Tag: Finance

Canada Housing Problems

Talks around Canada’s housing market have been surging – about its booming prices and about its looming risks.

The price side – directly shown by its pricing index from Statistics Canada – plotted below from Jan. 2006 – Oct. 2018.

Canada Housing Price Index | Source: Author, Statistics Canada

Toronto’ prices are the most wild in among Canada’s housing markets – nearly doubled in 39 month from Jan. 2014 to Apr. 2017.

Toronto home prices 2014 – 2017 | Source: Financial Post

The price itself is not actually something to worry about. But as FT argued, “House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.” Similarly on Huffpost, “Toronto’s house price index doubled between 2011 and 2017, even as household incomes grew by single percentage points.”

And let’s take a look at the housing debt level – the risky side.

Bank of Canada said the two trillion dollars of debt is around 170% of disposable income.

I double checked with OEDC data here.

Here is a historical comparison –

and housing debt versus GDP – just passed 100% for 2017 Q2.

The regulator took actions to cool down the market.

The short-sellers/investors took theirs too.

Home Capital is at the center, Canada’s largest provider of home loans to the newly arrived and self-employed.

Home Capital Stock Price (C$) | Source: Bloomberg

In Jun. 2017, Warren Buffett’s investment vehicle Berkshire committed to acquire a 38.39% stake as part of a rescue package (C$2.4 billion, including C$400 million equity and C$2 billion credit line with 9% interest rate). The first tranche of equity investment acquired a 19.99% ownership.

However as the second tranche of equity investment wan’t approved, now in Dec. 2018, the updates came as Buffett would sell most of its stake and reduce ownership level to less than 10%.

Home Capital is under control and stabilized now.

A single crisis is easier to solve than a systematic problem between housing prices and local income.

 

Softbank Telecomm Unit IPO

Shares closed nearly 15% below the ¥1,500 initial offering price

The IPO raised ¥2.65 trillion ($23.6 billion), second only to the 2014 listing of China’s Alibaba. (WSJ article)

SoftBank Group has larger debt and commitments – investment as an obiligation.

Cash is the paramount consideration, especially in an interest rate rising environment.

Connection with huawei and uses of its equipments added to the hit.

Does US have 3% Checking Account?

Robinhood recently prepared to launch its stunning checking & saving offering for cash management with a 3% rate.

That is an astonishing number compared with regular checking accounts (and saving accounts). Industry average is 0.08 percent yield on U.S. checking accounts and the 0.1 percent average on savings accounts (find more about rates here on bankrate.com).

Comparison provided by Robinhood | Source: checking.robinhood.com cached by Google

However, the comparison didn’t last long… as Robinhood pulled back and slowed down it official launch. The center question is that “accounts look like bank accounts, (but) they aren’t.”  Below is the description at the bottom of the website.

Robinhood Financial LLC and Robinhood Crypto, LLC are wholly-owned subsidiaries of Robinhood Markets, Inc. Equities and options are offered to self-directed customers by Robinhood Financial. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Cryptocurrency trading is offered through an account with Robinhood Crypto. Robinhood Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance

It is not FDIC protected and it is reported that – “the head of the Securities Investor Protection Corp. (SIPC) told CNBC on Friday that the start-up didn’t contact his office ahead of the product launch, and to his knowledge Robinhood had not contacted the SEC, either.”

While regulation is an issue, another question is – whether 3% reasonable / doable?

Historical CD Interest Rates – 1984-2016 | Source: bankrate.com

US has been through years of low-interest environment; people are not familiar with 10% or 5% interest rate back then. But after Fed’s meeting this week, it is highly likely that there is another 25bp raise, pushing fed funds rate into a range of 2.25 to 2.50 percent.

Here is a brief history of four increases this year (updated in Jan 2019)

Date Increase Decrease Level (%)
December 20 25 0 2.25-2.50
September 27 25 0 2.00-2.25
June 14 25 0 1.75-2.00
March 22 25 0 1.50-1.75

And a history – Intended federal funds rate change, 1990 to present.

