CC-BY-SA-2.0, FlickrPhoto: Extell Development Company. The World's Tallest Penthouse Will Set You (Or Your Client) Back by 95 Million Dollars
A beacon of glass and steel rising 1,550 feet on famed Billionaire’s Row in New York City, Central Park Tower is set to become one of the most prestigious addresses in the world. Offering endless views, exquisite architecture, gracious layouts and an unprecedented level of service, Central Park Tower will be the definitive New York skyscraper. Real estate development firm Extell Development Company will exclusively handle the sales and marketing for Central Park Tower which will have 20 condos worth over 60 million dollars, and a 95 million dollar penthouse.
“Over a decade of planning and collaboration with the world’s most talented architects, engineers and designers has resulted in Manhattan’s newest iconic structure,” said Gary Barnett, Founder and President of Extell Development Company. “Central Park Tower introduces a level of design, quality and service that hasn’t been seen before. This building will stand out in New York City history as the singular residential offering that redefined luxury living.”
Central Park Tower was designed by Adrian Smith + Gordon Gill Architecture (AS+GG), a firm dedicated to the design of high-performance, energy-efficient, striking architecture on an international scale. AS+GG has collaborated with clients across the globe to design nine of the world’s tallest and highest-performing buildings. Currently, AS+GG is responsible for the design of the next world’s tallest building, Jeddah Tower now under construction in Saudi Arabia, as well Wuhan Greenland Center and Greenland Tower Chengdu, both currently under construction in China.
With their breadth of experience, AS+GG is uniquely suited to deliver an iconic, landmark building like Central Park Tower. The building’s façade distinguishes itself from its surroundings by combining elements of glass, satin-finished stainless steel, and light-catching vertical and horizontal details that accentuate the interplay of texture and light. At a height of 300 feet from the street, the tower cantilevers to the east, creating Central Park views for all north-facing residences.
The definitive aspects of living in Central Park Tower are the extraordinary views and floor plans. The grand living and entertaining spaces are strategically positioned in the corners of the residences to maximize multiple panoramas and citywide views. Structural elements are discreetly located between the residential units, resulting in floor-to-ceiling windows, unencumbered views and gracious layouts.
“One of the greatest responsibilities of architecture is to continue to elevate experiences yet create structures that are elegant and respectful,” said Gordon Gill of Adrian Smith + Gordon Gill Architecture. “Central Park Tower was designed to take advantage of the spirit of the great city of New York and create an address worthy of its location on Billionaires Row and Central Park.”
The interiors of these grand residences are designed by Rottet Studio, whose credits include The Surrey Hotel in Manhattan, The St. Regis in Aspen, The Beverly Hills Hotel Presidential Bungalows and The River Oaks in Houston. Rottet’s interiors are marked by a distinguished level of detail and incorporating unique and custom finishes to create an unparalleled interior environment. Starting on the 32nd floor, the 179 ultra-luxury two-to-eight-bedroom residences range in size from 1,435 square feet to over 17,500 square feet.
Located within the tallest residential tower ever built will be one of the world’s most exclusive private clubs, Central Park Club. The Club will offer approximately 50,000 square feet of thoroughly curated luxury amenities spread across three floors, each location providing a unique experience complemented by five-star service.Extell is co-developing Central Park Tower with SMI USA (SMI), the US subsidiary of Shanghai Municipal Investment, a leading infrastructural investment company responsible for the esteemed Shanghai Tower, the second tallest building in the world.
For more information or to schedule a private appointment at the sales gallery, please call 212-957-5557 or visit their website.
Pixabay CC0 Public DomainAbraham E. Vela Dib, Linkedin. Abraham E. Vela Dib Will Head the Mexican Pension Funds Regulator
Abraham Everardo Vela Dib will be, as of December 1, 2018, the new President of Mexico’s pension funds regulator, the CONSAR.
Vela Dib told Funds Society that leading this endeavour will be “a pleasure and distinction.”
According to Funds Society sources close to the CONSAR, Vela Dib will meet with the team of Carlos Ramírez Fuentes next week to work on the transition process.
Since the beginning of the year, Ramírez has been preparing various materials so that the change of administration is as easy as possible and the new team has all the necessary tools to make the decisions they need.
Amongst the new administration to-do list is to hold the CAR meeting that will give the green light to Afores’ investment in mutual funds.
The PhD in Economics from the University of California, Los Angeles (UCLA), has held various positions at the Bank of Mexico and its Ministry of Finance. He has also been a visiting economist at the International Monetary Fund and the Bank for International Settlements. He recently joined the teaching team of the Colegio de México-where he completed his MA in Economics, after leaving his post at the Central Bank of Hungary, where he spent the last 10 months as an expert in macroeconomic analysis and education.
