Financial Times Blog

16 August 2018

 

Question: With 12 of the 13 tax liens redeemed for the investment within a partnership made in 2017 for Baltimore City Tax Liens, what is the currently Portfolio Return?

 

Spooked investors push emerging market stocks into bear territory – Pg. 1

–          Emerging markets fell by the most in six months yesterday, tumbling into a bear market as investors were spooked by a commodity price rout, currency turmoil and disappointing results from one of China’s technology giants

–          Emerging markets have faced mounting pressure over recent months, led by concerns over escalating trade disputes between Washington and Beijing.  Rising US interest rates and the dollar’s renaissance have also dented emerging markets, fueling crises in more vulnerable countries dependent on capital inflows, such as Argentina and Turkey

 

New Zealand property ban slams the door to wealthy foreign ‘survivalists’ – Pg. 1

–          New Zealand has banned foreigners from buying existing residential property in a blow to the global super-rich, who have snapped up scores of luxury estates in recent years to use as holiday homes and provide a “bolt-hole” in case of global catastrophe

–          Last year the New Yorker pinpointed New Zealand as a favoured destination for rich “survivalists” preparing for apocalypse

–          The law follows a 60% surge in house prices during the past decade that has driven local home ownership levels down to their lowest in almost 70 years. Immigration, a shortage of affordable homes and high rents have placed housing at the top of the political agenda

 

Convertible debt outperforms amid rally for US tech stocks and rising interest rates – Pg. 17

–          US corporate bonds that convert to stock at a given price have generated a return of 6% this year…

–          In contrast, investment grade rated corporate debt has lost 5.8% and high-yield bonds have dropped 2.4% in 2018

–          Higher interest rates also encourage issuance because convertibles can typically offer lower coupons than other bonds.  This has become increasingly advantageous given Changes to the US tax code, which limit the amount of interest payments companies can deduct from their adjusted income

 

Answer: 9.44% (Prof Note: I am learning about tax lien investing.  It is not as straight-forward as I once thought and the partnership, in which I invest, almost ended up owning a “Jerk Chicken” restaurant.  It is fascinating as there is not YtC but rather YtR, i.e. Yield-to-Redemption.  So far I would classify this as a high return given the risk, however, one must have the appetite for “Jerk Chicken” ownership!)

15 August 2018

 

Question: According to MSN:Money, what are three (3) times you should not use your credit card?

 

German shoppers spur Eurozone growth but trade war fears linger – Pg. 1

–          A jump in spending in Germany boosted Eurozone growth in higher levels than initially indicated in the second quarter, easing concerns over an export-led slowdown

–          Estimated growth in GDP in the second quarter was 0.4%, in line with the previous three months…

–          …eurzone growth remains much lower than last year – when the economy expanded 0.7% in each quarter – with the trade war denting business-confidence and foreign sales

–          Record-low unemployment and better pay rises are expected to keep German shoppers spending

–          The eurozone’s fifth-biggest economy, the Netherlands, saw GDP growth expand 0.7% because of better figures for trade and investment.  Consumer spending was also strong

 

Bridge collapse leaves dozens dead in Genoa – Pg. 2

–          The 80-metre section of the viaduct that collapsed stood about 45 metres above the Polcevera river, railway tracks and an industrial and retail estate, which includes an Ikea store and other outlets, which would normally have been packed with shoppers on a rainy day

–          (Prof Note The most coveted professional designation to me personally, the Professional Engineer designation (PE), I never pursued due to advice from my father, a PE.  He said, “Do not get the PE designation as you could be pressed to stamping drawings you do not understand at an early stage in your career.”  He was right.  Also, there are criminal implications for bad workmanship by engineers and architects.  Are both professions compensated enough for the risk accepted?  Compare both professions to finance careers, and re-ask the question.  Something to consider…)

 

Student loan woes ease amid US jobs growth – Pg. 3

–          Student loans are going soar at the slowest rate since before the financial crisis as America’s steadily strengthening economy offers more job opportunities to graduates, …

–          About 8.8% of up-to-date student loan balances went overdue by 30 days or more in the second quarter, the lowest share since early 2006, …

