Financial Times Blog

25 April 2019

Question: According to MSN: Money, if one is feeling overwhelmed with debt, what are fourteen (14) ways to get your financial life in order?

US most at risk from tariffs increase, says ECB – Pg. 3

–          An ECB paper published yesterday found that if President Donald Trump’s administration were to raise tariffs and other barriers on imports by another 10% – and other countries were to retaliate – growth would drop more sharply in the US than in either the euro area or China

–          In retaliation, Brussels has warned that American state support to Boeing could result in punitive tariffs on US products from hazelnuts to tractors

–          The ECB’s research found that after one year of heightened trade tensions US gdp would be 2% lower than the baseline expectations

Fund managers’ bearish bets short-circuited by easy money – Pg. 19

–          Carvana, one of the US’s most shorted stocks, has doubled its share price so far this year, stinging funds that had doubted the prospects of the self-styled “Amazon of used cars”

–          …tough it is to bet against listed companies in an era of easy money

–          Shorting – which involves borrowing shares, selling them in to the market and then buying them back at what funds hope will be a lower price – is “one of the hardest and most complex aspects” of investing and “will cost you a lot if you get it wrong”

–          In theory, the shorts should be due a revival.  Monetary easing has helped keep alive some companies that would have died without access to cheap finance.  The ending of QE should mean greater sifting of stocks

–          But correlations have been falling in recent years and, while it picked up sharply in the recent market rally, it is still just below its post-crisis average

Answer: (1) Change your mindset; (2) Get a clear picture of how much debt you actually have (Prof Note: Most people run from this.  Identify, Quantify, Mitigate!); (3) Consider consolidating your debt; (4) Track your monthly spending; (5) Eliminate any subscription services you do not really use (Prof Note: My phone interest was/is out of control, i.e. $600.00/mo.  I may have found a solution to bring it down to $300.00/mo.  Note I have a lot of special issues due to remote locations); (6) Eat out less (Prof Note: No $3 drinks…H2O); (7) Reduce your cable and/or phone bill; (8) Stop paying for things with a credit card (Prof Note: Completely disagree!  Do not lose the points…use financial discipline); (9) Develop a budget; (10) If you do not have enough income to pay off debt in a reasonable timeline, find new income streams; (11) Sell household items you do not need; (12) Check in on your progress every week; (13) Find an accountability partner (Prof Note: I have several peers and we call to cry about expenses.  CD, JK, and I had dinner a few weeks ago.  The first 38 minutes of dinner conversation were us comparing Septic nightmares and the corresponding cost(s).  Find support!); (14) Once you have paid down your debt, start prioritizing saving (Prof Note: think “investing”)

23 April 2019

Question: According to MSN: Money, what are eleven (11) signs your retirement will cost more than you thought?

Cain withdraws as contender for Fed – Pg. 2

–          Particular questions have been raised about Mr Cain’s background and qualifications, and earlier this month he said in a video on Facebook that a background check would be “more cumbersome” in his case because of an unusual career

–          Candidates for the Fed’s board need to be confirmed by the Senate…

–          Some US politicians fret that the Fed’s independence is coming under threat from a president publicly demanding looser monetary policy and is seeking to appoint political loyalists to the central bank

–          The president is seeking to fill two seats on the Fed’s power board, which is chaired by Jay Powell

Argentine poverty poses tough questions for IMF – Pg. 4

–          Inflation, now running at more than 50% annually, played a big role in pushing the poverty level up to 32% of the population by the end of 2018

–          …the government expanded a controversial programme of price controls to 60 “essential” goods, mostly food, in order to soften the impact of price rises for consumers

–          The risk….is that if the government fails to cut the deficit enough because of extra social spending, markets could grow anxious that Argentina’s fiscal adjustment is not happening as fast as it believes is necessary.  That could force Argentina to seek more foreign debt to cover the fiscal deficit than originally expected, to a point where its debt burden could become unsustainable

United States – Pg. 7

–          …the data showing younger people are increasingly comfortable with socialism as a way of organizing the economy…

–          …percentage of 18 to 29-year-old Americans who have positive views of socialism has held steady at 51%, but he percentage saying they have positive views of capitalism has fallen from 68% to 45% since 2010

–          Any boss launching into a discussion of inequality risks inviting an uncomfortable discussion about their own wealth

–          ….median chief executive of a large US company receives 254 times as much as his or her median employee in compensation last year, with about one in 10 earning more than 1,000 times as much…the multiple 40 years ago…was under 30

–          (Prof Note: When I went to college, it was understood that one could put themselves through a state university waiting tables at night.  Now, this would require a LOT of shifts but it was possible.  Is it possible now?!)

Patients take control of their medical data – Pg. 13

–          In Oregon, the legislature is considering draft legislation that would require signed authorization from consumers before their deidentified data could be sold on to third parties

–          According to a summary of the bill, individuals “should have the right to asset a property interest in the health information such that the individual may receive remuneration in connection with the commercial sale”

–          The culture of the research world, however, is often to treat data as the property of the researchers and their organizations, and the patients who have generated it may never discover what insights it has yielded

Answer: (1) You do not have a long-term care plan (Prof Note: A peer of my just lost his spouse.  He waves the banner of Long-term care like no other.  While his wife left us, she left him with no debt given their insurance(s)); (2) You underestimate your life expectancy (Prof Note: Building an ongoing business, rental portfolio and/or investment portfolio whose income supports lifestyle negates concern for dying at a certain age); (3) You did not plan for high healthcare costs; (4) You did not take inflation into consideration (Prof Note: Hence why I personally like rental income as, over the long-term, it increases at inflation); (5) You did not factor big-ticket items; (6) You changed your spending habits; (7) You lent money to your kids (Prof Note: Best thing, in my opinion, one can do for their children is leave them an operable business/investment portfolio.  Second best thing, support your own retirement.  Third best thing, and notice I label this third, pay for their eduction(s)); (8) You spoiled your grandkids; (9) You did not take taxes into consideration; (10) You did not consider fees; (11) You got divorced (Prof Note: the greatest destroyer of wealth is divorce!)

