Financial Times Blog

10 April 2019

 

Question: According to MSN: Money, what is the average spending on nonessentials?

 

Saudi bond bonanza as investors draw line under Khashoggi killing – Pg. 1

–          Saudi Aramco increased the amount it will raise it ins first international bond sale to $12bn after drawing a record-breaking $100bn in orders, a clear sign that financial markets are willing to draw a line under last year’s killing of journalist Jamal Khashoggi

–          The $100bn in orders far exceeds previous highs for emerging market borrowers, outstripping even the $67bn of demand Saudi Arabia itself saw in its 2016 government bond market debut

–          One investors following the deal said the flood of demand reflected the bonds’ scarcity.  Saudi Aramco’s treasurer has told investors the company does not need to raise the money because of its “fortress-like corporate position”, and is focused solely on opening up the secretive group to public investors

 

IMF cuts global growth forecast as trade tensions take toll – Pg. 3

–          The global economy has slowed sharply since last summer and will rely on a “precarious” boost from a few emerging markets to reverse the loss of momentum, …

–          Cutting its outlook for 2019 and 2020, the fund judged advanced economies would “continue to slow gradually” into next year while emerging economies would play a more positive role, led by an end to crisis conditions in Turkey and Argentina and stabilization in the all-important Chinese growth rate

–          Global growth slowed sharply in the second half of 2018 from 3.8% in the first half to only 3.2%, the IMF said with industrial production and world trade hit hard.

–          Growth rates would have fallen further without consumer sentiment holding up strongly

–          The forecasts for advanced economies suggested there would be some recovery from specific woes last year in Germany, France and Italy, but there would be no return to the rapid expansion of 2017 and instead “a return to tepid potential growth” by 2020

–          For the US, the IMF forecast that the annual growth rate would continue to slow and, by the next presidential election in 2020, it would be only 1.7% – barely over half the rate in the final quarter of 2018, when it was 3%

–          The slowdown stemmed from an end to the temporary boost that came from Donald Trump’s tax cuts in late 2017

 

Artificial intelligence raises ethical questions we struggle to answer – Pg. 9

–          Ethics is fundamentally about our responsibility to examine the impact of our decisions on others.  Ethics committees, therefore, are accountable to the powerful, but responsible for protecting the powerless

–          A ethics committee should contain a representative group of disinterested individuals who are capable of crafting a consensus around what is socially acceptable, not just technically feasible

–          Their job is to assess the ethical implications of new applications of AI and to protect and defend the interests of those using or on the receiving end of emerging technologies

 

Non-bank lenders under scrutiny after taking big share in US mortgage market – Pg. 14

–          US mortgage companies operating outside the banking system face intensified oversight by the federal government after their role in US housing finance ballooned, raising concern about gaps in the regulatory system

–          Ginnie Mae, a US government agency that guarantees payments on $2tn of US mortgage-backed securities, is advancing proposals that would require non-bank mortgage lenders to compile “living wills” …

–          In the 12 months to February 2019, nonbank mortgage firms were responsible for $729bn of the loans that run through government guarantee programmes, over 60% of the total

–          In early 2013 non-banks were just 30% of the total…

–          Among big players are Quicken Loans, with 5% of the total US mortgage market, PennyMac Financial, with 4%, and United Wholesale Mortgage, with 3%….

–          These companies offer mortgages and collect payments but almost always package the loans into securities and sell them on, rather than hold them on their balance sheets

–          Ginnie Mae’s own activities are expanding.  It guarantees payments on securities backed by mortgages for lower-income Americans and Veterans – in contrast to the less risky home loans backed by Fannie Mae and Freddie Mac, …

 

Answer: More than $5,000/yr

9 April 2019

 

Question: According to MSN: Money, what is the Average American’s Rent?

 

Memory in elderly improved by electrical stimulation –Pg. 1

–          Electrical stimulation of the human brain can produce a stroking improvement in short-term memory of the elderly, with people in their 60s showing memory functions equivalent to 40 years younger….

