The Hong Kong Dollar Whithers

Hong Kong dollar at weakest level in 33 years

The Hong Kong dollar pushed to the weakest level against its US counterpart in over 33 years on Monday amid a persistent gap between US and Hong Kong interest rates.  The Hong Kong currency weakened fractionally to an intraday low of HK$7.833 per dollar in early afternoon trading. That is still within the trading range of HK$7.75-7.85 range permitted for the currency by the Hong Kong Monetary Authority since 2005, but nonetheless marks the softest level for the territory’s currency since December 12, 1984. Capital inflows into Hong Kong – in particular from mainland investors in its stock market – have kept the territory flush with cash and its interest rates depressed, resulting in a gap between rates for the two currencies that has led to the Hong Kong dollar to steadily weaken against the greenback since the end of 2016.  The HKMA last sold exchange fund bills, which mop up excess liquidity and boost short-term interest rates in Hong Kong, in September 2017 and in December its chief executive Norman Chan said there were no plans to sell additional exchange fund bills.

https://www.ft.com/content/7f1bff7e-202d-11e8-a895-1ba1f72c2c11

Overvalued Stock Markets

Warren Buffett seems to think so. Here some excerpts from the Bershire Hathaway 2017 Annual Report.

There are four building blocks that add value to Berkshire: (1) sizable stand-alone acquisitions; (2) bolt-on acquisitions that fit with businesses we already own; (3) internal sales growth and margin improvement at our many and varied businesses; and (4) investment earnings from our huge portfolio of stocks and bonds. In this section, we will review 2017 acquisition activity.
In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

Retail Bankrupcies grow by 110% yoy

Retail Bankruptcies Soared by 110% This Year

The fact that physical retail is hurting is old news. But the extent of its suffering became clear last week when news and research organization Reorg First Day reported that retail bankruptcies rose 110% in the first six months of this year compared with the same period a year ago. The consumer discretionary sector accounted for 24% of all bankruptcies this year, according to the ratings agency Fitch.

In its report, Reorg First Day released a chart listing major retailers that collapsed this year. True Religion, maker of jeans and shorts, started the slide at the beginning of this year by declaring liabilities of between $100 million and $600 million. Among the high-profile companies that declared bankruptcy this year was kids’ retailer Gymboree, which declared liabilities of well over $1 billion. (See also: Gymboree Goes Bankrupt. Sears May Be Next.)

The Stressed Out Consumer

GE plans to cater to the stressed out consumer.

GE executive says Americans are ‘more stressed out than ever’

American consumers’ stress levels are at an all-time high, according to surveys by GE Appliances.

“The average consumer is more stressed out than ever,” Rick Hasselbeck, the chief marketing officer of GE Appliances, told Business Insider. “Their well being is not where it should be physically, emotionally, socially, and financially. … People are struggling.”

He said consumers are increasingly time-starved and they are facing rising health care and technology costs, among other pressures, and “they need things that make their lives simpler.”

Are LBOs Contributing to Bricks and Mortar Retail Declines?

The Private Equity Firms at the Core of Brick & Mortar Retail Bankruptcies

by Wolf Richter • Jan 22, 2018

An astounding list of the meltdown: PE firms doomed the retailers.

One of the big forces in the brick-and-mortar retail meltdown are private equity firms that acquired retail chains via leveraged buyouts during the LBO boom before the Financial Crisis or more recently. Numerous of those retail chains have now filed for bankruptcy.

A PE firm typically borrows to undertake the leveraged buyout. But instead of carrying the debt at the firm, the debt is loaded on the acquired company, on top of the debt it had before the buyout, and it has to service that large pile of debt.

In addition, PE firms typically extract fees and “special dividends” from their portfolio companies which will fund them with additional debt. These fees and special dividends are tools with which PE firms extract profits up front. Lenders and other creditors carry the risks.

The final goal is to unload the portfolio company by selling it either to a large corporation or to the public via an IPO within a few years (seven years is a rule of thumb).

The Private Equity Firms at the Core of Brick & Mortar Retail Bankruptcies