Financial Times Blog

18 March 2019

 

Question: Between Dunkin’ Donuts, McDonald’s, Starbucks and 7-Eleven, which is the best value on a mg of caffeine/$ basis? (Credit to Elliot Eisenberg, Ph.D., www.econ70.com, for this question)

 

Deutsche and Commerzbank begin talks to create banking powerhouse – Pg. 1

–          Deutsche Bank and Commerzbank have formally opened talks on a merger that would reshape Germany’s financial sector and create the eurozone’s second-largest lender in terms of assets

–          ….create the eurozone’s second-biggest lender after BNP Paribas, with 1.9tn (euro) in assets and more than 140,000 employees

 

US retailers fight tradition with own brands – Pg. 8

–          The balance of power is shifting between the biggest US retailers and their main suppliers

–          New industry data show retailers such as Walmart, Costco and Target are boosting sales of their own products almost four times faster than famous American brands, winning over consumers with high-quality goods at low prices

–          That began to change after the financial meltdown of 2008, which crated millions of newly frugal bargain hunters.  Millennials who came of age during the great recession do not have the same attachment to big brands.

–          The increasing popularity of cheaper alternatives undermines the traditional consumer companies’ ability to raise prices, a particular problem when input costs rise

 

Wall Street reduces forecasts for store profits – Pg. 8

–          Wall Street has cut profit forecasts for US retailers as concerns mount that a weaker than expected holiday season may have marked the beginning of an extended slowdown

–          Retailers have been facing rising expenses, from transport to logistics costs, as well as a slowdown in demand…

–          Mall-based companies that have struggled to deal with changing shopper tastes have been subject to some of the biggest forecast declines

 

Investors look to Fed for clarity on bonds while Brexit brings paralysis to UK gilts – Pg. 10

–          Investors and economists are supremely confident that the US central bank will leave policy unchanged at this week’s monetary policy meeting…

–          The Fed Funds market indicates that not only is there virtually zero chance of policymakers raising interest rates this week, it is now pointing to an extended pause from the central bank and a more than 25% chance that it cuts rates by the end of the year

–          …since 2017 the central bank has been shedding the bonds it acquired, deflating the size of its balance sheet to just under $4tn

–          …the pace at which the Fed is offloading the debt was one of the factors behind last years turbulence in financial markets…

 

US education – Pg. 17

–          The price of US higher education has sky-rocketed.  A four-year college degree now costs anywhere between $80,000 and $300,000 for tuition alone, while America’s median household annual income is $61,000

–          …growing share of Americans have been dropping out.  Less than half of students complete their degree within six years.  Many are saddled with debts, now totaling more than $1.5tn, that take a generation to pay off

–          Even if tuition were free, many Americans still do not want to go to college because other costs are steep and not everyone is cut out for four years of college.  Many fail to complete high school, the sole purpose of which is to qualify for university

 

America’s new housing bubble – Pg. 19

–          The latest Consumer Price Index figures show that almost all core inflation, which was weaker than expected, was in rent or the owner’s equivalent of rent (up 0.3%).  Core goods inflation, meanwhile, was down 0.2%

–          ….housing market is once again completely out of sync with the rest of the economy

–          …housing which is not only shelter but also the biggest financial asset for most Americans, is the only major component of the CPI with a national inflation rate that is consistently above the over-all number

–          ….cost of shelter…hit a historic high of 81% of core inflation in the summer of 2017 and remains “the lion’s share”

–          There have not been commensurate salary increases.  Median household income adjusted for inflation remains hardly higher than it was at the turn of the century

–          The whole situation is made more problematic by inflation in another area – higher education.  Student loan debt in the US is at a record high and the struggle to pay it off is real – 12% of borrowers are currently 90 days or more delinquent on their loan payments (Prof Note: Monthly I received calls offering to help me restructure my student loans.  I have NO student loans.  This is big business!)

–          …impact of student loans on the housing market estimates that high student loan drag has knocked 2m young adults out of the market, resulting in a 1.5% lower home ownership rate.  That means they cannot build wealth…

–          The US looks more and more like an emerging market economy in the sense that the basics of the American dream – housing, education and upward mobility – have all been compromised

 

Answer: 7-Eleven (129mg/$1); Starbucks (125mg/$1), McDonalds (122mg/$1), Dunkin Donuts (100mg/$1) (Prof Note: As an aside, the cheapest gas between Scotland, MD and DC is 7-Eleven in Waldorf.  Great halfway point for gas and coffee!)

