10 December 2018 FT — Articles to Read

10 December 2018


Question: A peer of mine has a 14 year old daughter.  He recently viewed her google history (Prof Note: I did not ask why there was a need or how he was able to access the history).  What did he find?


‘Outright recession probable’ in event of disruptive no-deal – Pg. 3

–          The UK would struggle to avoid a recession next year if it crashes out of the EU, but the severity of any downturn would depend on choices in Brussels that could ease the fallout…

–          …”disorderly” Brexit scenario outlined last month by the BoE, in which the UK economy would shrink 8% in 2019 and interest rates would rise to 5% to protect sterling and guard against rampant inflation

–          …estimated a disruptive no-deal Brexit – where the UK and the EU do not co-operate – could knock 3% off Britain’s national income by 2020 “with an outright recession probably”

–          …”managed” no-deal scenario – where the two sides seek to minimize disruption in key areas, for example by agreeing arrangements to enable flights between Britain and mainland Europe – would only involve a pause in economic growth next year and a 1% hit to GDP by 2020


US expected to slow as Asia and Europe falter – Pg. 4

–          The US is likely to feel the effects of sharply slowing growth elsewhere in the world, …in response to signs of a loss of momentum in a broadening range of economies

–          …not expecting a recession in the US, but he expects growth to progressively slow in 2019 and 2020 as the effect of tax cuts and spending increases diminishes

–          Worries about declining growth in Asia and Europe have started to bear upon the US policy outlook, as the Federal Reserve prepares for a likely increase in short-term interest rates this month.  Although the US unemployment rate is hovering at its lowest level since the 1960s, gauges of manufacturing growth drifted lower in November in countries including Germany, France, Italy, Japan and South Korea – while in China measures of expert orders have started to contract

–          …swelling “downside” risks to the largely positive US performance.  Among them are the overseas deceleration, turbulent financial markets, and continued fears over the trade war between the US and China


Should the US rein in share buybacks and put an end to the spending spree? – Pg. 11

–          US corporations are on a spending spree: they are on track to shell out more than $1tn on stock buybacks this year.  This practice is holding companies, workers and our economy back, and it is time for the SEC to adopt new policies to curb buybacks

–          Stock buybacks allow a company to repurchase its own equity on the open market, which has the effect of driving up share prices…it may sound harmless, but the practice enriches executives and those who sell their shares at the expense of the company and our economy

–          When companies spend their money on buybacks, that means they are not using it to lower prices for customers, increase wages for workers, or invest in new equipment and innovation (Prof Note: I thought the goal of a company was to increase shareholder value?!  Hmmmm…I’m confused….)

–          Buybacks particularly benefit top corporate leaders, who control the timing of share purchases and can personally profit from buying and selling shares as the stock price rises (Prof Note: In B-school this is referenced under “Agency effect” and is not new…hence vesting…)

–          Economists also argue that companies buy back stock only when they have no better use for their capital.  This ignores the reality that many companies would benefit from retaining a financial cushion for when inevitable economic downturns strike (Prof Note: I thought this was the purpose of pre-negotiated credit lines which have less expense than holding cash?!)

–          The enthusiasm for buybacks also ignores the employees who work hard to create corporate wealth (Prof Note: WHAT???  I thought an employee’s salary was compensation for doing their job?!  I remember when I had my first year review at Clark Construction.  I met with the CFO and had my spreadsheets of quantifiable and provable results to the company.  After listening to me, and agreeing with me, she put her hand across the table and said, “And Roger, this is why we would like to invite you back for another year of employment.”  I was completely disarmed!  The point, I had done my job, I had earned my salary.  There was no expectations/promises beyond that.  (Note: I LOVED my time at Clark Construction and learned a lot about business.  I consider my position at Clark to be my “break out” role from Analyst to Executive.  I am a proud Clark Alumni!))

–          The rise of stock buybacks can be traced to an SEC provision known as rule 10b-18, or the “safe harbor” rule.  This 1982 rule shields companies buying back their own stock from liability for share price moves, provided they meet certain conditions about the timing and volume of the purchases.


Fewer than 5% of Europe and US CEOs are female – Pg. 18

–          …women held 4.9% of the top roles across 13 countries, with female representation in the chief executive position ranging from 6.9% in the US to zero in Denmark and Italy

–          Women’s low representation in leadership roles has attracted growing attention from policymakers, with some countries setting targets to increase their share of female directors


Answer: “What percentage of your paychecks goes to taxes in Maryland?”  His daughter wants a car and is starting the calculations to earn one!