Category: Financial Times Summaries

20 August 2019

 

Question: According to MSN: Money, how much is a starter home in Washington DC?

 

US companies rethink business by ditching creed of shareholders first – Pg. 1

• One of the US’s biggest business groups has dropped the “shareholder primacy” creed that has driven capitalism for decades, urging companies to weigh the environment and workers’ wellbeing alongside pursuing profits
• The Business Roundtable placed shareholders as one of five stakeholders, alongside customers, workers, suppliers and communities in a new “state of purpose”
• It is a significant departure from the belief that businesses serve the owners of their capital – a philosophy championed by Novel Prize-winning economist Milton Friedman and which has driven corporate America since the 1970s
• The change amounts to a call to reform capitalism in a time in which rising populism and concern over climate change have led politicians and shareholder activists to demand that companies consider their impact on the world beyond their balance sheets

 

Land sales mark Catholic Church’s loss of clout – Pg. 2

• The sale reflects the declining property needs of the once-mighty Church, whose influence has waned after decades of scandal over child abuse by priests, and a property market that is still seeing prices increase, albeit at a slower pace
• Church bodies have long ranked among Ireland’s largest real estate owners
• Property market figures say a further reason why Church bodies are selling property is to fund donations to a state redress scheme for former residents of religious-run institutions who suffered abuse
• Catholic institutions entered a binding agreement in 2002 to pay 128m (euro) to the state for redress

 

Thailand economy slows to five-year low as exports fall – Pg. 4

• ….slowing exports, a struggling farm sector and rising US-China trade tensions took their toll on south-east Asia’s second-largest economy
• GDP rose 2.3% in April to June compared with the same period in 2018…
• The Bank of Thailand unexpectedly cut the main lending rate by a quarter of a percentage point this month, owing to concerns over the sluggish outlook for the Thai economy and for global trade

 

Low interest rates are the scourge of the poor and vulnerable – Pg. 9

• In a world of ultra-low rates, most households have no hope of wealth accumulation, no matter how much they save.
• …American middle-class wages today are no higher than they were in 2001 when inflation is taken into account. Household income may e up in real terms, but that is largely because many households are now subsisting on multiple wage earnings as well as on gig employment.  Fully one-third of Americans are not working as much as they would like

 

Europe banks accused of ‘complacency’ on interest rate benchmark transition – Pg. 11

• Eonia will be replaced by the ESTR benchmark in early October, after a series of market manipulation scandals eroded confidence in the way the existing benchmark is calculated
• Eonia is used to price about 22bn (euro) of interest rate derivatives, 2tn (euro) of cash market transactions – such as current accounts and overdrafts – and about 4.4bn (euro) of debt securities
• The new system is designed to be more robust as it is based on the price of interbank transactions submitted daily by 50 banks; Eonia is set using estimates from a narrower group of lenders

 

Yield curve pain for regional US banks – Pg. 13

• So-called asset-sensitive banks, those with a business heavily weighted towards floating rate loans such as business loans, face a hit to their profits because of the slump in yields, which pulls down the interest they will receive
• It also makes it much harder for asset-sensitive banks to make money, since they cannot offset falling income from floating rate loans by cutting the rates they pay depositors, since these are already at rock bottom. Larger banks can have other fee-based businesses such as wealth management or payments that make their profits less sensitive to the yield curve

 

Answer: $335,700

19 August 2019

 

Question: According to MSN: Money, what are seven (7) surprising ways retirees waste their savings?