–          While receiving this stimulation for 25 minutes the older participants’ speed and accuracy improved markedly, making them perform as well as the twenty-somethings.  The improvement lasted for almost an hour after the current was switched off

–          One area in which the research could be applied is in treating Alzheimer’s disease

 

Beware the lossmaking behemoths rushing to market – Pg. 11

–          ….in 1980 only 25% of US companies had negative earnings when they came to market.  Last year, it was 80%

–          From that perspective, massively lossmaking, venture capital-backed companies seeking to cash out on the public markets near the top of the cycle should probably be avoided like drunk drivers on a Saturday night

 

Bad loans at small China banks spark fears – Pg. 15

–          China’s central auditing authority has sounded the alarm on a surge of bad debt at small banks, raising the question of whether Beijing will continue to bail out struggling lenders or eventually allow some to go bankrupt

–          Tackling China’s bad debt problem is a priority for Beijing, which views it as a core component to maintaining financial and social stability

–          Ultra-high rates of bad debt above 40% have prompted questions over whether some banks could be allowed to fail

–          The government’s tolerance for allowing state-owned companies to default on bonds has increased over the past year, as shown by a number of missed payments.  One such company failed to repay a US dollar bond in Hong Kong in February, the first offshore default in 20 years and a sign that the government was not rushing to rescue state groups

 

Bets against euro jump to highest level since 2016 – Pg. 21

–          A run of disappointing data in the Eurozone and mounting concerns about the health of the global economy have prompted hedge funds and other speculators to amass the biggest bet against the euro since late 2016

–          Futures trading makes up only a small portion of the $5.1tn a day forex market but data on outstanding positions provide an insight into broader trading patterns

–          Signs of a weakening German economy have already dragged the euro 2.1% lower this year against the US dollar, adding to a fall of 4.4% in 2018

 

Answer: $1,307/mo

8 April 2019

 

Question: According to MSN: Money, what percentage of Americans tap into retirement savings to pay off debts/bills?

 

Buffett urges Wells Fargo to look beyond Wall Street for next chief – Pg. 1

–          Tim Sloan stepped down as chief executive last week after coming under pressure from Congress and regulators

–          Mr Buffett, who has held shares in Wells since 1989, wants the new leader to be an outsider and someone who has not worked in investment banking, judging that either would be a red rag to critics in Washington

–          Mr Buffett owns almost 10% of Wells’ shares, worth about $22bn

 

Global growth impetus hit by slowdown – Pg. 4

–          The global economy has entered a “synchronized slowdown” which may be different to reverse in 2019, ….

–          Sentiment indicators and economic data across advanced and emerging economies have been deteriorating since last autumn, suggesting fading momentum in global growth and the need to resort to new economic stimulus

–          The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and investor confidence with historical averages for the global economy and for individual countries.  The headline readings slipped back significantly at the end of last year and are at their lowest levels for advanced and emerging economies since 2016, the year of the weakest global performance since the financial crisis

–          Although sentiment remains high in advanced economies, it has fallen from its peaks and it has plummeted to well below normal levels in emerging economies, led by fears that China’s years of rapid growth are coming to an end

 

Trump demand adds to pressure on Fed – Pg. 4

–          Following fears of a recession in the bond market, optimism about the US economy revived late last week, with March jobs growth approaching 200,000 and unemployment hanging at just 3.8%.  The number were easily strong enough to reinforce the Fed’s central case for 2019, namely for respectable economic growth and unchanged interest rates

–          But the case for a rate cut could yet materialize this year.  If the US sees signs of a serious downturn, there is little doubt that its chairman, Jay Powell, and his colleagues would cut aggressively.

