Financial Times Blog

10 August 2019

 

Question: According to MSN: Money, what social security mistake are 96% of Americans making?

 

British economy shrinks for first time in 7 years as Brexit stockpiling is unwound – Pg. 1

• Output fell 0.2%, worse than flat performance expected by economists and down from a 0.5% expansion in the first quarter, …
• Britain’s economy has not contracted since the final three months of 2012
• …the UK economy underperformed the Eurozone, the US and Japan in the second quarter, where output continued to expand at rates varying from 0.2% to 0.5%
• The rush to stockpile products in the run-up to the original Brexit deadline of March 29 boosted the economy, but when an extension was granted companies ran down their hoards. The economy is expected to expand again during the third quarter as companies once again rush to stockpile
• Household spending remained solid, with an expansion of 0.5%

 

China factory gate prices drop amid trade tensions with US – Pg. 2

• Weaker demand in China contributed to a fall in producer prices for the first time in three years, reviving fears of deflation as manufacturers come under the strain of an intensifying trade war with the US
• So-called factory gate prices, which represent a range of manufactured products, raw materials and mining output, fell 0.3% in July…the first drop since August 2016
• The decline in the produce price index (PPI) and economists’ expectations that those deflationary pressures will continue have revived concerns for manufacturers in the country who are already struggling amid US-China trade tensions

 

Turkey posts first surplus since 2002 – Pg. 4

• Turkey’s economy produced its first annual current account surplus for 17 years, as the fall in imports following a severe currency crisis eliminated a deficit that has long troubled investors
• The turnaround has been largely due to the drop in imports that has accompanied a slowdown in economic growth following last year’s currency crisis. The lira plunged almost a third against the US dollar in 2018…
• Turkey ran a current account deficit over its decade-long expansion, importing far more products than it sold overseas, and financing that gap was a vulnerability in the $750bn economy
• The fact that the elimination of the 12-month current account deficit was due to a fall in imports rather than a rise in exports is likely to trouble investors. Imports in the first half of the year sank almost 19%, while exports rose just under 4%

 

Uber in grocery delivery push as quarterly loss hits $5.2bn – Pg. 8

• …plans to deliver goods from supermarket supplies and convenience-store snacks to cinema popcorn and ice cream could increase operating costs further, as it squares up to rivals such as Amazon, DoorDash and Deliveroo
• Uber is looking to use its network of 4m drivers to fill the gap between ordering from Amazon-style warehouses and more traditional grocery delivery services such as Ocado
• Any Uber grocery delivery service will find itself competing with Amazon and its Whole Foods supermarket chain, as well as an array of local companies

 

US retailers ‘at war’ with suppliers over price increase – Pg. 8

• US business has been dealing with three earlier waves of China tariffs, yet the planned fourth round – 10% duties on $300bn of annual imports, starting next month – poses a bigger challenge to retail because it targets a broader range of consumer products
• The rise of internet shopping, however, has undermined retailers’ pricing power. Consumers can easily compare products online
• Household product inflation has accelerated over the past year: prices for non-edible consumer goods rose 4% in the year to the end of June, …
• …warned that US consumers would pay $4.4bn more each year for clothing, $2.5bn more for footwear and $3.7bn more for toys if the administration enacted 25% tariffs on the $300bn of goods, as it had threatened

 

Answer: Start collecting social security early

9 August 2019

 

Question: According to MSN: Money, what are twenty five (25) reasons retiring is harder than it used to be?

 

Rule of Tree: Land use the key to climate – Pg. 1

• Improved land use, including planting trees and reducing deforestation, …will be an integral part of limiting global warming to well below 2C…
• Giving up meant and reducing food waste will also be key to global efforts to combat climate change

 

Philippines chops rates again as growth hits four-year low – Pg. 4

• The Philippines’ central bank has cut rates for the second time this year, joining a wave of monetary easing across Asia in a bid to boost its flagging economy after growth slowed ot its lowest rate for more than four years
• …trimmed its benchmark rate by 25bps to 4.25%, …
• …growth in the south-east Asian country slowed unexpectedly to 5.5% year-on-year in the three months to June, the lowest reading since 2015 and down from 5.6% in the previous quarter
• The central bank’s move comes after fresh evidence of a slowdown in price growth. Headline inflation fell to a two-year low of 2.4% in July ….down from 2.7% in the previous month