 

Investors take up position for fresh wave of stimulus – Pg. 1

• Investors are anticipating a fresh wave of stimulus measures to tackle flagging growth, as the White House said it was considering a new round of tax cuts to boost the economy
• The US yield curve – which reflects market expectations of future interest rates – turned upside down last week for the first time since the summer of 2007, a move seen by many as a leading market indicator of recession
• Concern over the global economy has sent investors fleeing into the perceived safety of government bonds, driving yields to record lows – the 30-year US Treasury yield fell below 2% for the first time last week – and boosting the pile of debt that offers a negative interest rate to more than $16tn. In Europe, several countries have no sovereign debt offering positive yields

 

WeWork’s city leases leave landlords exposed to $40bn in rent liabilities – Pg. 1

• Hundreds of landlords are exposed to WeWork via $47.2bn of rental commitments, with little recourse if the office space company fails to pay
• …company expanded rapidly to become the largest office tenant in Manhattan and central London
• …TIAA-CREF, Boston Properties, Beacon Capital Partners and Moinian Group are among the biggest landlords in the US to WeWork…
• WeWork sublets the space to businesses, from start-ups to large corporations, on a short-term basis. The mismatch in rental periods is seen by many in the industry as a potential weakness in its model during a recession
• The company – like its rivals – creates special purpose vehicles for its leases, meaning landlords do not have direct recourse to the parent company if it fails to pay rent
• WeWork’s $47.2bn of lease obligations dwarf the $8bn held by its largest rival, IWG

 

Shareholder returns feel chill of slower global growth – Pg. 6

• Global dividend payments grew at their slowest pace in more than two-and-a-half years in the second quarter, as trade tensions and the spluttering world economy began to take their toll
• …slowdown in the growth rate: payouts were 1.1% higher year-on-year, the lowest quarterly growth since the end of 2016. On an underlying basis, which strips out special dividends and adjusts for other factors including currency fluctuations, the 4.6% growth rate was also the slowest since 2016
• Shareholders have had good returns in recent years, thanks to strong corporate profits and US tax cuts that made it easier for companies to return cash to investors

 

Rush by US homeowners to remortgage bolsters banks – Pg. 6

• As of last week, the average interest rate on a 30-year fixed rate mortgage was 3.6%…that is the lowest level since November 2016 and close to the record low of 3.3% set in late 2012
• …mortgage refinance activity rose by 12 and 37%…
• Non-bank lenders now originate 60$ of the mortgages guaranteed by Freddie Mac and its peer Fannie Mae, up from 47% five years ago, …

 

Answer: (1) Ignoring senior discounts; (2) Buying unneeded insurance; (3) Supporting grown children financially; (4) Maintaining two cars; (5) Refusing to downsize; (6) insisting on brand-name medications; (7) Donating to every charity that calls

17 August 2019

 

Question: According to MSN: Money, the Waltons are the world’s richest family.  What dollar amount do the Waltons add to their new worth every single day?

 

Fine print on WeWork founders’ $1bn charity pledge puts tax break at risk – Pg. 1

• ….co-founder Adam Neumann and his wife Rebekah have promise to donate $1bn of their fortune to charity over the next decade – and will lose half their voting power over the company if they do not
• The donations ma not count as “gifts” as defined by the US IRS because the Newmanns are required to make them to retain full voting rights…
• US taxpayers are allowed to deduct charitable gifts from their income to cut their income tax bill. If the gifts consist of shares there is also a capital gains tax benefit

 

Global economy – Pg. 5

• The yield curve is essentially a reflection of the distilled wisdom of millions of investors, from individual savers, financial advisers and small Midwest banks to Middle East sovereign wealth funds, Asian insurers, European pensions and Wall Street money managers
• If the economic outlook dims they tend to look for safety and buy government debtg, pushing up their price and crimping their yields. But when long-term yields fall below short-term ones – which are more closely linked to interest rates set by central banks – it indicates that investors foresee a downturn and imminent interest rate cuts
• The yield curve’s ability to forecast recessions is hotly debated, but the inversion indisputably reflects the bond market’s mounting fears over a global economic slowdown. The IMF last month trimmed its forecasts for global growth to 3.2% for 2019 – which would be the lowest in a decade
• The most eye-catching manifestation of the anxiety is bonds trading with negative yields, with many countries – and even some companies – in practice not paid by creditors to borrow
• Nearly $16tn of bonds are now trading with sub-zero yields, or about 27% of the global total…
• There re many ways to measure the shape of the yield curve, such as comparing 30-year Treasuries to five-year ones, or 10-year yields to three-month Treasury bills – another popular measure that turned upside-down earlier this year. But the two-year, 10-year yield curve inversion that happened this week is particularly popular as an economic omen among many investors
• Adding to the pessimism, on Thursday, the 30-year Treasury yield went below 2% for the first time ever, after China accused the US of “a severe violation” of their previous trade agreement, and said that it “will have to take the necessary countermeasures”

 

Answer: $100.0m ($70,000/minute)

16 August 2019

 

Question: According to MSN: Money, how should one protect themselves from financial ruin in retirement?