Pixabay CC0 Public Domain. “Argentina will Continue to be a High-Risk Country, but at Levels that Exceed the Reasonable Possibilities of Default”
In an exclusive interview with Gorky Urquieta, Global Co-Head of Emerging Market Debt Neuberger Berman, Funds Society has had the opportunity to talk about their current vision and perspectives of emerging markets debt after the instability experienced in these markets during last August.
The current situation of emerging markets is different from that of 2013 or 2015 Neuberger Berman’s assessment of the current situation of emerging markets differs significantly from what happened in 2013 or 2015, when emerging markets experienced significant spread extensions and currency falls. Although they admit that there is a certain deceleration stage, and that some countries will have to make more aggressive adjustments in monetary policy, they also point out that there are others that are in relatively good conditions despite a more complicated current environment. In particular, Urquieta points out that: “There are countries that are in relatively good conditions in Latin America, countries such as Mexico and Colombia, and even Brazil, which is recovering from a hard recession, but there are vulnerabilities that have become more evident in recent times due to the rate hike, the expectation of rising US Treasury rates and the revaluation of the dollar that has complicated refinancing prospects, access to liquidity, and financial conditions for markets in general.”
Main risks: trade conflict and rate hikes in the United States
At Neuberger Berman, they believe that one of the reasons for the adjustment of emerging markets has to do with the uncertainty with respect to “trade,” not only the trade dispute between China and the United States, but also with regard to the uncertainty generated before an agreement was reached in NAFTA. Urquieta concludes: “In general, this whole protectionist attitude in the US is clearly not prone to lead to growth in world trade and that will affect emerging markets to a greater or lesser degree.”
In particular, and with respect to the trade conflict between China and the United States, he acknowledges that there is a risk factor as to how it will affect the Chinese economy’s demand for raw materials, although he states that it’s in a very good position to react on the side of monetary and fiscal policy favored by low pressure for the devaluation of the renminbi.
However, he acknowledges that part of this risk in emerging debt assets has already been priced in: “It’s possibly the only risk asset which has put some price on that conflict, via commodities.” Despite this, he explains that Asian currencies that may be more exposed, such as, for example, the Korean Yuan or the Taiwanese dollar, have not been so affected, thanks to their good fundamentals.
When asked about another of the major risks that concern investors, the rate hike by the Fed, Urquieta says that some of these are already priced in and justify the appreciation of the dollar with respect to its base. However, he does not expect rates to rise more than twice, due to his doubts about the ability of the American economy to maintain its current growth rate, which is close to 4%, and adds: “As we approach 2019, growth expectations will probably begin to cool down a bit and we think that the FED will not end up raising rates 3 or 4 times.”
Opportunities in Latin America: Brazil, Argentina, and Mexico
After strong corrections in the markets, there are usually purchase opportunities due to the indiscriminate sale of assets that occurs in situations of uncertainty. Urquieta explains: “In times of stress, the market starts to act without differentiating; and we saw that in August, when the lira collapsed and the Argentine peso fared worse than the lira. That example indicates that when we see that kind of reaction it means that the market is capitulating, that is to say that it has reached a point that does not distinguish, and that indiscriminate fall creates many opportunities “
As regards their interest in debt markets in foreign currency and local markets, Brazil is a country that attracts them greatly. While it is true that local rates and the real have suffered a lot of pressure due to political uncertainty, there will potentially be a point of entry that has not yet been defined, but which will be after the first round of elections.
Argentine debt assets in foreign currency are a type of asset that also seems interesting, despite all the uncertainty surrounding the country, and he explains why: “Its market price, with the current spreads, as far as regards the probability of default, seems a bit excessive. But it‘s still a high risk country, which will probably continue to be high risk for a while, but it’s already at levels that exceed reasonable possibilities of default.”
Going into greater detail concerning the Argentine political issue, they agree that it’s complicated, but they also believe that Macri still has a relatively stable level of support, at around 40%, and that necessary adjustment plans for 2019 will be approved. They do not believe that there is any significant risk of government collapse and he adds: “Conditions would have to deteriorate greatly, a break with the fund, the program aborted for some reason, there would have to be a very extraordinary event outside of Argentina.”
“On the part of the markets we may have seen the worst,” Urquieta adds regarding the Argentine markets, although he acknowledges that the Argentine economy will suffer a severe adjustment and will be in negative growth for a long time. As for the Argentine peso, he believes that its fall is beginning to be under control, mainly because the domestic market begins to have more confidence and he adds: “That will follow a course and will eventually turn into a virtuous cycle, after having been a vicious cycle, where the outflow of capital, and the more aggressive sale of pesos to buy dollars has created a vicious circle. The stability of the exchange rate is a requirement for the rest to begin to recompose.”
