Category: Financial Times Summaries

21 July 2018

 

Question: According to Business Insider on MSN:LIfestyle, what are 20 things to master before you turn 40?

 

Full-scale trade war looms larger – Pg. 1

–       …Angela Merkel warned of the economic damage of US tariffs as Donald Trump said he was ready to impose duties on $500bn of Chinese imports

–       The imposition by the US of tariffs on EU car exports may contravene World Trade Organization rules, …

–       She added that the world would not have overcome the financial crisis of 2008 if countries had acted unilaterally the way the US administration is now

 

North Korea economy suffers worst contraction for 20 years – Pg. 3

–       North Korea’s economy shrank at the sharpest rate in 20 years last year, according to estimates from South Korea’s central bank, as tougher international sanctions imposed over Pyongyang’s nuclear programmes began to bite

–       GDP in the impoverished communist state contracted 3.5% in 2017 from the previous year, when North Korean economy reported 3.9% growth.  The reversal in North Korea’s economy was the biggest since a 6.5% contraction in 1997 when the country was hit by a devastating famine

–       In addition, China, its biggest trading partner, became stricter in enforcing sanctions in the latter half of 2017.  North Korea’s annual per-capita income stood at just $1,300 compared with the $29,600 earned by South Koreans

 

Trump rates blast raises fears over Fed autonomy – Pg. 11

–       US presidents have avoided commenting on Federal Reserve policy since the early 1990s, emphasizing the independence of the central bank and giving it room to implement policies that might be politically unpopular

–       This week, Donald Trump publicly criticized the Fed’s recent interest rate rises, ….

–       The Fed began raising overnight rates in late 2015, and did so again last month against a backdrop of low unemployment, strong economic growth, and inflation approaching its target.

–       The Fed’s target rate for overnight borrowing stands at 1.75% to 2%

 

Answer: (1) Negotiating (Prof Note: I know there are negotiating classes but I think this is a softer skill that one best learns from mentors.  Also, take lessons from the 5 – 7 year old boys in Suks in the Middle East.  I still remember asking about Pistachios and the boy responding immediately, “Buying or selling?”); (2) Establishing a regular sleep schedule; (3) Making small talk at parties (Prof Note: I cannot stand this probably because I am not very good at it!  You will see me float, stay the obligatory time required and disappear!); (4) Finding and sticking to an exercise routine you enjoy; (5) Finding your career ‘sweet spot’ (Prof Note: This is difficult.  I would say I spent the first 10 years learning what I did not like.  Now, each year enhances what I do enjoy); (6) Saving for retirement; (7) Investing in relationships; (8) Saying ‘no’ to people (Prof Note ;Knowing boundaries is very important.  However, also saying “yes” at the right times); (9) Keeping a clutter-free home (Prof Note: Fight the clutter); (10) Practicing hobbies; (11) Making new friends; (12) Failing – and getting back up again (Prof Note: The ability to get back up is critical but also the willingness to fall down.  Be willing to take positions that define your beliefs rather than supporting mainstream); (13) Managing stress (Prof Note: In my opinion, there will always be stress.  However control the type of stress.  One of my favourite expressions, “It is a problem worth having.”; (14) Lifelong learning (Prof Note: There is so much knowledge is books.  Plus, there is so much enjoyment.  Get lost in a book, under a tree, with a light breeze); (15) Time management (Prof Note: Yet another skill that differs men and woman.  In my experience, in life, Woman are much better at time management than men); (16) Cooking (Prof Note: A skill I do not possess though I can open a can, heat, and serve with the best of them!); (17) Knowing your personal values (Prof Note: Embrace your personal values.  These are YOURS.  You own them!  Sure, sometimes they may make one unpopular but they define who you are as a person); (18) Selling yourself (Prof Note: Absolutely.  BUY Foundations of Real Estate Financial Modelling, Second Edition, Routledge, 2018); (19) Being happy with what you have (Prof Note: This has been a turning point in my personal life.  I do not seek “more” (other than investments, etc) but rather seek to improve what I have); (20) Forgiving yourself for your mistakes (Prof Note: In personal traits, intentions matter.  Be pure in your intentions and forgiving yourself becomes much easier.)

20 July 2018

 Question: According to MSN:Money, what are lessons you need to learn from today’s retirees?