–          The rate adjustments under former Fed chairman Alan Greenspan during the record-breaking expansion of the 1990s serve as one set of precedents

–          The danger for the Fed is any hint it had started to consider a rate reduction could panic financial markets, as traders ask whether the central bank sees a dire prognosis they have overlooked

–          The Fed would also need to confront one of the main critiques of Mr Greenspan’s 1990s policy – namely that it was so loose that it stoked up hazardous bubbles in financial markets

 

US budget deficit expected to reach $1tn mark this year – Pg. 6

–          The Trump administration will notch up a federal budget deficit of $950bn this year, or 4.5% of GDP…

–          This is an unprecedented shortfall outside of a recession or war, and comes at a time when the Federal Reserve is slowly shedding the US government debt it acquired in the wake of the financial crisis, and foreign investors – who long financed the deficit – are pulling back

–          Foreign investors held 35.3% of the Treasury market at the end of last year, the lowest share since 2004, …

–          …heavier buying by domestic investors lifted their ownership of US government debt to 52%, the highest since 2009

–          …the cost of servicing its debt versus the size of the US economy is near its lowest in four decades…

 

Answer: 44%

6 April 2019

 

Question: According to MSN: Money, what percentage of Americans are investing?

 

Trump takes aim at Fed policies – Pg. 1

–          The president told reporters that Fed should embark on “quantitative easing” instead of continuing to pare holdings of bonds bought during its crisis-era stimulus programme, saying that it would turn the economy into “a rocket ship”

–          The Fed has come under pressure from previous administrations over monetary policy, but the relentless public campaign being waged by the White House for the past year is unprecedented

–          About 196,000 jobs were added last month and unemployment hovered at just 3.8%, while pay increased at a robust 3.2% over a year earlier

 

Fed tested by US jobs market rebound – Pg. 2

–          The US jobs market leapt back to life last month following a weak February as hiring accelerated but wage growth slowed in the latest batch of mixed economic data

–          Stocks rallied on the report, while US government bonds reversed their earlier declines, pushing yields lower

–          Fed fund futures, derivative contracts that investors use to wager on interest rates, are pointing to a 53.5% chance of a rate cut before the end of the year, down from the 69.5% a week ago

 

Top lawyer admits criminal charge over colleges scandal – Pg. 3

–          Gordon Caplan, co-chair of law firm Willkie Farr, said yesterday he would plead guilty to a criminal charge in connection to the college admissions bribery scandal

–          The lawyer made a $75,000 payment to a charity run by William “Rick” Singer, the college consultant at the heat of the scheme, to have his daughter’s ACT standardized test score fixed after she had completed it…

–          Willkie Farr, which put Mr Caplan on leave after he was charged last month, announced that it had cut ties with him (Prof Note: NOT ENOUGH!  Disbar Caplan!)

–          …second parent to agree to plead guilty…

 

Banks among UK’s worst gender pay gap offenders – Pg. 8

–          British banks made up three of the top 10 large companies with the biggest gender pay gaps in 2018, underlining the extent of the challenge facing one of the UK’s most important sectors

–          Barclays, Lloyds and Clydesdale Bank reported a median hourly pay gap of at least 38%, putting them in the top 10 employers with 5,000 or more workers, ranked by the size of the differential

–          While women by law have to be paid the same wage as men for the same work, companies tend to report gaps in median hourly pay when men are in more senior roles

–          The average company in the financial sector paid women 81.9p for every pound men earned in 2018

 

Norway fund cuts exposure to emerging economies – Pg. 11

–          Norway’s $1tn-in-assets sovereign wealth fund is to remove emerging market bonds from the benchmark it tracks, under a new plan announced yesterday which should provide some insulation from the effects of wildly swinging currencies

–          Norway’s decision comes after parliament two years ago backed a plan to reduce the fixed-income share to 30% of target weighting, expanding the share of equities to 70%

–          Norway’s fund is the largest of its kind, pumped up by 29 years of receipts from North Sea Oil sales, and its investment decisions often have wide-ranging implications for global markets.  The fund’s largest fixed-income holdings are in developed market sovereign bonds issued by the US, Japan and Germany

 

Answer: 56%