Financial Times Blog

12 February 2019

 

Question: According to MSN: Money, what are five (5) pieces of advice that cost someone thousands of dollars?

 

Global investors in record rush to China as hopes rise over US trade – Pg. 1

–        …betting the mainland market has bottomed out after a disastrous 2018 and anticipating that the US Federal Reserve’s dovish U-turn would boost emerging markets

–        …more positive outlook for US-China trade…

 

IMF chief economist supports Fed rate pause – Pg. 2

–        …flagged up a darkening picture in the euro area and China as she warned there may have been a contraction in world trade in December

–        …the shift in Fed policy had also “certainly helped” emerging market economies that had struggled with the tightening financial conditions over the past year

–        Last year, the IMF provided the largest loan in its history to Argentina, …$57bn…

–        One big question now is whether Venezuela might also need IMF support

 

Do leveraged loans pose a threat to the US economy? – Pg. 9

–        Leveraged loans, which are extended to corporate borrows with relatively high debt levels, carry more risk and pay more interest as the US Federal Reserve raises rates

–        They are secured with underlying collateral and when lenders line up for repayment, leveraged loans are usually given priority over lower rated bonds known as high yield credit.  That means there is some protection if the borrower goes bust.  Last year, which was generally tough, leveraged loans did better than most assets

–        The asset class has more than doubled since 2010 to more than $1tn at the end of 2018

–        Highly leveraged loan deals (when debt is more than five times earnings before interest, tax, depreciation and amortization) account for about half of new US corporate debt

–        That growth is partly a result of securitization.  Roughly half of investors demand today comes from packaging loans into collateralized loan obligations, or CLOs, and slicing them into different tranches of risk

–        Rising demand has shifted the balance of power from investors to borrowers, and contributed to a watering down of covenants embedded in loan agreements that traditionally protect investors

–        …about 25% of the leveraged loan market was considered “covenant-lite” before the financial crisis.  Now that figure is 80%

–        Leveraged loans probably won’t spark the next recession, but they will almost certainly deepen it, because they are an important source of corporate funding for deals and share buybacks

 

Exchange giants battle over new US oil benchmark – Pg. 19

–        Last year, exchange operators CME Group and Intercontinental Exchange introduced dueling futures contracts that track the price of West Texas Intermediate crude as delivered at the coast city

–        …growing status as an energy trading hotspot as US oil production breaks records, Texas refineries add capacity and exports of crude soar

–        At times, the price of oil at Houston disconnects from prices in the North Sea, Cushing or both, suggesting the new contracts could be useful to companies selling oil there.

–        Academic research has shown that new futures contracts are likely to fail unless they are substantially better at reducing risks than existing futures contracts,…

–        The new CMD contract is delivered at Houston terminals owned by Enterprise Products Partners.  Its rules require oil with gravity, or density, that measures within a narrow band of 40-44 “degrees”

–        The oil may contain no more than 0.275% Sulphur content and four parts per million of the metals nickel and vanadium

 

Answer: (1) Invest in cryptocurrency (Prof Note: How many classes did I warn about this?!); (2) Put it on a credit card (Prof Note:  I have mixed feelings about this.  I believe that everything should go on credit card but that the balance should not be carried month-to-month, i.e. this is a VERY expensive form of credit if carried.  However, one wants to benefit from the points and rewards); (3) Max out your retirement fund (Prof Note: I 100.0% agree that matching should be maxed out.  However, prudent planning must be done for the remaining.  401(k) can cost liquidity and cash is KING!); (4) Do not try and fight banking fees (Prof Note: I was literally in BB&T last week saying, “I cannot stand anything more than when a banker tells me, “NO”. J  Fees are theft, Interest is a cost of doing business!); (5) Keep your money where it is.  (Prof Note: Remember that capital has four dimensions that all participate in value: (1) Magnitude, (2) Timing, (3) LOCATION, and (4) Colour (currency)).

11 February 2019

 

Question: According to MSN: Lifestyle, what are ten (1) simple ways to support someone with depression? (Prof Note: I had a friend take his own life this week due to depression.  I am sad to lose my friend and sad that the world has lost a good person.  Depression is real.)

 

Congress talks ‘stalled’ over border force as cut-off looms – Pg. 2

–        Republicans and Democrats were bickering over proposed limits to the US border force yesterday just days before a deadline to avoid a second government shutdown this year

–        The US is still reeling from the record 35-day shutdown earlier this year, when Mr Trump refused to reopen the government unless Democrats agreed to $5.7bn in funding for a border wall.  The shutdown knocked billions of dollars off the US economy, and underlined the entrenched party divisions that are likely to continue for the next two years in the run-up to the 2020 elections (Prof Note: I grow tired of this “bickering” among our “leaders”.  Lock the doors, place chemical port-a-johns in congress, and lets see how long it takes to come to a resolution.)

 

Europe turns on spending taps as austerity comes to an end – Pg. 3

–        Economic thinking has shifted considerably since the early years of this decade, and is now comfortable with higher debt levels.  This is particularly true because the burden of servicing the debt has been falling as economic growth has improved

–        In a recent report on sovereign borrowing, the OECD said the balance between interest rates payable on government debt and the growth f advanced economies had “improved considerably and slowed growth in debt-to-GDP ratios in recent years”

–        With the aggregate deficit in the Eurozone projected to be running at 0.6% of GDP in 2019, compared with 5% in the US and the slowdown intensifying, the pressure for further fiscal stimulus is likely to mount

 

Private equity targeted by activists over prisons – Pg. 16

–        Private equity firms that try to profit from American prisoners have become the latest target of campaigners trying to stop public investment funds backing controversial businesses (Prof Note: Is this not the entire premise of the show, ‘Orange is the new black.’?)

–        State pension boards are among the biggest clients of private equity funds, a fact that activists are increasingly using to gain leverage over investment firms and score high profile victories against business practices they deem unfair or unethical

 

Answer: (1) Avoid telling them to “Just think positive”; (2) Try reaching out first (Prof Note: I read an article that stated telling someone, “Let me know what I can do.”, places the responsibility on the wrong person, i.e. the person in need of help.  Instead, like in my case, I called two days after my friend’s passing and showed up at his wife’s house with her permission.  I did not bring anything, did not really know what to say, but I made a point of being there.  I hope I helped.); (3) Validate their experiences (Prof Note: I try and acknowledge other’s perspectives as their own.  They may not be my perspective BUT they are theirs and deserve respect); (4) Be sensitive with what you talk about (Prof Note: I am working on listening to others more and talking less.  I am working on finding happiness in the successes and accomplishments of others much more than my own.); (5) Stay in touch and check in regularly (Prof Note: During my litigation case where my family was murdered my friend Bob R checked in weekly, if not more, with a, “Are you ok?”.  I always said, “Yes,” despite not being “ok” but often during that dark periods those random texts were a clear light in all the darkness); (6) Make sure they are getting enough sleep; (7) Give as continuous support as you can; (8) Learn about depression (Prof Note: This is a 2019 goal of mine.  Depression is real and I believe in existence in more people than we realize); (9) Encourage them to seek professional help; (10) Take care of yourself (Prof Note: I truly believe that the sun on one’s face brings happiness, regardless of anything else.  A walk, a bike ride, a slow jog, any movement is happiness.  Try and move about.)