–          Student debt remains a big US policy concern as individuals struggle to keep up with their commitments, and the legacy of indebtedness impairs their ability to buy a home or start a business.  Student loans surpassed credit cards in 2012 as having the worst delinquency rates in consumer credit

–          …$1.41tn at the end of June, well over twice the level 10 years ago

–          …mortgage debt stood at just under $9tn

–          A flashpoint in the student loan debate is the high prevalence of repayment problems at corporate-owned, for-profit colleges – run as businesses to make money for owners and shareholders – which have aggressively courted lower-income students

–          (Prof Note: There needs to be more understanding on the front-end by students of what debt means.  I literally wrote the book on real estate financial modelling (I say this proudly), but my point is, I am still learning about debt and my thoughts are maturing on the subject.  How can an 18 year old, with no perspective, possibly grasp the HUGE financial implications of a large debt load and/or the complex debt structures provided?!)

 

Planning rules are driving the housing crisis – Pg. 9

–          …the cause of those high costs has become more widely understood: restrictive planning and zoning rules lead to a chronic lack of supply in the places where people want to live

–          In Britain, where house prices have soared to nearly eight times average earnings, …economics argue that there is no shortage even in London

–          The number of dwellings is not supply: it ignores location, quality, size, age, tenure, transportation links, amenities and everything else that matters to a house

–          …number of households is not demand

–          Imagine a house that had become very expensive.  Now you either have to find a rich buyer or get planning permission to convert it to flats.  Both take time, so the house sits empty

 

Majority of fund managers say profit outlook in US is brightest of all regions – Pg. 17

–          Investors’ growing preference for the US at the expense of the rest of the world has spurred them to take the biggest overweight positions in US equities since the start of 2015, with record high sentiment about the outlook for US profits, …

–          The most crowded trade, for the seventh straight month, was in the Fanng (Facebook, Amazon, Apple, Netflix and Alphabet) and Bat (Baidu, Alibaba and Tencent) stocks.  Shorting US Treasuries was the third most crowded trade, offering further evidence of the widespread anticipation in the markets of a positive US growth narrative

–          In addition to shorting bonds, investors are moving into bank stocks, and believe the US Federal Reserve’s monetary policy tightening will continue

–          …investors are holding 5% of their portfolios in cash, p from 4.7% in July – above the 10-year average of 4.5%

 

Answer: (1) If there is a fee; (2) If you are approaching your credit limit; (3) If you cannot afford your purchase

14 August 2018

 

Question: According to MSN:Money, what are four (4) mistakes millennials are making?

 

Turkey central bank fails to prop up lira – Pg. 2

–          The Turkish lira fell further yesterday despite cental bank moves to shore up the system…

–          The currency slid 11% to a record low of TL7.2362 against the US dollar in Asia trading, before rallying to take about 8% down

–          The lira has been rocked by a dispute between Ankara and Washington which has added to concerns about Turkey’s high inflation and hits hefty current account deficit, as well as corporates’ foreign currency debt and the direction of economic policy under Mr Erdogan

–          The currency has lost 24% of its value against the dollar since August 6, and 46% so far this year

 

US scrambles to curb spread of 3D-printed guns after blueprint posted online – Pg. 4

–          US lawmakers are grappling with how to regulate 3D-printed guns and other home-made firearms, as cheap technology opens a new front in the country’s war over gun control

–          A California law to force the registration of home-made firearms went into force this summer…

–          Defense Distributed has turned its focus on the market for “ghost guns”, the term for an operational and unregistered firearm made from assembled parts.  It created a spin-off, Ghost Gunner, selling computer-automated machine tools that allow its owner to turn $700 worth of lawfully-bought, untraceable parts into an AR-15 assault rifle

–          The business aims to exploit US laws that consider only a completed “lower receiver” to be a firearm while parts such as barrels, stocks and magazines are unregulated accessories.  Hobbyists can buy complete AR-15 kits and 10-packs of unfinished receivers from websites and apply the finishing touches

–          (Prof Note: I just wonder if the only way to address is through education?  Legalize, regulate and educate!)