22 April 2019

Question: According to MSN: Money, what are the most expensive mistakes a homebuyer can make?

Italy falls behind in cutting public debt as populists stall on state assets sell-off – Pg. 1

–          The Italian government holds direct stakes in various companies, including 23.6% of the power utility Enel and 4.3% of oil company ENI, as well as large holdings in defence company Leonardo and postal service Poste Italian

–          Italy has the second-highest ratio of debt to GDP of any Eurozone member apart from Greece, standing at more than 140%.  Last year its populist coalition government lashed with Brussels over plans to ramp up public spending but eventually reached a deal on the size of its budget deficit

Banks pour cold water on ‘earnings recession’ fears – Pg. 8

–          An “earnings recession” could be looming for the US stock market.  Analysts estimate that earnings for companies in the S&P 500 index of blue-chip stocks contracted 4.6% in the first three months of the year, they forecast that they will shrink another 0.4% in the second quarter

–          The goal is to boost consumption, which now accounts for more than half of GDP [for China]

–          A rebound in oil prices has provided a boost to currencies of commodity-exporting countries, with the Russian rouble notching up more than 8% gains against the dollar this year.  The Canadian dollar and Norwegian krone have been relative laggards despite a 43% rise in oil prices this year

Victims of workplace bullying are still let down by poor management – Pg. 12

–          Bullying is rife at universities, he says.  “It’s appallingly common…the kind of thing that is punished if a janitor was doing it, in a professor it’s [seen as] eccentric.”  Another academic describes the behavior of his bullying line manager as “normalized”.  (Prof Note: What I have seen in the past 10 years is University Administrations Gone Wild!  Deans, who have no experience in classrooms are suddenly making decisions on classroom teachings!  My favourite example is the great importance placed on classroom evaluations completed by the students.  Are the prisoners running the prison?  It has become the goal of professors, due to self-preservation, to give the students what they want as opposed to what they need!  Professors now game the system, e.g. weight final examinations heavily so evaluations are completed prior to students truly knowing their grade.  This leads to lack of transparency but, again, is self-preservation for the professors.  As for the bullying, if the professor is such an “expert” this individual should have MANY options and simply remove themselves from abusive situations.  If they are not an expert, why are they in their position?  When enough staff leaves, the “mighty” will fall!)

–          In the UK – as with the US – there is no specific anti-bullying legislation

–          Bullying behavior can be a sign of a broader organizational dysfunction

–          (Prof Note: How does one define bullying?  Is a jerk boss a bully?  Build skills and when work environments become toxic…walk!  Yes, I know, easy to write…harder to do.  The single-employer system places employees at significant risk.  It is like investing in only one equity.  If you picked Amazon, up to this point, you did very well. Pick a loser, well, not so well.  Build skills and take back power.  Easier to deal with jerks when one has options.  Power to the People!!!)

Admitting younger students can benefit MBAs – Pg. 13

–          Several US business schools are admitting undergraduates to their MBAs

–          Ten years ago, Harvard Business School created a deferred MBA admissions process called 2+2.  It is open to undergraduate and masters students.  They spend at least two (maximum four) years in full-time work before matriculating (Prof Note: I deferred by MS Finance admission by one year at GW.  I forget the exact reason why (so many years ago) but believe I wanted to focus on my career in energy.  It was wonderful for me as I was able to focus on my career while still knowing graduate school was advancing)

–          …some employers are skeptical about employing MBA candidates in the deferral period… (Prof Note: My experience is that it comes to maturity.)

Answer: (1) Not working with a buyer’s agent (Prof Note: I still work with an agent.  Pick your agent VERY carefully.  Agents are like lawyers, they have a bad reputation, in general, but a great one makes the deal!); (2) Failing to negotiate the sales price (Prof Note: This is tricky as residential can be emotional); (3) Not cleaning up bad credit (Prof Note: Credit score goes a long way to interest over 30 years); (4) Buying a fixer-upper (Prof Note: From personal experience and that from my peers, renovations can be more costly than a new build and/or new purchase.  Think hard!); (5) Buying “As Is” without inspections (Prof Note: There can be justification for this….just be careful!); (6) Getting the wrong loan (Prof Note: In Roger’s World there would be a test to qualify on knowledge prior to receiving a loan.); (7) Having a change of heart (Prof Note: This has to do with the deposit.  Think!!!); (8) Overestimating your budget (Prof Note: Be realistic.  The example I use in the book and classrooms is 2X P&I for true cost of a house using a 30-yr mortgage rate.  I actually think the cost is closer to 1.5X but 2X is a great buffer); (9) Buying a home on emotion (Prof Note: I struggle with this.  Is not dreaming great?!  Just be certain you can afford the dream and it does not become a nightmare.); (10) Making a small downpayment (Prof Note: This requires a complete understanding of personal finances); (11) Talking to only one lender (Prof Note: Best to shop but also understand); (12) Skipping the walk-through (Prof Note: Laughing…I cannot remember the last walk-through I attended for a property.  My brokers get frustrated as I put such faith in them.  You should do the walk through BUT have an expert.  Should you look at your deal underwriting pro forma?  YES!!!  Is it best to have P(Gain) do the underwriting and provide professional assurances?  ABSOLUTELY!!!)