody can rise to stardom and to do so can result in million and sometimes billions of view and millions of followers. All of these viewers and followers translate into money for the creator of the video and of course YouTube itself. The beautiful thing about YouTube is that you need nothing more than an iPhone, an internet connection an and idea and you are in business. YouTube is the home to videos such as unboxing, treasure hunts and impersonation. It all comes at the cost of nearly zero because the person who is producing the content, for the most part, is doing it at a fraction of the cost a media producer like CBS (NYSE:CBS) can. For thfirst nine months of 2016, CBS had an operating cost of $6.1 billion on revenue of $10.5 billion. It requires CBS 60% of its income just to operate. Meanwhile CBS All Access has about 1.2 million subscribers at $5.99 per month with commercials, $9.99 per month without commercials. Now compare a YouTube family that has nearly 2.0 million subscribers and videos that have multiple 10 million view tapings. Then, of course, you have another famous person known for unboxing that has over 8 million subscribers and videos that in some case 100s of millions of views. These are children's shows. How much money can 50 million views earn a person on YouTube? According to a YouTube calculator somewhere in the ballpark of $35k to $85k. Would you want the over or under on the 60% operating cost?
The last time, I checked there were only 24 hours in a day, and if people are watching these types of shows on a daily basis, then that means they likely aren't watching something else. According to Alphabet's last earnings call, nearly 1,000 creators reach the milestone of having 1,000 channel subscribers per day. That is a lot of people watching some of the smaller YouTube creators.
If you are a company like CBS, for example, how do you compete in this changing world? On the one hand you have Netflix with the size and reach of programming. On the contrary, you have YouTube stars making a killing on their video content at likely better margins than a CBS. The short answer traditional media can't compete.

Demographic trends are a long-term challenge for markets


Capital markets have experienced a shift in sentiment over the course of the past couple of months. Fears over secular stagnation and deflation have dissipated and investors have been willing to embrace risk assets again. Many economists have revised upwards their estimates of global economic growth, starting first with the US where the fiscal reigns are expected to be loosened in order to meet some of President Donald Trump’s election promises to voters. While there is clear short-term momentum in economies like the US and UK, where unemployment rates are low and consumption is robust, there remain secular themes that investors should be aware of when they formulate long-term investment decisions. One of these themes is a shift in the focus of economic policy, driven by demographics. Unlike economic variables, demographic trends are predictable and greatly impact on all of us. The global economy has now passed an important tipping point. For the first time in recorded history, children under the age of five no longer outnumber those aged 65 and above. We have arrived at “peak child”. The United Nations has estimated that the global population will continue to age and, by 2050, more than 15 per cent of the global population will be aged over 65. Economists often point to the challenges that Japan faces as the population ages; by 2050, most of the G7 will have a similar demographic profile as Japan does today, as will China, Brazil and Russia. Longevity risk — the risk that people live longer than expected — could put huge pressure on our current retirement systems. Research from Bank of America Merrill Lynch suggests that age-related spending accounts for 40 per cent of government spending in developed markets and as high as 55 per cent for the US. In order to meet the challenges presented by an ageing society, we will need to work longer and think about policies and initiatives that incentivise people to work past the traditional retirement age. If these issues aren’t addressed, increasing old-age dependency ratios could have wide-ranging impacts on government finances, productivity rates and inequality. In a world where immigration policy reform is increasingly dominating political agendas, policymakers should recognise that gross domestic product largely reflects a demographic profile where more workers enter the workforce, who (if everything goes to plan) will then produce, earn and consume more than the previous quarter. Naturally, as the workforce shrinks due to ageing, the reverse will be true. However, it does not necessarily mean that an economy is underperforming if the trend rate of growth is falling to reflect a smaller workforce. The changing demographic trend that the developed and parts of the emerging world are now experiencing will increasingly act as a headwind to global GDP. China in particular, which has driven global growth post-crisis, will probably slow markedly in coming years from historic growth rates. In the future, it will be important for policymakers to look beyond GDP as a measure of economic success, in favour of alternative measures which look at economic wellbeing. While it is easy to focus on near-term tactical shifts in markets, it is increasingly important to focus on long-term secular trends that are reshaping the economies that we live in. Higher rates of GDP are not necessarily the answer to face the challenge of an ageing population. Individuals, companies and governments will have to adapt to these challenges, and we may find that in the future we see a greater focus on intergenerational fairness and living standards than has historically been the case. Of course, the effects of ageing will have far-reaching impacts on financial markets. Ageing societies will usher in an era of saving, which should provide a tailwind for companies that help people plan, invest and save for retirement. Fixed income and dividend-paying equities will probably benefit in this environment given both asset classes provide a regular income for retirees to use. Additionally, the structural demand for longer-dated bonds from insurers and pension funds may limit the extent to which bond yields can rise in the future.

