21 May 2019 FT — Articles to Read

21 May 2019


Question: According to MSN: Money, what are money blunders people make in their 40s?


New rules force Goldman to look past ‘Big Four’ with audit award to Mazars – Pg. 1

–          The decision is a coup[ for Mazars, the UK’s eigth-largest auditor by revenues,…

–          The rules, which aim to break the stranglehold of the Big Four over the listed audit market, also apply to U Sand Asian companies considered “public interest entities” in Europe

–          The bank’s move comes after concern over the dominance of PwC, EY, KPMG and Deloitte prompted Britain’s competition regulator to call last month for legislation to force the firms to separate their audit businesses from their consultancy arms


Abe in tight spot on consumption tax – Pg. 4

–          Japan is more likely to go ahead with a  controversial rise in consumption tax this autumn after the economy unexpectedly grew by an annualized 2.1% in the first quarter of 2019

–          …suggests the economy accelerated from a 1.6% pace of expansion in the fourth quarter of 2018

–          The main sources of the rise in GDP were a build-up in inventories and a drop in imports, which contributed to 0.5 and 3.4% respectively to total growth


Commodities – Pg. 7

–          The value of the global coffee industry has almost doubled in the past decade to $90bn, …

–          Both Brazil and Honduras last year reported record coffee output, while Columbia has been producing its highest levels since the 1990s.  But demand has not kept pace and there is a massive oversupply in the market (Prof Note: This reminds me I need to get my first cup of Joe for this AM…)

–          Prices of Arabica beans – 60% of the market – have fallen to a near 14-year low of around 90 cents a pound on the ICE

–          The value of the global coffee industry has almost doubled in the past decade to $90bn,…

–          Coffee is largely divided into robusta, the hardy lower quality bean which is turned into instant coffee or blended into espressos to add a bitter kick, and Arabica, the smooth mild-tasting higher quality bean.  Arabica is graded from high – the beans grown at altitude which are wet processed – to lesser quality, farmed at lower altitudes and dried in the sun

–          In the case of coffee, the cycles are accentuated as it is not an annual crop and once a tree is planted it will continue producing although yields and quality tend to drop

–          In this environment Brazil has come to dominate the market.  Not only is it the largest producer and exporter of coffee, accounting for 28% of the world’s coffee trade last year, its farmers can grow their beans at low cost, with a break-even point of below 90 cents per pound

–          …New York coffee exchange, now part of ICE, opened in the 1880s, ….

–          …in an everyday 2.50 (sterling) brew, the coffee itself accounts for about 4%, or around 10p – rent, labour and tax taking a much larger portion of the cost

–          …batch of coffee he had just sold – which was roasted in the US – was generating about $30,000 in retail sales of which he received just $600 (Prof Note: Cat Ghaut was originally intended to grow crops for local hotels on Nevis.  Coffee was one of our crops.  After losing several battles to the monkeys, suffering crop failures, and finally selling well below cost to importers from South America, a golf course was born!  For the record, what Staiger coffee lacked in taste and quality, we made up for with pride!)


Student debt: university challenge – Pg. 10

–          American aggregate student loan debt has grown at a compound rate of 12% since 2003, far faster than any other class of borrowing.  That is also a far quicker growth rate than that of the US economy

–          …millennial househoulds in 2016 had a net worth of $90,000 compared with $130,000 for Generation X’ers in 2001, in constant dollars.  The relative poverty of millennials has naturally reduced their rates of marriage, fertility and home ownership compared with previous cohorts.  For big business, the adverse effects of those trends are, for now, mitigated by a strong economy


Amazon beats Latin America to domain name – Pg. 13

–          Amazon has provisionally won the right to the “.amazon” domain name, following a years-long dispute with eight Latin American governments


Investors spooked by rise in commercial sour loans – Pg. 14

–          The quality of big US banks’ commercial lending portfolios is deteriorating for the first time in nearly three years, leaving investors to wonder whether there is worse to come should the ebullient economy slow

–          Non-performing loans at the 10 largest commercial lenders rose 20%, ….

–          The level of sour loans remains historically low relative to banks’ balance sheets

–          Commercial lending has grown rapidly since the crisis.  US banks have $2.3tn in commercial loans…almost double the level of 2011 and easily outpacing the growth in overall bank lending

–          Loans categorized as “criticized” – a broad regulatory category that captures loans that are or are threatening to become impaired – rose 8% in the first quarter…

–          One reason corporate borrowers are feeling the strain now is the withdrawal of liquidity by the Federal Reserve.  As the central bank turns from pushing money into the system by buying bonds to absorbing it by selling them, loans become harder to refinance or roll over


Renminbi volumes surge as investors square off with China’s central bank – Pg. 19

–          In the past three weeks, China’s currency has weakened against the dollar, in both its onshore rate – which is allowed to fluctuate no more than 2% beyond a midpoint set daily by the People’s Bank of China – and in the more flexible offshore form


Answer: (1) Not having a plan for your money (Prof Note: I truly believe that planning for retirement should begin in retirement.  As I look back, there is so much that I could have known but did not know.  The issue is the “experts” do not get it either.); (2) Not maintaining enough liquidity (Prof Note: Understanding “liquidity” is important.  If you have $100,000 in cash in the bank and hold it for a year.  You have less purchasing power (assuming positive inflation) at the end of the year than at the beginning.  Now, imagine the $100,000 had been invested in a CD earning above inflation.  A credit line could have been secured against the CD at probably 95% value.  The credit line does not lose value with time!); (3) Letting your emergency fund fall behind your growth and expenses (Prof Note: See #2); (4) Getting complacent about carrying consumer debt (Prof Note: I have talked to many that just seem to come to the realization that they will never escape the debt cycle.  I also have met very few people that could not have lessened their lifestyles but have chosen not to lessen their lifestyle); (5) Prioritizing paying off the mortgage (Prof Note: the article states this is a bad idea.  I could not disagree more and have the numbers to prove it!  Arrggggg….); (6) Assuming remodeling will add value to your home (Prof Note: Remodel for the love of your home and lifestyle, not for the benefit of your future wallet!); (7) Putting your child’s college ahead of retirement savings (Prof Note: It is difficult for me to comment as a non-parent as there is emotion and, I have seen from my mates, personal pride with paying for a child’s college and seeing them graduate.  However, financially, I agree with the article.); (8) Dipping into your retirement funds (Prof Note: Discipline is critical!); (9) Not diversifying your investments; (10) Thinking risk-averse is a bad thing; (11) Thinking that your best earnings are yet to come