Financial Times Blog

11 August 2018

 

Question: According to MSN:Money, what are 6 money mistakes that can lead to divorce?

 

China’s trade war with US poses threat to global oil demand, says energy body – Pg. 1

–        A growing US-China trade spat could hurt oil demand growth this year and next if the global economy takes a hit…

–        Saudia Arabia and Russia have been raising oil output in advance of November but that has spurred fears that global spare capacity is at very low levesl

–        The IEA said Saudi Arabia’s production was just below 10.4m b/d, a fall from June and in line with the lower numbers circulated by Saudi officials in the market

 

US core inflation records fastest rate of increase in a decade – Pg. 2

–        Core inflation, which strips out volatile energy and food prices and is closely followed by the Fed, rose at a year-on-year pace of 2.4% in July, up from 2.3% in June.  That is the fastest annual pace of core inflation since September 2008, and topped market forecasts for 2.3%

–        Growth in headline consumer prices held steady at 2.9% year on year in July from a year ago, …

–        The Fed has raised interest rates twice this year, and is expected next month to pull the trigger on the first of two additional rate rises forecast for the remainder of 2018

 

Equities – Pg. 5

–        …on August 22, the US stock market will officially have enjoyed its longest-ever bull run

–        US equities have returned more than 400% over the nine years since the financial crisis nadir in March 2009

–        The recent resilience of US stocks might come as something of a surprise.  After all, there are myriad reasons to worry: fears of a trade war; rising US interest rates; political uncertainty around US midterm elections in November; a slowdown in Europe; and questions about the growth prospects of the technology behemoths that have helped power the US equity rally

–        The S&P 500 has clawed back almost all of this spring’s losses and is once again close to a record high.  There are three major, interlinked factors that have helped assuage concerns and propelled US stocks higher again: strong-economic growth, dazzling corporate earnings and a wave of share buybacks

–        US GDP expanded 4.1% in the second quarter, the fastest rate of growth since 2014, and swingeing tax cuts have juiced up corporate profits

–        Almost four-fifths of S&P 500 companies beat earnings expectations in the second quarter – …

–        The Federal Reserve has raised US interest rates seven times since 2015, and another two increases are penciled in this year.  At the same time, the Fed’s balance sheet shrinkage is accelerating.

–        With 90% of companies having reported, US corporate earnings rose 24.6% year on year in the second quarter.  That is the second-biggest gain in nearly eight years after the 24.8% rise in the first quarter,…

–        Profit margins are clocking in at a record 11.8%, and top-line sales growth – which is not flattered by a lower corporate tax – has also been strong.  Revenues for S&P 500 companies rose 9.9% in the three months through June, the best showing since 2011.  Some72% of companies surpassed revenue forecasts, above the five-year average of 58%

–        …Robert Shiller…argues that corporate earnings have been goosed by the Trump administration’s “spending spree economy” rather than a fundamental improvement.  Meanwhile, investors are ignoring the elephant in the White House

 

Answer: (1) Keepings bank accounts separate; (2) Using separate credit cards; (3) Waiting too long to talk about money; (4) Not talking about money at all; (5) Arguing about money too often ; (6) Keeping financial secrets (Prof Note: Transparency in finances is critical.  Perhaps set a discretionary monthly allowance for each of you.  Over which $$$ must be discussed.  Do not consider it a permission issue but rather a committee approval requirement which we all face in our positions/jobs/corporations)

10 August 2018

 

Question: According to MSN:Money, the article How my husband’s layoff changed the way we spend money, references what methods?

 

ECB fears rise of protectionist measures hitting eurozone growth – Pg. 2

–        The ECB has warned that US tariffs are in danger of reaching their highest levels for half a century as its fears mount over the impact of President Donald Trump’s trade policy on Eurozone growth

–        The US introduced its first tariffs on imports from china on July 6.  Since then, the world’s two largest economies have unveiled tit-for-tat measures that cover $100bn in bilateral trade.

–        The central bank indicated it was especially worried that a US investigation into whether it should impose tariffs on imports of cars and car parts would lead to new barriers to trade

 

Argentine senators throw out bill to legalize abortion in strongly Catholic country – Pg. 4

–        Argentina’s Senate rejected a bill to legalize abortion yesterday, the biggest nation in largely Catholic Latin America to take on the issue

–        The bill, which narrowly passed the lower house in June, called for legalizing the termination of a pregnancy in the first 14 weeks.  Under current law, abortion is allowed only in cases of rape or if the woman’s health is in peril

–        In Latin America, elective abortions are allowed only in Cuba, Guyana, Mexico City and Uruguay, while they are banned in the Domincan Republic

–        (Prof Note: I await the stance of the US Supreme Court on abortion in the U.S. with the new pick.)

 

End of pension fund tax break looms over Treasuries market and long-dated buying – Pg. 17

–        US Treasury traders are bracing for the end of a tax break that they say has encouraged companies to funnel billions of dollars into their pension funds and helped keep a lid on long-term interest rates

–        Companies have raced to top up their pensions ahead of the expiry of the tax break on September 15 and their pension funds have in turn been significant buyers of long-dated Treasuries

–        Demand for long-term Treasuries has kept yields low, even as short-term rates have risen, leading to a flat yield curve and intense debate over what that signals for the economy

–        Under reforms introduced at the end of last year, the US cut the corporate tax rate from 35$ to 21% but companies have been allowed to deduct pension contributions at the old, higher rate for most of this year.  The grace period was designed to encourage companies to deal with pension fund deficits

–        The longest maturity Treasury bond lasting 30 years has seen its yield rise by less than shorter dated yields this year, flattening the yield curve and raising fears of a slowdown in the economy.  Short-dated yields have risen above longer dated yields before every US recession of the past 50 years

 

Answer: (1) You don’t need nearly as much as you think you do; (2) ‘Thrifty’ became our new slogan; (3) Coupons became our best friend

9 August 2018

 

Question: According to MSN:Money, what are 10 things to do if you’ve been a victim of identify theft?