Finally, he adds that, in their opinion, Mexico is another market to be taken into account, as it is a highly rated segment that seems interesting on the side of the handles and debt in foreign currency.
Portfolio recommendations
Given the current market environment and the variety of strategies that Neuberger Berman offers, we asked Gorky Urquieta about his investment recommendations and he presents the following 3 alternatives based on the risk profile.
On the more conservative side, he talks about short duration which is a fairly conservative strategy within emerging markets due to the duration profile, its foreign exchange risk, being exclusively foreign currency, and the credit quality of its portfolio with an average investment grade of BBB- . He also adds that, due to the pressure that has been observed in the short part of the curves of emerging markets during the month of August, the YTD (yield to maturity) was expanded by 100 basis points to stand above 5.8% , and thanks to this it is quite possible that they exceed the return target set at 3% over cash (3 month treasury rates).
On the opposite side, are the strategies in local currency and he adds: “If things recover, it is the strategy that has the most upside.” He also explains that based on their own analyses, following market falls exceeding 10 %, there will frequently be a rebound in prices in the following one to three months, and he confirms that the market has fallen 10% since February’s highs.
In between both strategies, there’s debt in foreign currency. Urquieta adds that although it‘s true that the spread of the benchmark has expanded 100 basis points since the beginning of the year to levels of 375 basis points, it’s mainly due to the component with credit rating below investment grade, which represents 49% of the benchmark , and whose spreads have expanded between 175-180 basis points, and half of this movement has occurred in August.
Gorky Urquieta joined Neuberger Berman in 2013. He is currently a Senior Portfolio Manager and Co-Head of the Emerging Markets Debt team, responsible for the management of numerous strategies including the following: Hard Currency, Local Currency, Corporate Debt, Short Duration, Blend, Blend Investment Grade, Asian Hard Currency, and China Bond Fund, with assets under management totaling 18 billion USD.
Founded in 1939, Neuberger Berman is a privately owned, 100% independent company. It has offices in 32 cities around the world, assets under management of approximately 304 billion dollars, and more than 40 UCITS funds registered in Ireland. With over 500 professional investors and approximately 2,0000 employees in total, Neuberger Berman stands out for its extensive offer in equities, fixed income and alternative products.
Pixabay CC0 Public DomainPhoto: Виталий Смолыгин CC0. 4 Potential Reasons for the Gold Rally
Written by Russ Koesterich, CFA, Portfolio Manager for BlackRock’s Global Allocation Team Russ discusses why gold, not a popular asset class until recently, has become so as a hedge.
October was not kind to investors. Not only did stocks suffer their worst monthly draw-down in years, but traditional hedges, such as government bonds, did not rallied enough to offset the losses (see Chart 1). As a result, a typical 60/40 stock/bond portfolio experienced one of the worst draw-downs since the financial crisis.
Interestingly, gold, largely left for dead, has rallied. Not only has gold bounced, but it has done so despite a steady dollar. Which raises the question: Why is gold rallying now? Here are four potential reasons:
1. Gold got “cheap.”
Over the very long term gold and the U.S. money supply, measured by M2, tend to move together. Changes in gold prices have roughly equaled changes in the money supply, with the ratio tending to mean-revert towards 1. By the end of September, this ratio had fallen to below 0.7, the lowest since 2005. When the ratio is low, defined as 25% below the long-term average, the average return during the subsequent 12-months is 15%.
2. The dollar has stabilized.
While the DXY Index is pushing against the upper end of its five-month range, the dollar has been relatively stable since May. This is important as a rapidly strengthening dollar, as we witnessed last spring, has historically been a headwind for gold. To the extent the dollar has stabilized, this removes one headwind.
3. Real rates also appear to have plateaued.
Besides the dollar, the biggest challenge for gold in 2018 has been rising real rates, i.e. interest rates after inflation. Higher real rates raise the opportunity cost of an asset that produces no income. Between January and early October, real 10-year yields advanced by 50 basis points. However, since then, real rates seem to have temporarily peaked near the levels reached in 2013.
4. The return of volatility.
While real rates and the dollar are key fundamental drivers for gold, demand for a hedge against volatility also drives gold prices. With the exception of the brief correction in February, that attribute has not been in demand until recently. Prior to the recent swoon, U.S. equities were well on their way towards another year of double-digit gains. Unfortunately, this pleasant trajectory has been interrupted. Equity market volatility, measured by the VIX Index, has doubled since early October. This is important, as gold has a history of performing best versus stocks when volatility is spiking. Historically, in months in which volatility rises by more than 20%, gold typically beats U.S. stocks by more than 5%.