16 March 2019

 

Question: According to MSN: Money, what are four (4) finance secrets rich people know?

 

Italy weighs loan from China-led bank to ease fears over joining Belt and Road – Pg. 1

–          Italy is considering borrowing from the China-led Asian Infrastructure Investment Bank as part of plans to become the first G7 country to endorse Beijing’s “belt and Road” global investment programme

–          ….resisting pressure from Washington and Brussels to drop those discussions as concerns rise over Beijing’s ambitions and its potential security threat

–          The Italian government intends to sign a “memorandum of understanding” on the BRI on March 22…

–          Until now, the overwhelming majority of BRI infrastructure loans have come from the China Development Bank and the Export-Import Bank of China, two bilateral lenders that grant loans in secrecy that are almost always tied to construction contracts for Chinese companies

 

Bribery scandal reflects success of USC push for funds and status – Pg. 3

–          ‘University of spoilt children’ tries to limit damage from admissions scam

–          USC admitted more of Mr Singer’s clients – many of them falsely depicted as student-athletes – than any other school mentioned in the complaint

–          USC said on Thursday it would toss out any current applicants tied to Mr Singer while beginning the messy business of determining what to do with those previously admitted

–          Yet while the admissions scandal may be a black eye for the school, it is also a sign of its success.  In the criminal complaint, USC has joined the likes of Yale, Stanford and Georgetown as schools targeted by Mr. Singer’s clients

–          Its admissions rate has narrowed over that time from 70% to a stingy 13% (Prof Note: Hopkins is 13% according to my online research.  Bucknell, my alma mater, is 25%.)

–          The obsession with fundraising led some to question whether senior administrators had lost their bearings.

–          (Prof Note: I love to bash Academic Ethics BUT, from what I am reading, do the schools deserve such a black eye in this case?  The schools were not accepting money.  The more I read it seems there were just a lot of bad eggs willing to sell their souls to the devil.  Just my current thought as I continue to follow this fascinating story!  I also worry, and this is unusual for me to say, that athletic departments are receiving a black eye.  I support the automatic slots for a few talented athletes.  Do the academics not have the same for the top scoring students?!  While overhyped, in my opinion, athletics is a viable and honourable career path.  Athletics also earns revenue for the schools.)

 

Foreign business wary of cuts to Chinese investment law – Pg. 3

–          China has passed a foreign investment law that it hopes will help smooth the way to a new trade deal with the US, granting foreign companies equal standing with state-owned businesses

–          The foreign business community has complained that the law leaves out many details that were in a 2015 version drafted by the Ministry of Commerce, opening the door to hidden impediments being written into the more detailed regulation

–          The rule, which will come into effect on January 1 2020, establishes a “negative list”, meaning that any sectors that are not declared closed to foreign business are automatically open to investment

 

Pot stocks a big draw after Wall St gets hooked on weed – Pg. 13

–          Less than a year after Canada broke the mould in allowing adult recreational usage, hedge funds, individual investors and long-only mutual funds are piling in

–          In 2018, some Canadian groups also started trading on the New York Stock Exchange, a unit of Intercontinental Exchange, and Nasdaq, which allow companies to list so long as their business is legal in the jurisdiction where they operate.  In the meantime, some US-based companies that are operating under state and not federal approval have listed stock in Canada

–          Insiders point to cannabis a having a multitude of untapped applications across industries including pharmaceuticals, packaged foods and beverages as well as cosmetics and beauty

–          Many of the cannabinoids, or chemical compounds present in cannabis, are believed to have therapeutic effects

–          One getting a lot of attention is CBD, or cannabidiol, which can be used to treat anxiety, convulsions, depression and nausea as well as serving as a sleep aid or muscle relaxant,…

 

US equity funds benefit from fears in other regions – Pg. 13

–          ….mortgage bond funds have been enjoying a renaissance this year on indications that the Federal Reserve would take a more patient approach in its plans to raise US interest rates

 

Answer: (1) Your money should be working for you; (2) Keeping up with the Joneses will cost you every time; (3) Time is your most valuable currency; (4) Its best not to go it alone

14 March 2019

 

Question: According to MSN: Lifestyle, what is the single most important question you should always ask in an interview?