India to consign its 125,000 train track inspectors to history



 

India is phasing out the daily track inspections conducted by an army of 125,000 engineers across its vast colonial-era railway network, as ministers attempt to put an end to the blight of deadly derailments. The plan to bring in electronic sensors on tens of thousands of kilometres of track is part of a wider programme to improve railway safety, to which finance minister Arun Jaitley allocated $15bn in last week’s Budget, and follows three serious derailments in the past three months. “We will be using wheel-based sensors and fixed monitors at certain positions on the track to measure whether they are fractured,” said Hanish Yadav, an adviser to rail minister Suresh Prabhu. He added that the sensors would take several years to install throughout the broad-gauge network. India’s rail system is one of the largest in the world, carrying 20m passengers a day, and is the country’s largest employer, with about 1.3m staff. But it is also in need of modernisation, with many parts of its infrastructure more than 100 years old. 


Indian Railways by numbers 
90,803km of track . . . . . . 
41,038km electrified 
7,137 stations 
1.326m staff 
125,000 track inspectors (current) 
$14.9bn Budget 2017-18 
Source: Indian Railways and Arun Jaitley’s Budget speech; figures refer to 2014-15 unless stated otherwise 

Even where improvements are being made, the technology updates often lag well behind those in western countries. The Linke-Hofmann-Busch coaches being rolled out to replace older trains, for example, were designed in the 1990s. The problems with the system have been highlighted in recent months after a series of serious accidents in which dozens of people have died. The most recent, last month, involved a passenger train coming off the rails near the border between Andhra Pradesh and Odisha in eastern India, killing 41 people. Sabotage has not been ruled out for any of the accidents. However, local officials have said there is no evidence of deliberate attacks and civil servants blame decades of under-investment for the state of the system, in which tracks regularly fracture. “In over 65 years [since independence] there was no money to be spent on new technology,” said Mr Yadav. “With the money they had, the best they could do was simply to maintain their assets.” Mr Prabhu has pledged $137bn until 2020 to overhaul the system, as part of a plan that includes attracting private sector money and foreign investment to help rebuild stations and build new services. Two years in, however, the results of that scheme are mixed. Of the 400 stations across the country that are due to be upgraded, only a handful have been approved. Of these, only one is designed by a private company, a model the government hopes to encourage. Another idea, to tap foreign markets for funds using “masala bonds” issued in London, has fallen by the wayside. “We were not able to get better rates than we could domestically,” said Mr Yadav. The ministry's plans to electrify and broaden thousands of kilometres of track appear to be behind schedule. According to an internal strategy document seen by the Financial Times, about 5,000km of track is overdue for renewal. Meanwhile, an eye-catching project to build a $15bn high-speed link between Mumbai and Ahmedabad has been signed off by the Japanese and Indian governments but New Delhi is yet to allocate its $2.7bn portion of the funds needed to build it. “Unfortunately the current government is focusing more on megaprojects like the bullet train rather than upgrading the current infrastructure,” said Sandeep Upadhyay, chief executive of Mumbai-based Centrum Infrastructure Advisory. However, he added that passengers would start seeing improvements more quickly over the next few years. “The root cause of all our problems has been that there was not enough money to invest in capital infrastructure,” he said. “But now, for the first time, the money is being made available to do that. Now we have to get on with spending it.”