Bottom Line
In short, whether or not gold can continue to rally will largely be driven by the direction of the dollar, real rates and market volatility. Another dollar rally will likely interrupt gold’s recent strength. That said, absent another leg up in the dollar, an environment of rising volatility, particularly one in which economic uncertainty is rising, has historically been exactly the environment when gold has proved its value as a hedge.
Russ Koesterich, CFA, is Portfolio Manager for BlackRock’s Global Allocation team.
Photo: Funds Society. Shiller: "You Must Have Exposure To The United States Even Though It Is One Of The Most Expensive Markets In The World"
According to Robert Shiller, Nobel laureate in economics 2013, economic growth is good in the United States and although there is concern about high valuations, he does not predict a near collapse.
In his last visit to Mexico, to celebrate the launch of the Ossiam Shiller Barclays ETF in the Mexican Global Market (SIC in Spanish), the economist told Funds Society about the importance of geographic diversification and added that, within it, exposure to the United States should be kept, even though “the US market is at high valuations with a cap ratio of 30”.
“Despite the short-term fluctuations that come and go, I think we should not think that a bear market is approaching and I think that we should have some exposure to the United States that, although it is one of the most expensive markets in the world, continues to behave positively. The key is not to put all the eggs in the US basket, but to diversify,” he added.
In his opinion, one way to get exposure to this market is to look for instruments that have a value-focused approach, such as the ETF that replicates the index resulting from its collaboration with Barclays.
However, he warns that markets are not only about interest rates and their effect, but the ideas of people. Currently we have important changes in the political sphere of the United States and many places in the world, including Mexico, and according to the economist, “one would have believed that the markets had suffered, which did not happen on a large scale…”
In his opinion, “the way the economy looks is changing. It is becoming less theoretical, less mathematical, less abstract and is becoming more practical. Now it is giving greater importance to the narrative that accompanies it,” he mentions adding that, “the desire and willingness of people to invest and take risk changes over time and the narrative they live.”
Mexico
The economist, who personally has exposure to Mexico in his investments and considers the country as a key player in the global economy, commented that “the next government of Mexico, headed by Andrés Manuel López Obrador, should give certainty and security to investors” .
About the airport, Schiller said: “I do not know if Mexico needs a new airport, but I hope that this can be resolved in a way that all the people who made investments and plans feel that they made a good agreement … It is important that the new president encourages investors to feel that there is a safe environment to invest.” He concluded.
Photo: Guma89. Play Cautiously with Vulnerable Markets
Written by Rick Rieder, BlackRock Chief Investment Officer of Global Fixed Income and portfolio manager for the BGF Fixed Income Global Opportunities Fund. Rieder argues that monetary policy restrictiveness, fading fiscal stimulus, and growing economic uncertainties leave markets more vulnerable today, and these risks are not to be toyed with.
In the game of Jenga, players take turns removing one block at a time from a tower constructed of 54 blocks. Each block removed is then placed on top of the tower, creating a progressively taller, yet more unstable, structure. The game ends when the tower falls and the loser is the person who made it fall. To us, the 2018 investing regime is evolving much like a late-stage game of Jenga, with the Federal Reserve and Treasury clinically and methodically removing the blocks of stability from underneath the financial and real economy “towers.” Indeed, ongoing rate hikes, Fed balance sheet reductions, and massive amounts of Treasury issuance to finance fiscal deficits are leading to increasing vulnerabilities for both financial assets and the prospects for economic growth over coming quarters. In our view, this vulnerability is evidenced by the recent acute spike in market volatility.
Monetary Policy likely to differ from standard market narrative
The conventional market narrative today surrounds already realized robust U.S. growth and earnings, and an earnest belief that sufficient momentum exists to push a capacity-constrained economy into a mode of overheating that will force the Fed to seek a restrictive policy stance. Our base case monetary policy scenario is far more benign, as increasingly skittish financial markets, along with signs that previous tightening has already started to bite parts of the real economy, suggest to us that the tightening cycle is nearing its end. To be clear, though, we do not think the Fed will mistakenly become too restrictive.
To be sure, third quarter U.S. economic growth remains strong by most measures, but we think there are numerous yellow lights flashing ahead of investors today. For instance, while ‘present conditions’ components of high-frequency survey economic data remain solid, related measures of ‘forward expectations’ have become noticeably weaker. Moreover, the two largest (and most rate-sensitive) sectors of the tangible economy, the housing and auto markets, are showing demonstrable signs of softness. That weakening can be witnessed with declines in mortgage applications, housing turnover, and a reduced rate of home-price appreciation. It can also be seen in a notable decline in used car prices. Finally, the powerful influence of 2018 fiscal stimulus will become a growth headwind in 2019, as temporary measures roll off leaving only the related financing burden behind. As that process unfolds, it’s very likely that the Fed’s judgement of the strength of the economy and the need for further policy rate hikes also adjusts (see graph), an eventuality that markets are not properly discounting now.