 

WeWork founder eyes IPO tax gain – Pg. 11

• WeWork has turned to a complex corporate structure for its IPO that would give tax benefits to co-founder Adam Neumann and early investors in the office space provider…
• The arrangement, known as an umbrella partnership corporation (Up-C), has grwoin in popularity this decade

 

US yield curve sends most serious warning of recession since 2007 – 17

• The yield on the three-month US Treasury traded as much as 41.23 bps above that on the benchmark 10-year government bond on Wednesday – the widest gap since March 2007
• Such an inversion of the yield curve – in which short-term yields are higher than longer term ones – has preceded every recession of the past half century

 

Answer: (1) We are living longer; (2) Education costs more; (3) Student debt has exploded; (4) Employer benefits have withered; (5) People do not know how to invest; (6) Social Security does not buy as much; (7) The Gig economy has hurt retirement savings; (8) Bond yields are low; (9) Divorce after 50 has increased; (10) Parents support their adult children; (11) Recurring expenses have increased; (12) Home ownership has been delayed; (13) Homes cost more; (14) The Big House trend caught on; (15) Health care is a bigger expense; (16) Long-term-care costs are increasing; (17) Lifestyle factors are expensive; (18) Salaries have not kept up with the cost of living; (19) Overall cost of living is higher; (20) People start contributing to retirement funds later in life; (21) People use outdated investment strategies; (22) Credit card debt has skyrocketed; (23) People make more job changes than in the past; (24) Many older Americans were not conditioned to save for retirement; (25) People are unsure how much they will need for retirement

8 August 2019

 

Question: According to MSN: Money, my divorce cost me over $17,000: These were the biggest surprises.  What were “these”?

 

Aggressive rate cuts and dismal data accelerate dash into bonds – Pg. 1

• Invetors piled further into the safety of government bonds yesterday as fears deepened over the state of the global economy after a trio of central banks cut interest rates and data in Germany raised concern that it was heading for recession
• US Treasuries, which have benefited from their “haven” appeal, extended their rally, with the yield on the 10-year note falling up to 11bps to 1.593% – the lowest level in nearly three years. Bond yields fall when prices rise
• Gold, deemed another safe asset by investors, topped $1,500 for the first time in six years after rising 2%
• The market moves came as central banks in India, New Zealand and Thailand signaled worries over a slowing global economy by cutting interest rates by more than expected
• US Treasury yields have fallen about 40bp this month as trade tensions between Washington and Beijing have escalated
• The market value of outstanding negative yielding bonds is now at a record $15tn,…

 

Indian central bank battles global slowdown with rate cut – Pg. 3

• The Reserve Bank of India has cut interest rates for the fourth time this year, joining other central banks across the region in easing policy to battle an intensifying global slowdown
• India broke with international convention by cutting interest rates by 35bps instead of the usual increment of 25bp, bringing its benchmark repo rate to 5.4%, the lowest in almost a decade
• In India, the effects of a slowdown are already being felt in everything from the stock market, which suffered its worst July in 17 years, to a drop in car and motorcycle sales
• The country’s claim to be the world’s fastest growing large economy was recently undermined after GDP growth fell to 5.8% in the first quarter of 2019,…
• …widening global trade dispute will threaten India’s ability to grow at the 8% a year that the government targets
• China’s decision to allow its currently to slide below Rmb7 to the dollar in response to new tariffs threatens India’s competitiveness as an exporter,…
• In response India raised tariffs on a range of US goods, and last month introduced a budget that included stimulus measures as well as further tariffs. Separately, the central bank yesterday announced stimulus measures designed to boost lending to consumers and troubled shadow banks

 

Big Four purge risky audit clients – Pg. 11

• The UK’s largest accountancy firms are stet to purge risky or unprofitable audit clients after a string of corporate collapses and scandals sparked increased regulatory scrutiny of the sector
• Big Four firms EY, KPMG, Deloitte and PwC, and mid-tier accountants Grant Thornton and BDO, …
• Auditors have warned that companies in volatile sectors, such as retail or outsourcing, and businesses that have faced criticism over their financial controls and governance were the most likely to be dropped

 

Answer: (1) Moving out ($3,000); (2) Refinancing car loan ($6,480); (3) Individual car insurance; (4) Separating phone plan ($350); (5) Title loan payoff (Prof Note: Article mentions the husband took out a title loan and wife had to pay it off); (6) State filing fees for divorce; (7) Therapy ($1,200)

7 August 2019

 

Question: According to MSN: Money, what are the most expensive places to live in Maryland and Virginia?