Five technologies that will change how we live


 1. Biotech
Since the early 2000s, the cost of sequencing a human genome — determining the precise order of nucleotides within DNA molecules that defines who we are — has dropped sharply. A genome that cost $100m to sequence in 2001 can today be sequenced for roughly $1,000. Sample the FT’s top stories for a week You select the topic, we deliver the news. Select topic Enter email addressInvalid
email Sign up By signing up you confirm that you have read and agree to the terms and conditions, cookie policy and privacy policy. This plummeting cost, along with the shortened timescales for sequencing DNA, has led to a revolution in biotechnology: gene hacking, or the ability to turn genes on and off, and to manipulate biology to our advantage. The most radical branch of this new technology is “gene editing” — a process by which our DNA code can be cut and pasted using molecular “scissors” for a variety of applications, including curing diseases such as cancers and HIV. Until recently, swapping the code was an arduous process. A new DNA cut-and-paste tool known as Crispr has made the process unexpectedly simple. Crispr has been used to create disease-resistant strains of wheat and rice, alter yeast to make biofuels and reverse blindness in animals. Ultimately, it could be used to edit defects out of human embryos.

2. Artificial intelligence
 Artificial intelligence is not science fiction: it is already embedded in products we use every day. Apple’s Siri assistant, Amazon’s book recommendations, Facebook’s news feed and Spotify’s music discovery playlist are all examples of services driven by machine learning algorithms. This decades-old science is enjoying a renaissance today because of the deluge of data created by smartphones and sensors, and the supercomputing power that is available to crunch that data. According to technology research firm Tractica, the AI market will grow from $643.7m in 2016 to $36.8bn by 2025. Techniques such as deep learning and neural networks supposedly mimic the human brain: they spot broad patterns in enormous data sets in order to label images, recognise voices and make decisions. The next step is artificial general intelligence: an algorithm that will not have to be taught a specific skill such as a game of chess or a new language, but will acquire it through trial and error, just as a child does. Companies such as London-based DeepMind, owned by Google, and others are working to make this a reality.

3. Renewable energy
World leaders last year ratified the Paris Agreement on climate change. This aims to keep the global average temperature from rising more than 2C above pre-industrial levels and to attempt to keep the increase under 1.5C. Keeping this promise will require more renewable energy research over the next decade. In energy, researchers are trying to build a nuclear fusion reactor that would tap the same process that causes the sun to give off light and heat to create a source of clean energy. An intergovernmental partnership is building a $19bn fusion reactor, ITER, in France. Other innovations include artificial photosynthesis to make hydrocarbons in laboratories to power cars, and high-altitude wind power that involves kites and hot-air balloons acting as aerial wind turbines. Iceland is investing in geothermal technology, drilling for heat energy underground. Thirty years ago it started by using geothermal resources to heat towns and cities. Now, the entire country’s electricity and heating systems are powered almost fully by renewable energy, including geothermal and hydropower.

4. Connectivity
WiFi — a household staple that modern children take for granted — turned 25 last September. As more objects connect to the “internet of things” — an estimated 50bn of them by 2020, according to estimates from technology company Cisco — the future of WiFi lies in reducing the power it drains from internet-enabled devices. One innovation, invented by students at the University of Washington in Seattle, is known as “passive WiFi” which its inventors say consumes 10,000 times less power. It is currently slower than regular home broadband, but would work well for applications such as smart thermostats or lightbulbs. The WiFi community is also looking to develop higher-frequency bands that would be used over a limited range, such as in a house or car. Ultimately, WiFi itself could be replaced by a new superfast alternative called Li-Fi, which uses light to beam information through the air, instead of radio waves. Lightbulbs would act as routers for this technology. A pilot study earlier this year found that a Li-Fi prototype could send data 100 times faster than WiFi, allowing dozens of movies to be downloaded in minutes.

5. Smart appliances
Almost two-thirds of the human population is connected to the internet via smartphones, but these devices are not the only portal to the web. In 2016 there were 6.4bn connected things — excluding PCs, phones and tablets — in use worldwide, up 30 per cent from the previous year, according to technology analyst Gartner. The internet of things, as it is known, is this universe of objects — everything from cars to printers, lightbulbs to thermostats — that are no longer “dumb”, static things: they can learn your habits and be controlled remotely using an app. The stereotypical smart appliance is the self-stocking refrigerator that replenishes your milk automatically. This innovation will replace a lot more than the sniff test. Cars are now computers, running more lines of code than the Apollo 11 spaceship on its way to the moon. As these computers become more intelligent, cars will drive themselves, potentially reducing traffic-related fatalities. Smart sensors can also transform industry, for instance by monitoring goods during transport, helping utility companies to measure energy usage and logistics companies to track vehicles over long distances.