Meanwhile, inflation has moved begrudgingly toward the Fed’s desired target, but there is scant evidence of untethered economy-wide price increases. In fact, persistent “misses” in core inflation prints, relative to expectations, are widely brushed aside as “one-off” occurrences, but the reality is that the greatest cost revolution in history (due to technology and demographic forces) is combining with fat corporate profit margins that can handily absorb wage increases. That fact should mute consumer price increases, just as inflation expectations continue to make new generational lows.
And, with real economy vulnerabilities percolating, we see a more acute tightening of financial conditions (FC) than is broadly appreciated. While traditional metrics show that FC are approaching longer run averages, when adjusted for contracting forward equity multiples, a more pronounced tightening is evident. Also, rising yields are driving increased corporate borrowing costs, a late-cycle phenomenon that often leads reflexively to wider credit spreads that in turn risk exacerbating the phenomenon.
What tighter financial conditions mean for markets
Tighter financial conditions have already impacted the global economy as U.S. dollar strength, and declining global liquidity growth, has generated significant turmoil in emerging markets (EM) this year. Many EM countries have witnessed a ubiquitous, and unwanted, currency weakness that has forced onerous policy tightening by their central banks to restore stability. However, this creates yet another headwind to global growth, with worrying implications for non-U.S. developed market (DM) economies that rely on EM growth for economic resilience (such as a good deal of Europe). Indeed, just last week, the International Monetary Fund reduced its global growth forecast for the first time in years.
During October, nascent signs of global growth deceleration and tightening financial conditions have caused volatility to spike anew. Moreover, if price declines across asset classes proliferate further over coming weeks the risk of accelerating retail capital outflows from financial assets would be exacerbated by dangerously thinly traded financial markets. An important tail risk to greater equity market weakness is the potential to rapidly undo the progress that pension funds have made in closing their funding gaps in recent years. The early third quarter backdrop of higher rates and buoyant equities provided a window for pensions to lock in that progress, but the more recent equity selloff, should it persist, would suddenly jeopardize those gains.
Implications for Asset Allocation
All things considered, we’re increasingly convinced that the Fed will not allow the Jenga tower to topple. Instead, we see a looming slowdown in the march toward “normalization” and a subsequent victory declaration regarding the Fed’s dogged pursuit of policy neutrality. Accordingly, we reiterate our enthusiasm for convex, high-quality, front-end rate expressions with immensely attractive carry (such as the 2-Year U.S. Treasury), as these assets have already priced in excessive incremental tightening and provide a portfolio hedge against the unlikely event of a policy mistake. We’ll gradually increase exposure to the belly of the curve (5-Year U.S. Treasury) on a moderate backup from here for an optimal mix of attractive carry breakeven and duration, just as the recent favorable shifts in cross-currency swaps make DM sovereigns expressed in USD newly enticing (note, the USD still remains one of our favored left-tail risk hedges).
We continue to like beta exposures through investment-grade credit expressions; for the combination of attractive all-in yield and satisfactory market liquidity, and also like short duration securitized assets, for their stable and secure cash flows. Finally, U.S. equities are increasingly attractive to own outright at ever cheaper valuations, just as corporate buybacks are set to resume after the third quarter earnings season ends. And for the first time all year, we think that elevated levels of implied volatility are creating tactical opportunities to sell options for incremental portfolio carry. Investors today must remain on guard against the market vulnerabilities we outlined, but at the same time, these very vulnerabilities provide opportunity. After all, no matter how precariously the Jenga tower is leaning, a player can’t win unless they remove a block and carefully place it on top.
Build on Insight, by BlackRock written by Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Global Fixed Income and portfolio manager for the BGF Fixed Income Global Opportunities Fund
In Latin America and Iberia: this material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. The provision of investment management and investment advisory services is a regulated activity in Mexico thus is subject to strict rules. For more information on the Investment Advisory Services offered by BlackRock Mexico please refer to the Investment Services Guide available at www.blackrock.com/mx.
Investing involves risks, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Learn more about how consistent investment performance and low fees are critical to achieving your fixed income goals in today’s environment. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.
Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of October 2018 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
Prepared by BlackRock Investments, LLC, member Finra
Pixabay CC0 Public DomainPhoto: Alexas_Fotos. October Spooked Market Participants Universally But The U.S. Economy is Still on a Roll
October spooked market participants universally with US stocks enduring their worst month since the financial crisis. Issues at hand circle around concerns about peak earnings and growth, tighter financial conditions, fears of a Fed policy mistake, a potential credit bubble and selling pressure in crowded trades. Tensions have been further compounded by geopolitical worries, including ongoing trade tensions with China and deteriorating Chinese/US relations; Italy’s budget chaos and fears of a recession; uncertainty regarding the upcoming US congressional elections; and Brazil’s election of Jair Bolsonaro, joining the growing ranks of populists across the world.
