Financial Times Blog

5 April 2019

 

Question: According to MSN: Money, what is the top savings goal for Americans?

 

Prime Time – Pg. 1

–          MacKenzie Bezos…yesterday revealed her divorce settlement with Amazon’s founder and the world’s richest man.  She will keep stock worth more than $35bn in the online retailer, in what has been billed as the biggest divorce settlement ever

 

Fragile banking system spurs ECB rethink on negative rates – Pg. 2

–          Five years after the ECB broke ground by cutting interest rates below zero, its officials are considering a redesign of the contentious policy as they face up to an economy and banking system that could remain fragile for a lot longer

–          …ECB president, pushed the world’s leading central banks into uncharted territory in 2014 when the Eurozone deposit rate – what commercial banks pay to hold money at the ECB – went negative.  Further cuts have pushed the rate to minus 0.4% since 2016, part of a policy to spur banks to lend money rather than sit on it

–          One consideration is a three-tiered system, with part of each bank’s deposits at the ECB paying zero interest, and another portion paying a positive rate

–          ….two elements are now in place that were not when the ECB last seriously considered a switch to a tiered system, in 2016.  One is the diminished risk of deflation, which counters an argument for the policy: that it benefits banks by reducing the chances of falling prices sparking a wave of defaults by debt-laden borrowers

–          Another is that the outlook has become sluggish enough to raise the prospect of interest rates remaining on hold for years to come

 

India cuts rates on eve of election – Pg. 4

–          India’s central bank has carried out a second consecutive interest rate cut to 6%, giving a fillup to credit growth ahead of this month’s general election

–          The bank’s monetary policy committee also cut rates by 25bps at its last meeting in February

–          Retail inflation stood at 2.57% in February, higher than the previous three months but still towards the bottom of the RBI’s target range of 2 to 6%

 

Wobbles over the yield curve? – Pg. 7

–          The yield curve is Wall Street’s original “fear gauge”, notching up a perfect predictive record before pretenders such as the Vix index were even glimmers in the eyes of financial engineers.

–          Typically countries pay less to borrow for three months than five years, and less for five years than for a decade – after all, investors want some compensation for the gradual erosion of inflation, or the risk, albeit faint, that a government could renege on its debt

–          …sometimes short-term yields rise above longer-term ones, an “inversion” of the usual curve that has been an uncannily accurate harbinger of recessions, preceding every downturn since the end of the second world war.

–          For instance, when Mr Greenspan in 2005 read the last rites for the yield cuve’s predictive powers, the three-month Treasury bill yield was still 0.9% below the 10-year Treasury yield.  A year later the curve inverted and 18 months after that the US entered its worst recession since the 1930s

–          …the US yield curve has now inverted once again, with the 10-year Treasury yield on March 22 dipping below the three-month T-bill yield for the first time since 2007

–          In essence, the yield curve distils the wisdom of millions of investors, and their views of the current and future health of the economy.  Individual fund managers may be wrong from time to time, but the overall judgment of a lot of smart people tends to be fairly accurate

–          Longer-term bond yields are influenced by interest rates set by central banks, but mostly by the economic outlook.

–          Post-crisis regulation encouraged banks to keep more money in ultra-safe assets, and it is hard to find anything safer than US Treasuries (Prof Note: Paying off one’s home mortgage, which typically has a greater rate than US Treasuries is a MORE ultra-safe asset investment, i.e. an investment in one’s self and family financial security!)

–          …fund managers prefer to use the two- and 10-year Treasury yields as a cleaner measure of the curve’s shape.  This “spread” has remained positive, bouncing around between 0.1 and 0.2% since last year.  The two and 30-year Treasury spread has actually steepened this year, muddying the yield curve’s signal

–          The US stock market took a beating on the day of the inversion, but has still enjoyed its best start to a year since 1998, and junk bonds have notched up their best quarter of returns in a decade

 

Answer: Retirement

3 April 2019

 

Question: According to MSN: Money, what is the biggest concern about personal finances in America?

 

Walgreens slashes earnings forecast and lifts cost-cutting target to $1.5bn – Pg. 1

–          Like other US drugstore chains, Walgreens’ margins are being hit by pressure to cut prescription drug prices and cheaper generic drugs.  While prescription sales in its US stores rose 9.8% in the second quarter, gross profit fell 3.2%

–          Sales of general products such as toothbrushes and make-up are also under pressure from online rivals such as Amazon

 

IMF Lagarde highlights risks to global economy – Pg. 2

–          …most countries would be unable to offset a downturn with lower interest rates and would instead need to make “smarter use” of fiscal policies in future

–          …high public debt and low interest rates have left limited room to act when the next downturn comes….

–          The fiscal policy response the IMIF is recommending is to fix deficits and debt now so that governments have the ability to take a more active approach to tax cuts or public spending increases to combat recessionary forces

 

WTO warns of ‘strong headwinds’ amid trade tensions – Pg. 2

–          …”strong headwinds” over the next two years as it reported that commercial tensions, a slowdown in major economies and financial volatility triggered a sharp drop in trade growth last year

–          …global trade grew 3% in 2018 – compared with a forecast of 3.9% last September

–          The pace of growth of world trade was as high as 4.6% in 2017 – but that may have been the high-water mark

 

Pelosi gives guarded support to Biden over touching claims – Pg. 3

–          The Speaker also gave a veiled critique of Mr Biden’s apologies, suggesting he should say sorry for invading any accuser’s personal space rather than the fact that his accuser took offence (Prof Note: That is just idiot!  Never blame the alleged victim when guilt of the act is NOT in question!)

