Financial Times Blog

15 June 2018

Question: According to MoneyTalksNews, what are 19 things you should make your kids pay for?

ECB moves to pull plug on 2.4tn (euro) stimulus scheme by end of year – Pg. 1

• The ECB has declared an end to its three-year 2.4tn (euro) stimulus programme, announcing it will wrap up the historic scheme credited with reviving a crisis-wracked Eurozone economy at the end of the year
• The decision to end the billions of euros in monthly bond purchases, ..was balanced by leaving interest rates at record lows and signaling they were unlikely to rise before September 2019 – later than some analysts had thought
• The dovish message on rates sent the euro falling sharply, off 1% against the dollar to $1.1672
• The ECB will gradually taper the stimulus programme through the rest of the year, cutting its monthly asset purchases in half to 15bn (euro) after September before phasing them out entirely
• The ECB’s move, taken at a meeting in Riga, brings it closer to the US Federal Reserve and the BoE, which have not only ended quantitative easing but also started raising rates

Powell keeps his hawkish side on a leash – Pg. 4

• ….new chairman vowed to speak in plain English and hold more regular press conferences as he fosters “a public conversation” about what the US central bank is up to
• …it was clear from the Fed chair’s post-meeting press conference on Wednesday that US rates would continue to be lifted gingerly, but that the Fed’s ultimate destination was uncertain
• Unemployment is now on tract to drop to only 3.5%, the lowest since the 1960s, even as inflation remains close to the central bank’s 2% target
• Growth this year is tipped to come in at 2.8%, above the Fed’s 2.1% median prediction a year ago
• The median forecast from Fed officials puts rates at 3.4% in 2020, well above their estimate for which neutral rate in the longer term, which remained at 2.9%

Fed tweak hints at limits to shrinking balance sheet – Pg. 19

• …officials raised an interest rate by just 20bps to 1.95%, rather than the customary 25bp increment
• The change, while technical, might signal that the US central bank will not be able to shrink its balance sheet as much as commonly expected
• The rate that was tweaked, known as the IOER, or “interest on excess reserves”, is the interest the Fed pays on money held at the central bank, and has until now acted as the upper level of its corridor, while the “overnight reverse repo programme”, or RRP, has been the defacto floor of the Fed funds range
• The Fed funds rate has been nudged higher by the central bank, slowly draining “excess reserves” from the financial system, which has started to have a bigger than expected impact on short-term money markets
• The Fed has historically controlled the Fed funds rate by controlling how much money sloshed around in the Fed Funds market. If it wanted to lift interest rates, the central bank sucked funds out by selling Treasuries it has in storage to commercial banks, and taking money out of their accounts at the Fed.  When it lowered interest rates, it pushed money into the market by buying Treasuries from the banks
• But the Fed’s crisis-fighting quantitative programme entailed buying massive amounts of bonds from banks and crediting their accounts at the Fed with new money – flooding the financial system with surplus Fed funds and forcing the central bank to start using IOER and RRP to control the Fed funds rate
• …the total assets held by the Fed has slowly dipped from about $4.5tn to $4.32tn as of this week

US tightening heaps pressure on Hong Kong mortgage rates – Pg. 19

• Short-term interest rates in Hong Kong are rising at a lively pace and reviving concerns among analysts that tightening financial conditions will challenge the highly valued local property market
• The relentless rise in borrowing costs has stoked concerns about pressure on borrowers as most mortgages in Hong Kong are tied to the floating rate Hibor

Answer: (1) Movies and TV; (2) Designer clothing and accessories; (3) Candy, gum, and other sweet treats; (4) College; (5) Toys and games; (6) Pets and pet supplies; (7) Gifts for friends and family; (8) Cosmetics and beauty supplies; (9) Any items freely available elsewhere; (10) Replacements for items they broke; (11) Donations to charity; (12) Snacks between meals; (13) School events; (14) Phone data plans; (15) Late fees and finance charges; (16) Unnecessary school supplies; (17) Their own rainy-day fund; (18) Yearbooks and spirit wear; (19) Cosmetic piercings and tattoos

14 June 2018

Question: What are 10 financial scams to look out for in retirement (according to US News)?