The U.S. economy is still on a roll and this is reflected by the outperformance of U.S. equities versus foreign stock markets. More broadly, payrolls are increasing, wages are growing at the fastest rate since 2009, and unemployment is at a 49 year low. Consumer spending is doing well and should get a boost from falling oil prices while global investors continue to be attracted by America’s low tax rate, economic strength, corporate profit growth, and ongoing efforts to achieve less regulation.
There are undoubtedly countless factors that could go wrong with the equity market. With that in mind, much could still go right. Earnings growth rates may be peaking, but earnings are still strong; outcomes in the US midterm elections will be known November 6th, removing the angst over potential outcomes; and the world could be pleasantly surprised following a meeting between Presidents Trump and Xi at the upcoming G-20 summit, easing concerns over escalating challenges between two of the world’s superpowers. With no compass to turn to, we continue to orient ourselves by looking at valuations, which for global stocks look to be at attractive levels not seen for over two years.
One specific investment dynamic I would like to highlight is in regards to the music industry, which are changing fast with Sony continuing to strategically position itself to the benefit of shareholders. After gaining European Commission approval in late October, Sony will acquire EMI Music Publishing in a $2.3 billion deal without conditions. The EMI acquisition will make Sony the global industry leader with a market share of about 26 percent. Universal Music Group and Warner Music Group are the major competitors in an industry that has now been revitalized by digital streaming services. As a copyright manager, Sony can earn revenues from direct deals with Spottily, Apple Music, Google Play, SoundCloud and YouTube. At the end of October, returning to the creative roots of its original Sony Walkman TPS-L2 in 1979 and as a logical extension of the music business, Sony audio announced that it aimed to regain its leadership position in headphones.
Column by Gabelli Funds, written by Michael Gabelli
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Class R EUR – LU1453360155
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CC-BY-SA-2.0, FlickrPhoto: Lindsey Turner. Speaking of Investments, Which Afores Stand Out?
To be the best Afore in terms of yields, they have to be good in several asset classes and that allows them to diversify the portfolios. The 4 most profitable Afores for the period 2012-2018 in order of importance are: Profuturo, Coppel, Sura and Citibanamex.
The 10 Afores that exist in Mexico, manage 180 billion dollars that represent 15% of Mexico’s GDP.
The 4 most profitable Afores are characterized by having between 8 and 9 asset classes in which they stand out from a total of 19 assets in which they invest in accordance with CONSAR (page 4).
Afore Profuturo that presents the best weighted performance of its Siefores had 7.60% between December 2012 and July 2018. It stood out for its performance attribution in foreign equity; mexican TIP´s (Udibonos); corporates; mexican treasurye bills (Cetes); foreign debt; Brems and Bondes D; derivatives and other underlying assets, as well as amortization and trading. The specialization that Afore Profuturo has in these asset classes allows it to differentiate itself and stand out among the 10 Afores that exist today. It is important to mention that these asset classes generate value for their portfolios in different weightings as can be seen in the following table:
Afore Coppel is in the second position with a yield of 7.19%, highlighting in its performance attribution in: foreign equity; mexican TIP´s (Udibonos); corporate bonds; local equity; repo; securitized; Brems and Bondes D; derivatives and other underlying assets, as well as amortization and trading.
CONSAR identifies 19 asset classes in its performance attribution report that in order of importance for its contribution to performance are:
Foreign equity (5 Afores stand out for their results in this asset class)
Mexican TIP´s, Udibonos (4)
Corporates (5)
M Bonos (5)
Local equity (4)
Mandates (2)
Mexican treasury bill, Cetes (4)
Structured (5)
UMS (2)
Repo (7)
Securitized (3)
Foreign debt (3)
Brems and Bondes D (4)
Bondes 182 y BPAs (2)
Commodities (1)
IPAB (3)
Mexican REITS, fibras (1)
Derivates and others underlying (2)
Amortization and trading (8)
These 19 asset classes, the first 4 asset classes account for 85% of the performance of the system, however it is not enough to be good at these asset classes to be the best in returns.
The asset with the highest profitability has been the foreign equity (36% of the weighted yield) which has a limit of 20%. The following three assets are: Mexican TIP´s (Udibonos); corporates and M bonds that each contributed between 16 and 17% to average yield of all the Afore.
It is interesting to note the case of Afore PensiónISSSTE who is good in 7 asset classes and is in 5th place in terms of returns, so seeking to improve their results in one or two more asset classes would help improve their results. In a similar situation is Afore Azteca who is good in 5 asset classes and is in 6th place in yields.