 Decade High – Pg. 11

–       The 2% club has a new member.  The yield on the three-month US Treasury bill passed that milestone for the first time in more than a decade as the Federal Reserve remained on course to keep raising interest rates

–       The relentless rise in bill yields reflects a steady tightening of interest rate policy by the Bed, while the US Treasury has substantially boosted sales of short-term debt to help finance a worsening budget deficit

–       Since the 1960s, periods when three-month bill yields have been greater than the dividend yield of the S&P500 have been relatively rare and have certainly not lasted for as long as the past decade.  The most recent period stems from the Fed’s decision during the financial crisis to cut interest rates towards zero and conduct several rounds of bond purchases, known as quantitative easing

–       A further climb in bill yields beckons as the central bank expects to deliver two more 25bps interest rate rises in 2018

 

Jail terms for ex-traders in Euribor case – Pg. 12

–       Two former derivatives traders, including one described by a judge as “perhaps the best in the world”, have been given prison sentences for their roles in a conspiracy to rig the Euribor interbank lending rate

–       Christian Bittar, 46, who pleaded guilty to conspiracy to defraud shortly before the Euribor trial began, was sentenced to five years and four months… (Prof Note: Whoa!)

–       At one point he earned 47m (sterling) in a year in commission on top of his 130,000 (sterling) basic salary, prompting his bank to renegotiate the terms of his employment

–       Euribor is a benchmark interest rate determined by daily submissions from several “panel banks”.  It is tied to trillions of euros of products such as loans and mortgages and was described by an expert witness in the trial as “one of the most globally significant numbers in finance”

–       …”greed alone does not provide a full answer” to Bittar’s actions.  He had been motivated at least in part “by the satisfaction of being able to beat the system undetected for so many years”

–       (Prof Note: I am often asked by students why I left trading.  I really do miss the “high”.  My group earned 2cents/share in 11 months for Constellation so we were highly successful.  The simple answer, upon reflection, I did not like the person I was becoming/had become.  Of course later I was a fund manager.  It is absolutely possible to get drunk on power and the judge was/is correct, money is not the only motivating factor.  I’ll take a sunset any day over those days though I do miss the euphoric highs.  I can remember one Christmas Eve spent at the office at Constellation.  It was H, K, and me. H was our biller extrodinaire and all around supporter.  K was head of Gas and I was MD.  We had a suppler default the day prior.  I was suppose to be on a plane to Budapest but could not leave with the outstanding issue.  H was rescheduling my flights by the hour to get me on a plane as every hour we thought we had the situation resolved.  K had two young children at home and a wonderfully supportive wife that kept calling him to remind him he was missing his young children’s Christmas Eve.  To the credit of H and K, they would not leave me!  At one point the head of risk at Constellation was yelling at me on the phone, reminding me what day and time it was.  I then proceed to scream over him that I was aware and that WE were all still at the office and for him to do his F’n job!  Oh, what a night that was!  It all turned out well and Constellation/Excelon remains in retail gas to this day.  My MD job no longer exists today due to regulation, i.e. I was in charge of front AND back office.  They do not put events like that supplier default and the corresponding results in text books!  (there are many stories like this….similar but also different…every day was exciting!)

–       (Prof Note: Sorry…trip down memory lane.  So, prior to this supplier default, K and I head to Constellation Power Source (It was then CPS) to negotiate quantitative support and potentially a supplier agreement as we had wholesale and retail risk, i.e. the whole enchilada.  So K and I are on the trading floor, looking out to at least 100 traders and analysts, in this massive glass conference room with bagels, coffee, juice, donuts, etc.  We sit down and I explain that we are here for support, potentially a wholesale gas delivery agreement, etc.  The head of CPS looks at me, i.e. my counterpart, and says, “We do not have the resources to assist you!”  I look at him and say, “Are you F’n kidding me!  You are looking at our resources, i.e. 1 K and ½ of me as I also have to manage the Electric business.”  He says, “Then you better start working harder!” Work hard we did!  That business, as mentioned was turned around in 11 months and made 2 cents a share.  I miss those days…I am too old for that level of stress now but I do miss that world!)

