18 March 2019 FT — Articles to Read

18 March 2019


Question: Between Dunkin’ Donuts, McDonald’s, Starbucks and 7-Eleven, which is the best value on a mg of caffeine/$ basis? (Credit to Elliot Eisenberg, Ph.D., www.econ70.com, for this question)


Deutsche and Commerzbank begin talks to create banking powerhouse – Pg. 1

–          Deutsche Bank and Commerzbank have formally opened talks on a merger that would reshape Germany’s financial sector and create the eurozone’s second-largest lender in terms of assets

–          ….create the eurozone’s second-biggest lender after BNP Paribas, with 1.9tn (euro) in assets and more than 140,000 employees


US retailers fight tradition with own brands – Pg. 8

–          The balance of power is shifting between the biggest US retailers and their main suppliers

–          New industry data show retailers such as Walmart, Costco and Target are boosting sales of their own products almost four times faster than famous American brands, winning over consumers with high-quality goods at low prices

–          That began to change after the financial meltdown of 2008, which crated millions of newly frugal bargain hunters.  Millennials who came of age during the great recession do not have the same attachment to big brands.

–          The increasing popularity of cheaper alternatives undermines the traditional consumer companies’ ability to raise prices, a particular problem when input costs rise


Wall Street reduces forecasts for store profits – Pg. 8

–          Wall Street has cut profit forecasts for US retailers as concerns mount that a weaker than expected holiday season may have marked the beginning of an extended slowdown

–          Retailers have been facing rising expenses, from transport to logistics costs, as well as a slowdown in demand…

–          Mall-based companies that have struggled to deal with changing shopper tastes have been subject to some of the biggest forecast declines


Investors look to Fed for clarity on bonds while Brexit brings paralysis to UK gilts – Pg. 10

–          Investors and economists are supremely confident that the US central bank will leave policy unchanged at this week’s monetary policy meeting…

–          The Fed Funds market indicates that not only is there virtually zero chance of policymakers raising interest rates this week, it is now pointing to an extended pause from the central bank and a more than 25% chance that it cuts rates by the end of the year

–          …since 2017 the central bank has been shedding the bonds it acquired, deflating the size of its balance sheet to just under $4tn

–          …the pace at which the Fed is offloading the debt was one of the factors behind last years turbulence in financial markets…


US education – Pg. 17

–          The price of US higher education has sky-rocketed.  A four-year college degree now costs anywhere between $80,000 and $300,000 for tuition alone, while America’s median household annual income is $61,000

–          …growing share of Americans have been dropping out.  Less than half of students complete their degree within six years.  Many are saddled with debts, now totaling more than $1.5tn, that take a generation to pay off

–          Even if tuition were free, many Americans still do not want to go to college because other costs are steep and not everyone is cut out for four years of college.  Many fail to complete high school, the sole purpose of which is to qualify for university


America’s new housing bubble – Pg. 19

–          The latest Consumer Price Index figures show that almost all core inflation, which was weaker than expected, was in rent or the owner’s equivalent of rent (up 0.3%).  Core goods inflation, meanwhile, was down 0.2%

–          ….housing market is once again completely out of sync with the rest of the economy

–          …housing which is not only shelter but also the biggest financial asset for most Americans, is the only major component of the CPI with a national inflation rate that is consistently above the over-all number

–          ….cost of shelter…hit a historic high of 81% of core inflation in the summer of 2017 and remains “the lion’s share”

–          There have not been commensurate salary increases.  Median household income adjusted for inflation remains hardly higher than it was at the turn of the century

–          The whole situation is made more problematic by inflation in another area – higher education.  Student loan debt in the US is at a record high and the struggle to pay it off is real – 12% of borrowers are currently 90 days or more delinquent on their loan payments (Prof Note: Monthly I received calls offering to help me restructure my student loans.  I have NO student loans.  This is big business!)

–          …impact of student loans on the housing market estimates that high student loan drag has knocked 2m young adults out of the market, resulting in a 1.5% lower home ownership rate.  That means they cannot build wealth…

–          The US looks more and more like an emerging market economy in the sense that the basics of the American dream – housing, education and upward mobility – have all been compromised


Answer: 7-Eleven (129mg/$1); Starbucks (125mg/$1), McDonalds (122mg/$1), Dunkin Donuts (100mg/$1) (Prof Note: As an aside, the cheapest gas between Scotland, MD and DC is 7-Eleven in Waldorf.  Great halfway point for gas and coffee!)