12 February 2019 FT — Articles to Read

12 February 2019


Question: According to MSN: Money, what are five (5) pieces of advice that cost someone thousands of dollars?


Global investors in record rush to China as hopes rise over US trade – Pg. 1

–        …betting the mainland market has bottomed out after a disastrous 2018 and anticipating that the US Federal Reserve’s dovish U-turn would boost emerging markets

–        …more positive outlook for US-China trade…


IMF chief economist supports Fed rate pause – Pg. 2

–        …flagged up a darkening picture in the euro area and China as she warned there may have been a contraction in world trade in December

–        …the shift in Fed policy had also “certainly helped” emerging market economies that had struggled with the tightening financial conditions over the past year

–        Last year, the IMF provided the largest loan in its history to Argentina, …$57bn…

–        One big question now is whether Venezuela might also need IMF support


Do leveraged loans pose a threat to the US economy? – Pg. 9

–        Leveraged loans, which are extended to corporate borrows with relatively high debt levels, carry more risk and pay more interest as the US Federal Reserve raises rates

–        They are secured with underlying collateral and when lenders line up for repayment, leveraged loans are usually given priority over lower rated bonds known as high yield credit.  That means there is some protection if the borrower goes bust.  Last year, which was generally tough, leveraged loans did better than most assets

–        The asset class has more than doubled since 2010 to more than $1tn at the end of 2018

–        Highly leveraged loan deals (when debt is more than five times earnings before interest, tax, depreciation and amortization) account for about half of new US corporate debt

–        That growth is partly a result of securitization.  Roughly half of investors demand today comes from packaging loans into collateralized loan obligations, or CLOs, and slicing them into different tranches of risk

–        Rising demand has shifted the balance of power from investors to borrowers, and contributed to a watering down of covenants embedded in loan agreements that traditionally protect investors

–        …about 25% of the leveraged loan market was considered “covenant-lite” before the financial crisis.  Now that figure is 80%

–        Leveraged loans probably won’t spark the next recession, but they will almost certainly deepen it, because they are an important source of corporate funding for deals and share buybacks


Exchange giants battle over new US oil benchmark – Pg. 19

–        Last year, exchange operators CME Group and Intercontinental Exchange introduced dueling futures contracts that track the price of West Texas Intermediate crude as delivered at the coast city

–        …growing status as an energy trading hotspot as US oil production breaks records, Texas refineries add capacity and exports of crude soar

–        At times, the price of oil at Houston disconnects from prices in the North Sea, Cushing or both, suggesting the new contracts could be useful to companies selling oil there.

–        Academic research has shown that new futures contracts are likely to fail unless they are substantially better at reducing risks than existing futures contracts,…

–        The new CMD contract is delivered at Houston terminals owned by Enterprise Products Partners.  Its rules require oil with gravity, or density, that measures within a narrow band of 40-44 “degrees”

–        The oil may contain no more than 0.275% Sulphur content and four parts per million of the metals nickel and vanadium


Answer: (1) Invest in cryptocurrency (Prof Note: How many classes did I warn about this?!); (2) Put it on a credit card (Prof Note:  I have mixed feelings about this.  I believe that everything should go on credit card but that the balance should not be carried month-to-month, i.e. this is a VERY expensive form of credit if carried.  However, one wants to benefit from the points and rewards); (3) Max out your retirement fund (Prof Note: I 100.0% agree that matching should be maxed out.  However, prudent planning must be done for the remaining.  401(k) can cost liquidity and cash is KING!); (4) Do not try and fight banking fees (Prof Note: I was literally in BB&T last week saying, “I cannot stand anything more than when a banker tells me, “NO”. J  Fees are theft, Interest is a cost of doing business!); (5) Keep your money where it is.  (Prof Note: Remember that capital has four dimensions that all participate in value: (1) Magnitude, (2) Timing, (3) LOCATION, and (4) Colour (currency)).