 

Answer: (1) Plan for the retirement you want (Prof Note: What have I been saying for years!  Understand the expense in today’s dollars and plan for passive income, after-tax, that will provide that retirement); (2) Review Employer matching contributions (Prof Note: At least invest to the match to get the free money); (3) Social Security won’t pay for everything (Prof Note: Understand this!); (4) Pay off high-interest credit card debt (Prof Note: This is debt that, barring a medical emergency, really should not even exist); (5) Don’t put your investments on autopilot (Prof Note: Also see the advice of experts.  Do NOT be scared or hesitant to ask someone their credentials.  Would you taking sailing advice from an English major that never has seen the water?); (6) Costs of living in retirement can vary dramatically; (7) Start saving early (Prof Note: At birth!); (8) Consider investment returns before paying off debt (Prof Note: I CANNOT stand this statement!!!  If you payoff your mortgage at 4.5% that is risk-free return!  You may, MAY, earn the historical average of 8.00% in the S&P…MAY!); (9) Borrow from your 401(k) only as a last resort (Prof Note: No McFly!  Get yourself a finance degree!  Many 401(k) plans allow borrowing as an option with a stated interest rate, i.e. 6 or 8%.  If that money goes back to you, which it often does, and the money was taking from a money market or ultra-low risk bond fund, where are you better served?  It is a question worth understanding the answer!); (10) Execute Powers of Attorney (Prof Note: I have been ranting about this for years.  However, it is NOT enough to have PoAs executed.  My bank still will NOT recognize my financial power of attorney drafted by K&L Gates!  It is not always textbook.  The bank insists that I execute there PoA…ridiculous!); (11) Create an Estate Plan (Prof Note: YES!); (12) Don’t forget beneficiary designations (Prof Note: You need to consider if the recipient can handle the inflow of cash…very important); (13) Retirees value people over activities (Prof Note: I am truly blessed with some of the best people in life…thank you all!); (14) Don’t sacrifice your retirement savings to pay for college (Prof Note: Remember children have a great ability to pay it back.  Also, in your estate plan you can leave wealth to your children to pay off their debt or reimburse them for having to pay for it initially); (15) Don’t assume everything will go right (Prof Note: Little Willy is down AGAIN!  I continue to get water in the fuel.  Never did I think I would become a Little Willy expert but I am getting there.); (16) You might not spend less in retirement (Prof Note: What kind of life do you want to live in retirement.  I still remember a story on Nevis.  A hard-charging expat female came ramming through the gates at Cat Ghaut.  Trust me, as a mischievous redhead, I know when an older adult woman is angry and this one was furious.  I was ready!  Turns out the ire was not directed at me, thank god, and she was furious at a local bank as she had not gotten a check and was unable to pay her contractors in a few days.  Never could she have expected that.  I offered to help, she accepted and paid me back immediately when check cleared.  Moral of story: the unexpected does happen.); (17) Talk to your children about money (Prof Note: Or possibly take a class together.  I am amazed at how few people truly understand money); (18) Life a healthy lifestyle (Prof Note: just back in from a 4.5 mile jog.  However, sadly, scale said I was up!); (19) Income Roth accounts in retirement planning; (20) Personal connections matter more as you get older (Prof Note: Friends, especially long-term friends, are the best.  I just had dinner with Margot R from Hopkins.  We talked all about Mike A!); (21) Don’t ignore investment fees (Prof Note: Do not ignore fees of any kind!); (22) Take advantage of catch-up contributions; (23) Gray divorce is increasing (Prof Note: Divorce among people age 50 and older increased by over 100.0-% between 1990 and 2015); (24) Consider long-term care policies; (25) Social Security benefits might be taxable; (26) Keep your home in good condition (Prof Note: All my home renovations on Nevis are being completed in stone.  Yes, it absolutely looks wonderful but also my motto: one and done!); (27) Your ability to borrow is based on income (Prof Note: Not quite true but largely so.  I get so angry over this!  Income does not equal cash.  Also, higher income equals higher taxes.  So it is best to target optimal income.  This is a moving target largely not discussed in the classroom but lived day-to-day by many!); (28) Health savings accounts have multiple uses; (29) Don’t try to time the market (Prof Note: While I absolutely agree with this for the average investor, I will admit my powder is dry at the moment); (30) People will ask you for money (Prof Note: Sadly, this is VERY true!  The main reason for the P(Gain) Foundation is absolutely to give back.  However, an added benefit is that it shields me from individual support requests.); (31) You might still have student loan debt; (32) Be prepared for changes

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.)