21 June 2018 FT — Articles to Read

21 June 2018

Question: According to CNN:Money, when is it okay to splurge?

US consumers expect higher prices because of trade dispute – Pg. 3

–          Mr Trump has made reducing the US’s $375bn annual trade deficit with China a primary goal of his trade policy.  The problem facing him is that much of what the US imports from China is in the form of goods that consumers want and may not like paying more fore

–          More than $100bn of the $505bn in merchandise that the US imported from China last year was in two categories – mobile phones and computers.  The top 15 products by value from China accounted for $350bn of imports, and 10 of those were consumer goods

Berkeley [Housebuilder] warns of 30% fall in profits as London house prices begin to subside – Pg. 11

–          …would return to “more normal levels” for the financial year ending in 2019 and were expected to be 30% lower

–          Last year, house prices in London dropped for the first time since 2009 as Brexit-related uncertainty and slow wage growth took their toll

Low gilt yields pave way for higher UK public spending – Pg. 19

–          The special relationship between the US and UK does not extend to their respective debt markets – …

–          The UK 10-year gilt has been trading in a yield range of between 1 and 1.5% since autumn 2016, while during that period the equivalent US Treasury yield has nearly doubled from 1.6% to 3%.  As a result the gap between long-dated gilts and Treasuries stands at its widest for more than three decades

–          Britain’s low yields have kept a lid on debt servicing costs; combined with sustained investors demand for UK debt, that has added fuel to the national debate on public spending.  The Treasury still has some room to sell more gilts without sending prices sharply lower…

–          Demand from pension funds and other institutional investors for ultra long-dated UK debt has resulted in an inverted yield curve, with 50-year paper yielding less than 30-year bonds.  Such a backdrop suggests the UK Debt Management Office can increase sales of ultra-long maturity bonds

Answer: The following questions should be considered when answering this question…(1) Do you have adequate savings?; (2) Can you afford the splurge; (3) Will it derail other savings goals and plans; (4) Will it give you long-term pleasure; (5) Have you done your research? (Prof Note: A peer purchased a hot tub for $6,500…life time goal.  After purchase it was realized the service to his house was only 100amps an he needed 60 amps alone for the hot tub ($4,500 upgrade (included more than hot tub but total expense outlay)).  Platform needed to be constructed for hot tub: $1,500.  Area where hot tub was to sit needed to be landscaped and grated: $1,500.  Total cost (which excludes operating cost of hot tub: $6,500 + $4,500 + $1,500 + $1,500 = $14,000.  Be careful!); (6) Have you done your research?; (7) Will you be able to rein it in again?