–          The reaction to the new allegations against him has exposed a generational divide within the party.  Many older Democrats have come to Mr Biden’s defence, even as others called out his behavior as inappropriate, a sign of the new standard for male behavior after the advent of the #MeToo movement (Prof Note: Why is there a need to touch people in professional settings?!  I cannot stand when salespeople touch me in, what I consider, a “leading” way to make a sale or curry favour.  Touching, in a professional setting, in any form, breaks a seal and greys the line of forward acceptance.)

 

Manhattan apartment sales fall while average price rises – Pg. 3

–          The number of sales was down 11%….

–          The median price of apartments in Manhattan, depending on the report, ranged from down 2% to up 3.2% from a year earlier

–          The number of sales of apartments in new developments fell 39.4%, …

–          The average sales price of new developers rose 89.4% to $7.6m, but that reflected Mr Griffin’s purchase of an apartment overlooking Central Park, adding to this extensive portfolio of prime properties in the US and Europe

–          President Donald Trump’s tax reform law, which reduced the amount of mortgage interest buyers could deduct, also had a negative effect on property sales

–          A new mansion tax, which introduces a one-time levy on purchases of New York City apartments that sell for at least $1m, could stymie the market further

 

Curve Ball Yield projections are losing their predictive power – Pg. 11

–          The US yield curve has long been seen as a reliable indicator of trouble ahead.  If long-term government bond yields fall to the point where they are below much shorter-term instruments – the classic “inverted curve” – people reason that growth is grinding to a halt and a recession must be around the corner

 

US shopping centre vacancies at eight-year high – Pg. 12

–          Vacancies at US shopping centres have hit the highest level in eight years as the ecommerce revolution and recent collapse of debt-laden private equity-backed chains begin to ripple through the commercial property market

–          …9.3% of units in shopping malls lay empty at the end of March – …

–          Landlords are still demanding 8% higher rents in regional malls than they were five years ago

–          US retailers have set out plans to close 5,480 stores…almost as many as the 5,730 announced in all of 2018

 

Answer: Not having enough $$$ to get by

2 April 2019

Question: According to MSN: Money, what is the average American Retirement Savings?

 

Saudi Aramco bond sale lifts veil on world’s biggest profit of $111bn – Pg. 1

–          …for the first time disclosed the financial performance it has kept secret for three-quarters of a century, revealing the kingdom’s state oil group generated more profits last year than any other company in the world

–          …produces more than 10% of the world crude, shows the state’s reliance on the producer means it generates less in post-tax profits per barrel than privately owned rivals

–          The government in Riyadh relied on the oil sector for 63% of its total revenue in 2017,…

–          Moody’s and Fitch assigned the company ratings of A1 and A+ respectively but said the government’s reliance on the oil producer to fund its budget acted as a cap on its creditworthiness.  Exxon-Mobil of the US is rated triple A by Moody’s

 

What if you build it and they don’t come? – Pg. 7

–          Property prices are down by at least 25% since 2014; real estate developers are trimming their headcounts and delaying payments to suppliers; parents speak of falling numbers at their children’s schools.  Growth in GDP decelerated to 1.9% last year, the emirate’s slowest rate of expansion since 2010

–          At a time when job cuts are hitting white-collar workers, a priority appears to be boosting population growth among wealthy foreigners by providing expatriates – who make up 92% of the 3.2m population and yet have no right to stay in the emirate if they lose their jobs – with a greater sense of belonging to encourage long-term investment

–          A new law to allow 100% foreign ownership of companies outside existing business parks, which currently exempt the need for a local partner, is another measure designed to improve the commercial climate and cut costs

–          Giving foreigners more rights in what was historically a conservative, local society is unpopular among the 250,000 Emiratis in Dubai

–          Abu Dhabi’s foreign policy has forced Dubai, for the first time, to choose politics over business

–          Dubai is credited with developing one of the region’s most diversified economies, founded on trade and transportation

–          Dubai, including state-related entities, has been paying down debt over the past few years but still owes $122.5bn, equivalent to about 110% of GDP

 

Developers hail ‘game changer’ for India’s commercial property – Pg. 19

–          This week brings a landmark for the industry with the start of trading in India’s first real estate investment trust, an asset class whose cheerleaders say heralds a wave of funding from foreign institutions and domestic savers

–          A debt market crunch late last year has made it tougher for many developers to raise funds from short-term bond issuance and from nonbank financial companies that have themselves been hit by the debt market problems

–          The strong reception for the Embassy Reit, which owns seven business parks and four city-centre office buildings in Bangalore, Pune, Mumbai and Noida (outside Delhi), highlights the divergence between the residential and commercial property segment in India

–          …commercial property has performed strongly with occupied office space growing two or three times over the past decade in hubs such as Bangalore, Mumbai and Delhi (Prof Note: P(Gain) is in the early stages, very early, of negotiating office space in India.  As we build out and expand back-office support systems and infrastructure.  The amount of high-quality, affordable talent in India appears to be endless.)

–          Reits will allow small Indian savers to invest in commercial property for the first time.  Indian families have long concentrated their wealth in real estate with physical assets accounting for about 56% of household savings,…

–          Indian Reit rules state that only commercial property can be included and at least 80% of the assets must be revenue-generating

 

Answer: 42.3% of Americans have less than $10,000.00