19 July 2018 FT — Articles to Read

19 July 2018

Question: According to CNN:Money, what are 4 financial goals you need to meet by age 40?


China curbs foreign university tie-ups – Pg. 4

–          Chinese regulators have closed more than a fifth of partnerships between local and foreign universities in the past year as the Communist party tightens its grip on mainland tertiary education

–          Reasons cited for the closures include poor quality, lack of enrollment and financial mismanagement

–          Six of the partnerships closed this year were with Peking and Tsinghua universities, China’s most prestigious…

–          In the early 2000s, China attracted western universities seeking revenue streams abroad, and the ministry announced in 2003 that it would allow independent joint-venture colleges

–          …approvals for undergraduate programmes where the student spends two years on the Chinese campus and two years at the partner institutions have all but stopped

–          Officials have to keep students in China for three, if not all four years, and institutions must charge lower tuition fees, meaning margins are narrower and quality control more difficult


Fed’s steady tightening may be taking it too far – Pg. 8

–          Headline consumer price inflation hit 2.9% in the 12 months to June, the highest rate since February 2012.  But the measure has temporarily been boosted by the rise in fuel costs.  The Fed’s preferred measure, the deflator for personal consumption spending excluding volatile food and energy price, has only just managed to crawl up to the Fed’s 2% target after six years of undershooting

–          …nominal wages have risen modestly, they have failed to do more than keep pace with consumer price inflation.  Real wages are essentially unchanged over the past year

–          Wage inflation has undershot expectations so consistently over the past decade that it would be reckless automatically to assume that a wage-price spiral will take off

–          The yield curve has flattened, traditionally a harbinger of economic slowdown, pushing the spread between 2-year and 10-year Treasury bond yields down to its lowest since 2007


Powell downplays recession fears that yield curve is said to signal – Pg. 19

–          In late 2005 Alan Greenspan assured Congress that the bond market’s ability to predict recession was not what it used to be

–          …$14tn US government bond market

–          …Mr Powell, who has been at the helm of the Fed for six months, was that the economy was robust enough and inflation firming sufficiently for the central bank to continue to raise interest rates

–          …the difference between two-year and 10-year Treasury yields – a widely watched metric – has narrowed aggressively.  It stood at 25bps yesterday, its lowest level since 2007 and down from 100bp a year ago

–          The Fed chief spent two decades at private equity firm Carlyle and is seen as more closely attuned to markets than his academic predecessors

–          Global demand for US Treasuries remains strong given their status as a haven from tumultuous geopolitics and the low level of yields available in other developed bond markets

–          The reliability of an inverted yield curve as an indicator of recession was called into question this week by former Fed chair Ben Bernanke, who introduced the central bank’s bond-buying programme during the financial crisis. He pointed to “regulatory changes and quantitative easing in other jurisdictions” as factors muddying the picture

–          Although the yield curve inverted a matter of weeks after Mr Greenspan’s testified to Congress, the Fed continued to raise interest rates until June 2006, which was their final peak before the financial crisis and subsequent recession


  Answer: (1) Have a fully loaded emergency fund (Prof Note: NOOOOO…have access to capital in case of emergency.  This could be a HELOC.  This could be Mom!.  This could be an asset with liquidity.  Also, this could be a side hustle that could/can be ramped up in time of need.  I remember a peer telling me that it took him and his wife 6+ years to build their Emergency Fund and it was gone in 7 months of unemployment.); (2) Have three times your salary saved for retirement (Prof Note: This Capital amount is antiquated thinking!  Have a percentage of retirement monthly expensive identified using a passive source, e.g. a rental unit that will be paid off in retirement.  Stop thinking one needs X amount to retire….NO….one needs to fund the lifestyle they desire in retirement and that means passive income.); (3) Have no debt other than your mortgage and vehicle payment (Prof Note: This could NOT be more wrong!  Hello, McFly, what about leverage?!  I think they mean have no debt without a revenue offset…); (4) Have a Will (Prof Note: This is so simple I worry it is wrong!  Yes, it is correct, one needs a will BUT one also needs Powers of Attorney (Medical and Financial) and a wealth management/estate plan.)