30 August 2018 FT — Articles to Read

30 August 2018


Question: According to MSN:Money, what are five (5) things to do now so you can retire before age 40?


Fed chiefs face political backlash over push to bolster bank buffers – Pg. 1

–          Jay Powell faces an intensifying debate within the Federal Reserve over calls for it to boost big lenders’ capital requirements to rein in financial risks – a move that would trigger fierce blowback from Republicans eager to ease regulation

–          …the decision rests with the Fed’s board, chaired by Mr Powell, who insisted in June there was no current need to lift the buffer because financial stability risks were under control

–          The buffer – which is part of the post-financial crisis regime and has never been imposed – would require banks to build an extra margin of capital over a period of up to a year, giving them extra scope to support lending in a downturn


Argentina requests early release of IMF bailout funds – Pg. 2

–          The turmoil in emerging markets has called into question how Argentina will meet its $82bn financing needs for this year and next, while navigating a looming recession and high inflation before a presidential election next year

–          The peso has weakened by 10% against the dollar since the start of the month – and 40% this year – cementing its position as one of the biggest losers in the broader emerging market rout triggered by the fall in the Turkish lira

–          Argentina’s short-term debt obligations mean that it has roughly $50bn of peso and dollar-denominated debt coming due by the end of next year.  The bulk are peso-denominated Lebacs, or fixed-rate bills issued by the central bank with interest rates as high as 52%


Japan ‘womennomics’ hindered by ambiguity over gender equality – Pg. 3

–          Mr Abe’s government has focused heavily on impediments to work, such as lack of childcare, and achieved some success.  Compared with 2012, there are 2m more women in the workforce.  With female employment rates matching many European countries, the surge in working women has been an important factor in the recent run of strong economic growth

–          Scholars say this ambiguity about gender equality has deep roots.  In 1947, when US occupiers drafted its constitution, Japan became one of the first developed countries to outlaw gender discrimination

–          A sexual division of labour helped deliver rapid growth in the 1960s and 1970s: the wages of salaried men rose in line with long working hours but women stayed at home to care for children or do poorly paid part-time jobs


Auditing in crisis – Pg. 7

–          The idea that a company’s reported figures should give a “true and fair” representation of its assets, liabilities, financial position and profit or loss has a long pedigree.  It dates back to the first audits in the 19th century and was written into law in Britain after the second world war.  In the 1970s, it was transposed into European legislation.  If there is a foundational principle underpinning the assurance offered by audits, this is it

–          ….the accounts should not overstate profit or performance so that the directors (and shareholders) can rely on them as a basis for determining that any dividends are not paid out of capital.  It is a view that requires auditorial judgment

–          …means sticking to a mechanical interpretation of the accounting rules, irrespective of whether the financial results that they produce is at all representative of the company’s real position

–          One of the ideas underpinning fair value accounting was to eliminate the capacity of bosses to squirrel away profits through “big bath” provisions.  This was to stop them “smoothing” their results in ways that made it difficult for external investors to discern the underlying performances of the business

–          Not only did the application of the key standard on fair value accounting for financial instruments – IAS 39 – enable banks to conceal vast losses before the financial crisis, paying fat bonuses to managers on the fictitious profits they conjured, it also made it harder to throw off the post-crisis hangover

–          The [Big Four] have an overwhelming grip on the listed company market in Britain and the US, auditing 98% of the FTSE 350 and 99% of the S&P 500 respectively

–          No less importantly they dominate the counsels of the profession

–          One of the key auditing judgments is about whether the profits made by company are legally “realized” (meaning either turned to cash or as near as makes no difference) and consequently available to be distributed to shareholders.  In 2005, the FRC proposed abolishing this statutory link, describing it as “rigid” and an “unnecessary obstacle” to meaningful accounts

–          Its solution was to remove any legal requirements whatsoever, making it potentially easier for companies to pay dividends out of shareholders’ own capital and disadvantaging creditors – something the very first audits were designed to stop


Grosvenor eyes 30,000-home portfolio – Pg. 12

–          The property company that owns much of central London’s wealthiest areas has unveiled plans to expand into large-scale residential development

–          Grosvenor said yesterday that under its new plans, it would aim to work as “master developer”, orchestrating the planning, design and build of large housing schemes, typically of between 2,000 and 5,000 homes, along with associated infrastructure

–          Grosvenor would identify the development sites on greenfield or brownfield land, shepherd them through the design and planning process, and then pass individual parts of them on to housebuilders


Answer: (1) Save each month until it hurts (Prof Note: What have I been saying???!!!); (2) Determine which type of passive income suits you best (Prof Note: Fixed Income, Equity, Real Estate, etc); (3) Determine your passive income’s purpose (Prof Note: You must know your lifestyle and the cost of that lifestyle); (4) Hold yourself accountable; (5) Don’t make withdrawals