 

Green eyed: US faces dollar conundrum – Pg. 1

• After the Federal Reserve cut its interest rate for the first time since the financial crsisis last week, the dollar soared

 

US Treasury has limited tools to weaken the dollar – Pg. 3

• On Monday, Mr Mnuchin was allowed to speak freely, declaring that China manipulates its currency to create an unfair competitive advantage, with the implication that the greenback is over-valued against the renminbi. The US Treasury is no longer bound by the verbal rules of the strong-dollar policy
• Declaring China a currency manipulator came after Beijing’s decision to allow the renminbi to depreciate to below seven to the dollar
• The broad real trade-weighted dollar – an index created by the Fed to track the dollar’s value against a wide range of trading partners, including China – moved higher in late 2014 and early 2015, as the ECB and the BoJ eased policy while the Federal Reserve went in the opposite direction and signaled that it was ready to tighten. After peaking in December 2016, it has remained elevated

 

Asia turmoil hits hotel bookings – Pg. 11

• InterContinental Hotels Group, the world’s third-largest hotel group by room numbers, has said the US-China trade dispute and political unrest in Hong Kong are hitting demand
• The owner of Holiday Inn and Kimpton Hotels said that revenue per available room – revpar, the industry’s favoured performance metric – fell 0.3% in the six months to the end of June in Greater China and was down 1% in the mainland
• Revpar across the US hotel sector increased 1.1% in the second quarter, its slowest rate since 2010

 

US credit card interest rates hit 25-year high – Pg. 12

• US consumers are paying higher interest rates on their credit cards balances than they have in more than a quarter of a century, and the Federal Reserve’s rate cuts are no guarantee they will receive much relief
• The average rate on interest-bearing card accounts topped 17% in May, …, the highest in the 25 years that the central bank has been making the calculation
• Card rates rose from long-term lows as the Fed gradually increased its benchmark interst rate between late 2015 and the end of last year. But card issuers pushed up rates faster than the Fed, with the result that the spread between the Fed benchmark and what card borrowers pay, at just under 15%, has been wider only once: in the third quarter of 2009, with rates on the floor
• The CARD Act of 2009, a US law designed to protect cardholders from exploitation, puts limits on banks’ ability to raise interest rates on existing balances. The card issuers “can’t reprice you once they sell you a card – so they have to price [more risks] in”, …
• …customers were not focused on what rates they would pay but instead on what perk, from cashback to airline miles, their cards brought
• Since the crisis, card rates are often set by adding a premium to a fluctuating index – most often the prime rate, the lowest rate banks make available to non-bank customers. The prime rate in turn is directly related to the fed funds rate that is set by the Federal Reserve
• Card companies have also found other ways to increase what card customers pay, for example by using annual fees, foreign transaction fees, and fees on balance transfers,…
• For banks, the wide spread between the cost of money and what they can charge borrowers has made the card business especially profitable relative to other kinds of lending, especially given that default rates remain very low by historical standards
• There is about $850bn in US credit card debt outstanding….that is a record dollar amount, although as a proportion of GDP, the figure declined from 6 to 4% over the past decade

 

US cord-cutting increases sharply – Pg. 13

• A fifth of US households will have abandoned cable television by the end of next year, ..
• More and more Americans are rejecting cable’s hefty monthly costs and commercial breaks as they decide on-demand streaming services such as Netflix, YouTube and Amazon Prime can satisfy their viewing desires

 

Answer: Maryland (Calvert County; Cost of living/mo: $4,665); Virginia(Fairfax County; Cost of living/mo: $4,754)