 

Answer: (1) Not preparing for the unexpected; (2) Avoiding credit; (3) Not saving enough for retirement; (4) Spending frivolously (Prof Note: I see so many iced coffee drinks and Starbucks in the classroom.  GWU’s IT department now knows me well as I discovered free coffee in their offices which is on the same floor at my classroom, i.e. I do not to use departmental coffee on the other side of the building three floors up)

13 August 2018

 

List-Serve Comment (Divorce) – Regarding financial settlement when separating from spouse or partner: In addition to all of the above, I would recommend that a couple talk openly before they move in together.  It is a difficult conversation, but perhaps a good one to test the relationship up front.  List each other’s assets and liabilities and agree on how they would be dealt with “in case our relationship does not work out.”  This is especially important if there is a significant difference between the individuals’ career moves away from the current town, spending priorities (house, cars, clothes, vacations, fishing gear, …), assets, liabilities and current + future earnings streams.  I can imagine how hard it is to engage in such a conversation – we did not discuss it in our 20s, but we got lucky because we are still married after four decades, having overcome some big spending and savings decision differences.

I am speaking from having observed other people’s misery.

 

But, since most millennials who are getting married/live together are mostly in their 30s and 40s now, they bring much more into the union: assets, liabilities, children, established careers, better defined aspirations, …  In cases of very different financial profiles, a detailed prenuptial agreement should help.  Again, if someone asked me to do that all those years ago, I would have balked because when you are in love, you hate to spoil your feelings by parsing out potential separation of assets and liabilities.  Looking back, it helped that our aspirations and assets/liabilities/future incomes balanced out (I did not say they were equal – they balanced out).

 

I would like to add that, both my husband and I are saddened by the current trend in the western world where young people live together but are not getting married.  A trial living together arrangement is OK short term for some people to see if you are compatible.  From the limited sample of my relatives’ and friends’ children in their 30s and 40s, I can say that it is mostly the men who do not want to be married, even when they have children.  The women in those situations generally feel that, while they would prefer to be married, the current situation is the best they can get.  That means that these women feel somewhat insecure, and that has a negative impact on their children.

 

Question: According to MSN:Money, what are five habits that will prevent you from getting rich?

 

Moscow plans to cut down on US assets – Pg. 2

–        Russia is trying to reduce its dependence on the dollar by cutting US securities holdings and settling more trade payments in other currencies

–        …Russia’s holdings fell from $96bn to just under $15bn…

 

US profit margins look close to peak – Pg. 13

–        Profit margins at US companies have risen to their highest level in at least a decade, raising questions over whether the most recent quarterly results are at a peak

–        Companies have been shaving costs for years, while more recently they have enjoyed the benefits of the corporate tax cut agreed in December.  Revenues in the second quarter also grew by nearly 10% year on year, the biggest rise since 2011

–        The US dollar was up 4.6% in the year to date against a basket of other currencies

–        Oil prices were up 8.9% in the same period

 

Record caseload for UK financial regulator – Pg. 14

–        The caseload includes 86 suspected financial crime and another 75 of suspected insider dealing, which the FCA has the power to criminally prosecute

–        Under new accountability rules called the Senior Managers and Certification Regime, the FCA frequently opens a parallel case into top brass with particular responsibility for an issue under investigation.  The increase in cases is also due to an explicitly push to open more investigations and sooner

 

Answer: (1) Not following a budget (Prof Note: Make a plan and stick to it!  Identify costs in two categories, i.e. Fixed and variable.  Adjust variable in real time to hit plan); (2) Living paycheck to paycheck (Prof Note: It is tough but consider lower one’s standard of living.  Perhaps not living on Foxhall but rather Main Street.  I have personally reviewed a lot of personal balance sheets for Foxhall residences and they are more levered than one may think!); (3) Giving to impulse buys (Prof Note: A large coke at McDonalds is $1.06.  The coke at the register at most stores is smaller and $1.75.  Be aware.); (4) Borrowing too much (Prof Note: Be care how you borrow and for what reasons.  Is there a revenue off set?  Every loan I have is paid by a third-party, i.e. there is a revenue off set.  Be careful how you borrow, the amounts, and structure.); (5) Choosing only safe investments (Prof Note: This really depends upon where you are age wise and risk tolerances.  If you are going to me in ultra safe investments, then consider more side hustles.)