Afore Inbursa is good in 7 asset classes but it is not enough to be placed in the first places since the asset classes in which it is good are not those that provide the highest returns.
The investment teams of the Afores should be strengthened and sophisticated to improve their specialization in the different asset classes to maintain and attract affiliated workers.
After Mexico’s president-elect, López Obrador, announced that he plans to scrap the most important infrastructure project of the past two decades – the New Mexico City International Airport, the peso had one of its worst days since President Trump’s election and the stock market, which fell 4%, had its worst close in a decade.
According to JPMorgan Chase & Co which lowered its expectations for Mexico, the decision (which followed the mandate of the referendum held on the issue, with minimum participation -only 1,067,859 votes, or less than 1% of the Mexican population), “left investors worried about how he would manage the economy and increases the probability of the central bank raising interest rates.”
Morgan Stanley also reacted by changing its preference of exposure to that country from an overweight to an underweight position due to “the short-term asymmetric risks associated with the free trade agreement with the US and the airport situation.”
According to UBS the issue seems even riskier, since they warn that this dynamic could be used to carry out material changes in Mexico, such as invalidating “effective suffrage, not re-election” or even the central bank’s autonomy. “We see the potential for a public referendum to be approved as a constitutionally valid way of enforcing changes in the future, including possibly extending the six-year presidential mandate. The use of reserves at the central bank (Banxico) could also be subject to the people’s choice,” they point out in the attached report.
AMLO, who will not be sworn into office until December 1st, stated that after the public consultation, “our decision is to obey the referendum mandate, so two runways will be added to the military airport at Santa Lucia, the current Mexico City airport will be improved, and the Toluca airport will be upgraded, so that shortly we will have solved the saturation in Mexico City’s current airport.” The politician also commented that, “in economic terms, with this decision the Federal Government is going to save, around 100 billion pesos.” Just with the change in capitalization value due to Monday’s fall, Mexican companies lost 17 billion dollars, or more than 341 billion pesos. This means that in just one day, they lost more than three times the savings promised by AMLO.
Meanwhile, President Enrique Peña Nieto informed that Grupo Aeroportuario de Ciudad de México, or GACM, the company in charge of the New International Airport of Mexico (NAIM) project, will continue working on the construction of the new terminal in Texcoco at least until his last day in office, November 30th. Whereas, Juan Pablo Castañón, President of the (CCE), or Business Coordinating Council, said that the consultation lacks legal fundamentals in order to be accepted and warned that if after December 1st the stance continues to be to halt the Project underway in Texcoco, stakeholders will undertake legal actions in defense of the Project, and “in favor of Mexico’s economic development.”
The President, Enrique Peña Nieto, also warned that if the airport is canceled, the next government will have to comply with all its contractual and financial obligations, which includes advancing airport bond payments. According to AMAFORE, Afores investments in the NAICM are assured: “Workers must be calm about their savings, since the instruments used by the Afores for this investment, Fibra-e and Bonds, are backed by the collection of the TUA (Airport Use Fee), that is, by the flow of passengers, so the investment of their savings has enough guarantees to recover the capital plus a yield higher than inflation,” the organism said in a statement.
Wikimedia CommonsFoto: Pxhere CC0. Adapting To Markets That Change At The Speed Of Moore’s Law
Written by Rick Rieder, BlackRock Chief Investment Officer of Global Fixed Income and Portfolio Manager of the BGF Fixed Income Global Opportunities Fund
Published September 26, 2018
Rieder and Brownback argue that today investors are confronted by massive shifts in the nature of the economy, alongside cyclical and policy uncertainties; making sense of it all is critically important.
Moore’s Law, which states that computer processing speeds should double roughly every two years, proved to be true for a generation and helped to catalyze historical, technological, and social change, as well as remarkable productivity and economic growth. Today, however, new processing-intensive operations have challenged the law’s durability. Fortunately, the revolutionary emergence of parallel-processing chips has created a vast new dimension of computing capability – essentially computer chips that can now multi-task. Thus, simultaneous processing of massive and differentiated data inputs is possible, which has colossally accelerated the evolution of numerous cutting-edge innovations, such as artificial intelligence and autonomous driving, to name but a couple of the higher-profile examples. Similarly, successful investing today requires an ability to look past simple hyperbolic headlines and concurrently process and prioritize numerous thematic influences, many of which are historically unprecedented and are likely underappreciated by conventional wisdom.
