13 May 2019 FT — Articles to Read

13 May 2019


Question: According to MSN: Money, the top six (6) things Americans are saving for today are what?


Finger-pointing begins after Uber IPO mis-step – Pg. 7

–          Its shares closed down nearly 8% from the $45 initial public offering price in one of the worst debuts for a big US listing

–          …raised questions about whether bankers have mispriced some of the most high-profile IPOs in years

–          The benchmark S&P 500 fell 2.2%, its worst week this year, as US-China trade tension flared.  Lyft also sold off

–          But by Friday’s closing bell, the S&P 500 had turned positive while Uber and Lyft sank even further

–          The $45 price was near the bottom end of the indicated range, raising $8bn and delivering a fully diluted valuation of $82bn

–          Investors appear to be skeptical about an unproven industry,…


Trump battle with Beijing sees investors ditch US stocks and eye the stable yen – Pg. 8

–          Under the benign scenario, the S&P 500 could quickly rally to a new record of 3,000 points (Prof Note: I am bearish on this scenario but a nod to SM who considers me bearish in general!)

–          Under the more likely “brinkmanship” scenario, with new tariffs but ultimately an accord in the scone half of the year, US stocks would be volatile and dip 5%, yet remain resilient

–          ….worst-case “trade war” scenario, the S&P 500 might tumble as much as 10% – and potentially even tip the global economy into a recession

–          Investors have shown little faith in US stocks

–          The share sales have picked up despite solid data from the US economy, where first-quarter growth came in at an annualized 3.4%

–          As the corporate earnings season draws to a close, companies have beaten earnings estimates by 6.6%, with almost three in every four companies outpacing analysts’ forecasts for net income, …


Shut up and get lost: advice for outgoing chief executives – Pg. 12

–          The responsibility of chief executives who are paid employees, rather than company creators, is clearer. “The general [public company] rule should be that once you leave as CEO you really do leave” (Prof Note: Of all people “Comey” taught me this!  Do I believe there is some truth to what Comey says?  Yes.  Do I wish he would just go away?  Yes.  This is my same opinion of the Clinton and Bush families.  This is not a political statement but I want a new chapter in politics.  I do hope they author their books and provide their unique and valuable insight.  However, negative comments only serve to literally exhaust me.  Change from within is hard enough; change from outside is even harder.  Again, just my opinion and no political statements are meant here!)

–          A good handover helps avoid later recriminations.  Financial regulators now insist on a formal transfer of knowledge when senior banks roles change hands.  Yet there is still an emotional side to change at the top (Prof Note: Employees of public companies, regardless of level, are employees.  The line becomes grey when they are also shareholders but an understanding that their position within the institution is that of employee is critical!)

–          New executives can help their predecessors stick to this excellent principal by remembering they are temporary stewards of the companies they head, not flawless immortals.  (Prof Note: My grandfather use to say, when individuals came to Cat Ghaut and asked if it was his, “I am the current caretaker of Cat Ghaut for the next generation.”)


Business schools are building boldly for the future – Pg. 13

–          The global competition to construct ever more luxurious facilities at business schools has reached new levels in the past couple of years

–          The level of technological capability expected by the millennial generation of MBA students requires new buidlings… (Prof Note: Technology does NOT solve everything!  This weekend we had to build a Real Estate Waterfall.  Personally, I considered it a Private Equity Waterfall applied to real estate.  The third tier was a catch-up.  Admittedly my tooth is long but it took a fair amount of time to develop the algorithm algebraically to quantify the catch-up.  Then technology, i.e. MS Excel, implemented the algorithm.  Now, in my estimation there were two ways to solve the Catch-Up, i.e. (1) Solver (which required the use of a Macro (technology) or (2) Algorithm (required algorithmic solving of relationship).  We understand both and believe the superior solution was the algorithm that took significantly more time.  I just wonder what would have been taught in academia today?!)

–          (Prof Note: Also, I think it is important to remember, buildings do not create graduates.  I am a two-time alumni of GWU, whose business school facility is wonderful.  However, it has not helped us in the rankings!)


The Fed’s proposals face a credibility challenge – Pg. 17

–          Since the 2008 crisis, the US long-run neutral rate – the interest rate that keeps employment and inflation close to the Fed’s target – has drifted lower

–          The closer the neutral rate moves to zero, the more it constrains the Fed’s ability to use rate cuts to generate inflation

–          There are three main ways to incorporate such a make-up component into the Fed’s policymaking process: average inflation targeting, price-level targeting and nominal GDP targeting

–          Wonks focus on the differences among them.  But the key thing to know is that all three seek to influence expectations of what inflation will do

–          Since 2012, the Fed’s target has been 2% inflation as measured by the personal consumption expenditure index.  That indicator, however, has averaged 1.8% over the past 20 years – and just 1.4% since the target was set

–          ….the new frameworks have never been tried or tested anywhere


Answer: (1) Retirement (Prof Note: I am having an issue with the word, “saving”.  Personally, I believe individuals need to replace with words like “investing” or “creating”); (2) A home; (3) Vacation; (4) A car; (5) College; (6) Child- and family-related expenses (Prof Note: Consider how many of these are revenue generating.)