 

GE shares tumble after Madoff investigator alleges $38bn fraud – Pg. 1

• An accounting fraud “bigger than Enron and WorldCom combined” is hidden inside General Electric, according to the financial investigator who sounded the first alarms over Bernard Madoff’s Ponzi scheme
• GE, which dismissed the claims as meritless, saw its shares fall as much as 15% after publication…
• Mr Markopolos is known for his – largely unheeded – warnings on the Madoff Ponzi scheme in the years before it imploded in 2008
• GE, once the most valuable US company, has been in turmoil for three years
• The Markopolos report argues GE has understated liabilities in its insurance business, says its cash situation is worse than disclosed in filings and claims it has not properly accounted for its acquisition of a stake in oilfield services provider Baker Hughes, completed in 2017

 

Flight for safety sends yield on 30-year US Treasuries below 2% for first time – Pg. 11

• A sharp rally in government bonds set fresh records yesterday, with the yield on 30-year US government bonds falling below 2% for the first time as investors sought safety amid growing fears over the global economy and renewed trade tensions
• Fears of a global downturn have driven traders to dump riskier assets such as stocks and crude oil and move into perceived haven assets, including bonds
• …the 30-year US Treasury bond yield dropped to as low as 1.96%, its lowest level on records that go back to the 1970s and the first time it has fallen below 2%

 

Governance concerns weight on WeWork IPO – Pg. 13

• WeWork is facing a chorus of corporate governance concerns after disclosing details of co-founder Adam Neumann’s share sales, transactions with the company and plan to retain control after it goes public
• Some investors saw the lack of protections for investors as a top-of-the-market sign – a “gov-lite” governance structure akin to the sharp rise in “cov-lite” loans, debt with fewer covenants protecting lenders, which preceded previous market reversals
• “This is the third big IPO [after Lyft and Pinterest] where the supervoting shares are 20 to one…”
• WeWork’s board defies norms of including independent directors, ….
• The board also flies in the face of recent corporate governance convention by including no women
• The filing also confirmed that WeWork has been making lease payments to four properties in which Mr Neumann has an interest

 

Answer: (1) Know how you want to live in retirement (Prof Note: I say this in class ALL the time; start at the end and work backwards.); (2) Do away with significant expenses ahead of time; (3) Conduct a self-audit (Prof Note: Develop your own Financial Statements so you know where you are; then develop pro forma statements demonstrating how you need to financially manage your journey); (4) Maintain a detailed understanding of your cash flow; (5) Budget; (6) Maintain a six-month emergency fund (Prof Note: I continue to disagree with this!  Never spend capital!  Have a (multiple) side hustles to carry one through); (7) Diversify your income sources (Prof Note: See #6); (8) Do not overlook tax requirements when budgeting for retirement; (9) Maintain a healthy credit score; (10) Expect to live longer; (11) Insure yourself for longevity; (12) Reduce risk exposure in your retirement accounts (Prof Note: So much for my believe in GE!  Mark R was right!); (13) Maintain a high level of personal health; (14) Have proper health insurance in place; (15) Do the math on long-term care; (16) Stop supporting other people; (17) Find a trusted adviser; (18) Create a go-to cash account for larger expenses; (19) Separate your retirement funds into two distribution strategies; (20) Invest discretionary funds more aggressively; (21) Do not be too conservative; (22) Get a grip on social security; (23) Practice for one year prior to retirement; (24) Be flexible