 

Financiers and actors accused of using bribery to get children into Ivey League – Pg. 1 (this article is from 13 March 2019)

• Wealthy parents collectively paid tens of millions of dollars to buy places for their children at elite universities…
• The company coached students to claim medical disabilities, allowing them extra time to take entrance tests, … (Prof Note: This disgusts me beyond words! I have worked with many students over the decades that had medical disabilities requiring them to need more time.  All, to my knowledge, were legitimate.  One was an Iraqi war veteran with use of only one arm taking a timed computer examination in my class and was heart broken when he had to ask me to allow him more time.  How the parents and the students could do this sickens me!)
• It charged up to $75,000 for such services and advised parents to claim their children were travelling for weddings or bar mitzvahs so they could sit exams in its facilities (Prof Note: I had one student that was always “traveling” and needed exceptions to take examinations by themselves. When the final came they were allegedly in California and asked if they could take it in the office of a University of Phoenix professor.  I was about to grant the request when an administrator caught the tag line on the email where the “professor” has misspelled “Phoenix”.  That was the end of that accommodation!  I required the student to fly back and take the examination or earn an “F”.  Suddenly the student had wings and could fly!)
• Another ploy involved bribing university coaches and administrators to designate applicants as athletes, improving their chances of admission

 

UK clearing houses face threat of pressure to move to EU – Pg. 1

• The EU has given itself powers that could ultimately press one of the City of London’s flagship businesses to move to the bloc as part of efforts to ensure financial stability after Brexit
• Regulators see clearing houses as a critical part of the financial infrastructure, since they act as central counter-parties between sellers and buyers of shares or derivatives
• London dominates the market for clearing euro-denominated trades, handling the vast majority of interest rate, commodity and credit contracts with a notional value of 660tn (euro)
• The measures agreed in Brussels would require clearing houses to stick closely to EU capital requirements and other core regulations if they wanted to continue handing large volumes of euro-denominated trades for EU customers
• Clearning houses would also have to co-operate closely with European supervisors and central banks, including the European Securities and Markets Authority, an EU agency based in Paris
• The new rules are a response to the prospect of the City falling out of the EU’s regulatory orbit after Brexit, and reflect complaints that LCH aggravated the eurozone’s sovereign debt crisis in 2011 by raising its margin requirements – the amount of capital that its users had to set aside to cover potential failed trades – on debt for Spain and Italy

 

Spotlight falls on wealthy US parents who pay to ‘get their kids into school’ – Pg. 5

• US college admissions are supposed to be merit-based, but it has always had its set-aside places for children of alumni and those willing to pay via donations
• Colleges and universities involved included Yale University, Stanford University, University of Texas, University of Southern California, University of California Los Angeles, Georgetown, and Wake Forest
• He [Daniel Golden] claimed that President Donald Trump’s son-in-law Jared Kushner was accepted by Harvard after his father Charles donated $2.5m to the university

 

China’s women spurn call to have more children – Pg. 6

• The number of births in China fell by 2m last year to 15.2m – the second consecutive year of decline since China repealed its controversial “one child” policy in 2015
• The nation’s population expanded by 0.38% last year – a rate comparable with western European countries
• …Beijing estimates it will peak in 2029 at about 1.44bn, before declining
• The number of people aged over 60 will reach 479m, or about one-third of the population in 2050, up from about 16% today, …
• An ageing population has been associated with falling growth rates in most countries, notably Japan and western Europe, and means that a greater portion of economic activity will be devoted to elderly care compared with productivity-enhancing investment
• China also has room to boost output by raising the retirement age from the current years for men and 55 for women
• Fertility rates were falling even before the one-child policy was imposed, demographers say, as women became better educated and more entered the workforce

 

Central banks – Pg. 9

• As a result of last week’s U-turn, the ECB is now committed to keeping its record-low interest rates on hold “at least” until the end of 2019. It also expects to continue reinvesting the proceeds of the 2.6tn (euro) of bonds bought under QE as they mature “for an extended period of time” and has made a fresh offer of cheaper longer-term loans

 

Wall Street strives to clean up credit default swaps industry – Pg. 21

• …CDS market, which at its peak in 2007 had more than $60tn of contracts outstanding…
• …unusual step taken by the CFTC last year of criticizing manufactured defaults…

 

Answer: “Do you mind telling me why this position is open?” (Prof Note: I do not agree with this at all and just went through this discussion with a former student and now peer.  My advice was to ask about reduction, if any, numbers due to the 2007-09 recession.  How the reduced individuals were treated and the type of exit package.)