I should say 3% in 2019 is not undoable. But the core difference is a marketing issue. Robinhood could invest in higher yield products.

But in consumers’ view, it is truly disrupting and may level up the playground for all players in this field.

The time of easy money is gone. The startups or new initiatives with better and sustainable solutions (usually tech-oriented) are attacking the incumbents. Robinhood may or may not be the one (and this may not be the exact right approach), but the industry needs to be prepared.

Very Interesting Statement from Running on Empty by Peter Peterson

Democratic – there is no limit to how much they can take from government

Republican – there is no limit to how little they can give to government

where “they = voters”

It seems that the swing between two parties causes the constantly larger promises that are asymmetric in terms of what voters get – no one would promise more restrictive policies to gain votes.

Ohio Accepting Cryptocurrency for Tax – Pure Personal Interest or A Move to Future?

Ohio is becoming the first state to accept crypto as tax payments on https://ohiocrypto.com/.

The move is made by Ohio State Treasurer Josh Mandel. Born in Sep. 1977, he had made several moves after being elected as Ohio State Treasurer in Dec. 2010, including OhioCheckbook.com that posts all state spending information on the internet for better government transparency.

The current cryptocurrency accepted is Bitcoin, with more to come. A third party cryptocurrency payment processor, BitPay, will serve between taxpayers and Ohio State Treasury, so that the former will pay crypto and the latter will receive dollar.

Although the State Treasurer himself is said to be an enthusiast of cryptocurrencies and blockchain, it might as well be seen as a state-level move to differentiate itself and embrace the future tech world. According to TechCrunch, Ohio has other moves to become tech-friendly including a technology hub forming in Columbus, home to one of the largest venture capital funds in the Midwest, Drive Capital. And Cleveland (the city once called “the mistake on the lake”) is trying to remake itself in cryptocurrency’s image with a new drive to rebrand the city as “Blockland”, etc. Columbus also reported last year that its Smart Columbus program had an expanded $417 million in resources to turn Columbus into the testing ground for intelligent-transportation systems.

Politics and future development is more interconnected than ever. Policy makers are becoming smarter and seeing/learning the tech future as others. “Policy infrastructure” played an important role in the past and will continue to do so. Each city/state may have a specialization and leveraging its hub effect. Blockchain is one of those “specializations” that many are going after. China and US are no different in terms of this strategy of development.

Moderna’s Long-waited IPO Filed, Raising $500+ Million

Moderna filed S-1 with SEC last Friday and will become the largest biotech IPO in history.

The record amount of raise ($500 million in current version of documents; I will expect more) just surpassed $421 million (HK$3.3bn) IPO by Innovent. In the past years, the typical size of the largest biotech IPO is around $200-300 million.

Since October, we have seen a series of large biotech IPOs that might also contribute to the money pulled from other biotech companies.

Here is the list of ever-increase IPOs in size since October:

– Guardant Health $238 million

– Allogene $324 million

– Innovent (in HK) $421 million

– Moderna (proposed) $500 million

Two Reflections from Physics on Investing

1.
What Physics says

Intense sub-planck undulations are seen as glimmers of distortions when zooming out, and are smoothed out on a higher level. Vice versa, seemingly flat world could be surprisingly dynamic if viewed in a sufficient close manner.

Figure 5.1 By sequentially magnifying a region of space, its ultramicroscopic properties can be probed | Source: The Elegant Universe by Brian Greene
In the investment world

Fluctuations in prices within a short time frame, however dramatic, could be (at least partially) smoothed out in a longer period of time. Vice versa, more details or clues of changes could possibly be found behind the scene even if prices stay the same in a week/month/year.

2.
What Physics says

While sub-planck variations are cancelling out with each other, some changes are constant and going in certain directions, although might be immaterial/unsensible on a daily basis – e.g. our universe is ever expanding.

Google results for "universe is ever expanding", Quora

In the investment world

Certain underlying trends (company, industry, economy, society, species, planet, etc.) are happening definitely in the long run. Trying to uncover those trends and making investments according to those should be an effective long term approach.