 

China slaps duties on $16bn of US goods – Pg. 1

–        China to impose 25% duties on $16bn of US goods including oil products, steel and cars, …

–        The announcements mean that $100bn worth of bilateral trade will be subjected to duties, since the two sides imposed tariffs on $34bn of each other’s goods last month

–        The US says its own latest tariffs are part of its response to “China’s unfair trade practices related to the forced transfer of American technology and intellectual property”

–        The tit-for-tat has done little to curb Americans’ appetite for Chinese goods.  The dollar value of China’s exports to the US rose 12.2% in July compared with a year earlier, …

–        Beijing’s trade surplus with the US fell only slightly in July to $28.09bn from a record $28.97bn in June, largely due to a 27.3% jump in Chinese imports from the US

 

Ageing societies – Pg. 7

–        …The 100-Year Life first appeared in mid-2016, the book about longevity and societal change sold only modestly in the west

–        [Japan]…where 27% of the population is over 65, half is over 50 and deaths have exceeded births for more than a decade, ….

–        …Japan has embraced the idea of the 100-year life as an overarching policy directive

–        In 2017, consumption expenditure rose most strongly in the over-59 group

–        …by 2025, when the immediate postwar baby boomers turn 75, social security expenditures will surge under a scheme in which patients become responsible for a smaller ratio of their medical costs as they get older

–        Fifty years ago Japan had just 327 centenarians; in 2017 it had 67,824, and the largest per capita ratio of them in the world

–        (Prof Note: Outliving one’s wealth is a SERIOUS problem/consideration.   When I was talking with Bill Hudnut about his wealth planning, he was 25+ years older than his wife, and he wanted to provide for his wife it was difficult.  He lived a long life to 80+ but then needed his wealth to last another 25 – 40 years.  It was/is difficult!)

 

Answer: (1) Pick up the phone (Prof Note: Notify your bank(s)); (2) Inform the credit bureaus; (3) Find all inaccuracies; (4) Get the Federal Trade Commission involved; (5) Get back-up; (6) Close all accounts you did not create; (7) Repair your credit report; (8) Keep the watch dogs out longer; (9) Fix the breach; (10) Stay on top

8 August 2018

 

Question: According to MSN:Money, what are 10 reasons people aren’t buying houses?

 

Japan medical school admits favouring men – Pg. 3

–        A prestigious Japanese medical school has confessed to systematically rigging its entrance exams against women in a scandal that has highlighted the nation’s deep problem with gender discrimination

–        …more than a decade subtracted marks from female applicants in a deliberate effort to produce more male doctors, and falsified exams to help specific individuals

–        They show an ingrained culture of sexism in Japan, which is stuck at 114 out of 144 on the World Economic Forum’s rankings of gender inequality…

–        The manipulation at Tokyo Medical University came to light only after prosecutors began a corruption investigation against the school’s officials for allegedly admitting the son of a bureaucrat in return for government grants to the university

–        For the crucial essay section of this year’s entrance exam, the university first subtracted 20% from all marks.  Then it gave 20 bonus marks to men who had taken the exam three times or less.  So if a woman and a man had both scored 70 out of 100, the woman was given a score of 56 while the man was given a score of 76

–        The proportion of women admitted to Japanese medical schools rose steadily until 2003 when it peaked at 33.8% and has remained broadly stable

–        Whereas Japanese women have a higher pass rate on entrance exams for almost every other university subject, including physics and engineering, in medicine the pass rate is 6.85% for men and 5.91% for women

–        People connected to Tokyo Medical University told local media the reason the exams were rigged was that women were more likely to quit the profession when they had children

 

Financial Services – Pg. 7

–        Higher expectations are not the only problem the insurers are facing.  IN many parts of the world, their core markets are mature, competitive and barely growing at all.  And since the financial crisis they have had to grapple with low interest rates and new capital rules, both of which have dented their traditional business models

–        Technology has made it easier for insurance companies to monitor what their customers are doing

–        Reinsurance companies, which help traditional insurers to reduce their own risks, are also getting into the act.  Their business model has involved taking on risks in return for a premium, much as any insurer would

 

Answer: (1) Interest rates are on the rise (Prof Note: Every 1bp rise on a 30-year loan costs the borrower $1,000.  So, a 100bp increase cost the borrower $100,000 over 30 years); (2) Student credit scores are feeling the pressure (Prof Note: Average student debt is $37,000); (3) People are looking to avoid any additional risk (Prof Note: Houses need to get back to forced savings vehicles.  HELOCs need to be more regulated); (4) Millennials are opting for a new lifestyle (Prof Note: I talk to a LOT of millennials.  They are not “opting” they are being pushed.  Who does not want a house?!); (5) A 20% down payment is hard to come by (Prof Note: Do the hustle, i.e. the side hustle and save!); (6) Supply is low; (7) Houses aren’t being built; (8) Renting is more attractive (Prof Note: The millennials did teach me something in Baltimore.  It is not $/sf that is the important metric but rather $/bedroom.  Millennials will sleep in spaces smaller than my closets!); (9) Baby boomers aren’t selling; (10) People live in fear of another crisis (Prof Note: My prediction: 15 months!)