Comment of the Day
31st May 2023
Eoin Treacy
Jun 1
Video commentary for May 31st 2023
A link to today's video commentary is posted in the Subscriber's Area.
Exclusive Interview with Zoltan Pozsar: Adapting to the New World Order
Thanks to a subscriber for this interview from Ronald Stöferle and Niko Jilch. Here is a section:
These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.
Eoin Treacy's view
There are a lot of moving parts in the global macro environment. The introduction of AI and the race for dominance is a wholly new development for example. The challenge with making big long-term predictions is that other events can happen before the prediction comes to fruition.
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Wells Fargo CEO Says 'There Will Be Losses' From US Office Loans
This article from Bloomberg may be of interest to subscribers. Here is a section:
Wells Fargo & Co. Chief Executive Office Charlie Scharf said there are significant risks to segments of the US office sector and that his bank will see losses stemming from real estate loans.
“We look city by city, we look property by property to look at our exposures, and I would say there’s no question that there will be losses,” Scharf said Wednesday at a conference hosted by AllianceBernstein Holding LP. The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said.
Many office owners are struggling amid the rise in remote work and the surge in borrowing costs, which has made financing more difficult. Landlords such as Columbia Property Trust, owned by funds managed by Pacific Investment Management Co., have defaulted on office debt, often in a bid to renegotiate terms with lenders. Brookfield Corp. recently handed over control of a building in downtown Los Angeles to a receiver after it stopped payments on the office tower.
“If you’re reserving conservatively, then you’ve derisked the financial impact to the company,” Scharf said, noting that Wells Fargo has a little less than 6% reserve coverage in its office portfolio. “In the context of the overall portfolio and the overall size of our loan portfolio in the company, we’re not overly concentrated in office.”
Eoin Treacy's view
I was speaking with a friend in San Francisco recently who related the story of a major landmark office building. The building had leased at $1000 a square foot before the pandemic. Today it is vacant despite rates having fallen to $200 and there is speculation it will eventually lease for $100. The cost of retrofitting the building to make it residential is $750 and the cost to knock it and completely rebuild is also $750. That’s a white elephant project no one is going to touch and it is only one example.
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Britain Comes to Terms With Its New Water Poor Reality
This article from Bloomberg may be of interest. Here is a section:
By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.
The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.
Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”
Eoin Treacy's view
The population of Greater London declined between the 1950s and early 1980s but then jumped around 50% over the last forty years. There was no incentive to invest in water infrastructure during a time of declining population growth and it takes a long time for institutional mindsets to change. Today, there is urgency to the investment case because urgent remedial action in both storage and usage are necessary.
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Eoin's personal portfolio: stock market short closed at a loss May 26th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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© 2023 Eoin Treacy
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