From manufacturing to services; Tangible to intangible
High atop our thematic list is the evolving dominance of the “intangible economy” that has radically altered global consumption and investment behaviors, and which is fascinatingly depicted in the recent work by Jonathan Haskel and Stian Westlake, Capitalism Without Capital: The Rise of the Intangible Economy(Princeton, 2017). Ubiquitous human connectivity has dramatically elevated the relevance of digital intangible assets (data, applications, brands, etc.) and given rise to a frenzied corporate focus on their aggregation and monetization. In turn, this is engendering massive amounts of research and development spending, and investment in intangible assets, like social media platforms, apps, etc. that cater to consumers and in many cases hold transformational impacts on the global economy. At the same time, tangible asset investment has long been in decline (see graph).
Attempting to value the “capital stock” of digital intangible assets is an imprecise endeavor because the specific pecuniary impacts are difficult to quantify. Consumers are just beginning to understand that data created from their use of intangible products has realizable intrinsic value. For companies, the value of intangible assets are only reflected on balance sheets via acquisitions, or by backing them out from market capitalizations. But the overall societal benefits of proliferating intangible assets are unambiguous. Many corporations now generate enormous cash flows with a stock of ever fewer physically tangible assets. Systemic inventory management has become highly efficient, which reduces the amplitude of the macro economic cycle. Moreover, pervasive connectivity fosters intense price competition that places a secular downward pressure on global inflation rates, a broad and vital positive for the household sector.
Inflation, The Fed and the U.S. Dollar
Another theme worth monitoring is the muddled cyclical inflation outlook and possible policy responses. Specifically, weighty components to the Consumer Price Index, such as energy and shelter, face headwinds associated with steep base effects. Conversely, widespread tariffs would produce an obvious cyclical inflationary shock, just as many industries already face onerous capacity constraints that risk evolving into cost-push type price increases. In total, while markets are fearful of accelerating inflation, we think the Federal Reserve will look through the cyclical noise in deference to longer-term secular constraints.
Instead, we think policy makers will rightly focus on rate hike ramifications for real-economy activity while seeking a nebulous policy neutrality. With solid U.S. growth momentum, the risk of a tightening-induced recession is low at this point, but collateral damage from excessive tightening is very possible. Already, some debt-financed sectors like housing are showing nascent signs of diminished activity. Moreover, the prominent loan market will become exposed to rates that rise above the preset floors embedded into most outstanding loans. Finally, as the U.S. economy becomes more dominated by rate-insensitive, intangible-heavy businesses, extreme Fed rate adjustments away from neutral (up or down) will unfairly penalize very specific economic constituents, like savers and homeowners.
An underappreciated corollary to persistent Fed tightening is U.S. dollar strength (USD), especially when such hawkishness runs counter to the policy stance of other developed market (DM) central banks, as is the case today. Generally speaking, a stronger USD can disrupt the global financial system by tightening USD funding and reflexively lowering non-U.S. economic growth. And, when global liquidity growth slows sharply, as it has this year, U.S. dollar strength exacerbates the onerous consequences already accruing to liquidity-dependent global borrowers. That phenomenon has been visibly evident during 2018, with rolling emerging market (EM) crises posing a widening risk of broader contagion.
Asset Allocation amid growing uncertainty
Divergent financial market influences are equally complex. First, investor conviction has plummeted, severely diminishing market liquidity just as persistent volatility short selling is driving DM implied volatility to new lows. Combined, those two factors represent a systemic vulnerability with potential for forced unwinds into precariously thinly-traded markets. Simultaneously, credit spreads reside at cyclical tights, reflecting robust cash flow-driven leverage metrics. But the emergence of intangible assets means any cyclical decline in systemic cash flows can dent credit metrics rather faster than historical experience, since there are fewer tangible assets to serve as a collateral cushion. Another evolving dynamic is the efficacy of duration as a reliable risk hedge. While historically dependable, hedging with duration has been a counterproductive tool so far this year, but we think that the resumption of disinflationary forces and a full market pricing of near-term rate hikes suggest that risk parity, via short- and medium-dated U.S. Treasuries can be useful again for the remainder of 2018.
In sum, we find that while the range of potential forward scenarios has widened this quarter, the likelihood of a negative outcome has risen meaningfully. Accordingly, we are exploiting highly attractive short-dated fixed-income assets for carry and convex duration, specifically U.S. Treasuries, securitized assets, investment-grade credit, and DM sovereigns swapped to U.S. dollars. We’re staying exposed to equities though cheap upside gamma. Moreover, given the carnage witnessed in recent months in EM debt markets, we’re also layering in hard-currency expressions, and remain long the U.S. dollar as a systemic hedge. Investors today must understand the massive long-term changes taking place in the economy, alongside the cyclical economic fluctuations within them. They must also contend with an increasingly opaque monetary policy path for the year ahead, so we think maintaining a fair degree of caution makes sense, and it positions one well to take advantage of future opportunities.
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