Hawkish Fed lifts rates as Trump tax cuts fuel economic expansion – Pg. 1

• The Federal Reserve lifted interest rates by a quarter point and signaled that two more increases were likely in 2018 as policymakers gave bullish assessment of the US economy amid accelerating growth and rapid job creation
• …raised the target range for the federal funds rate to 1.75% to 2%, in the seventh increase of the current cycle
• ….interest-rate forecasts….pointed to a total of four rate rises in 2018, followed by another three in 2019
• The US stock market dipped 0.2% on the news of the intention to raise rates another two times this year, on top of the two that came in March and yesterday
• The 10-year Treasury yield jumped 3pbs to 2.97%
• The republicans’ $1.5tn tax cutting package and $300bn federal spending increase have fueled a further pick-up in the US economy, overshadowing global hazards, including the risk of a Trump-induced trade war
• The rate rise was widely predicted by financial markets given the recent fall in unemployment to just 3.8% and signs that inflation is moving closer to the Fed’s target

Gig workers need better employment protection – Pg. 10

• …contractual arrangements can be employment contracts in the eye of the law even if they nominally set up a self-employment relationship
• Who is responsible for the unavoidable risks relating to varying business conditions, accidents and health when work is structured in a flexible way? This is an increasingly pressing question as self-employment grows in importance
• Since 2001, the share of self-employment in total work has grown from about 12 to more than 15%
• The function of these three components of policy – clarifying, modernizing, and enforcing the law – is not just to strike the right balance between protecting the vulnerable and facilitating flexible work
• The rising use of flexible work contracts – and the technology facilitating them – has not only put pressure on labour standards. It also undermines the government’s ability to collect the taxes normally imposed on both sides of more conventional contracts

Foreign lenders urge Fed to relax rules – Pg. 16

• Foreign banks in the US are stepping up a flight for regulatory relief, complaining they have been unfairly hit by super-charged standards on capital developed under the Obama administration
• At issue is the topic of “ringfencing”, or the requirement that non-US banks operating in America set up standalone subsidiaries with dedicated capital and liquidity inside them
• The idea is that such structures would make a troubled bank easier to wind down without burdening taxpayers, while stopping contagion spilling into the rest of the financial system
• The Basel-based Financial Stability Board has recommended banks have total loss-absorbing capital (TLAC) in their overseas holding companies of at least 75% of what is required in their home country

Answer: (1) Medical scams; (2) IRS phone calls; (3) The grandparent scheme; (4) Fake prescription drugs; (5) Rogue movers; (6) Lottery scams; (7) Investment schemes; (8) Deceptive family members; (9) Spontaneous repair offers; (10) Misuse of your funds

13 June 2018

Question: According to MSN:Money, what is the average rate for a credit card interest?

US Fed Low-rates guidance shuffles towards retirement – Pg. 2

–          Accelerating growth and blockbuster hiring numbers will keep the US Federal Reserve on a steady path towards tighter monetary policy this week despite global risks including the threat of a Donald Trump-induced trade war and emerging market strains

–          The target range for the federal funds rate is likely to be lifted by another quarter point, bringing rates to 1.75-2.00%, in the seventh rise of the current cycle

–          One or two further increases will be signaled for the remainder of the year, with more to come in 2019

–          …could start phasing out the low-rates guidance the central bank deployed during the crisis

–          Unemployment has fallen to 3.8%, far below the Fed’s 4.5% estimate of its sustainable level.  Core inflation is getting nearer to target after repeated disappointments last year

–          Adding zest to the rebound is a fiscal stimulus package that twins $1.5tn of tax cuts with a $300bn rise in federal spending, boosting the growth rate of real GDP by about 0.75% this year and next

–          The most recent set of forecasts from the Fed put the federal funds rate at 3.4% in 2020, above the estimated long-run level of 2.9%

–          The central bank has also been signaling it will be comfortable if inflation overshoots its inflation target for a while

–          Trade is among the threats on the Fed’s radar, given the danger of further tit-for-tat escalation…

–          Emerging market vulnerabilities are another, given the possibility of capital flight driven by tightening monetary policy in the US and euro area

Fund managers worry about corporate debt and rekindle interest in US stocks – Pg. 19

–          Fund managers are growing increasingly nervous about the amount of corporate debt, and want companies to improve their balance sheets

–          The IMF has repeatedly raised concerns that the climate of easy monetary policy has led to an excessive allocation of credit to companies.  S&P global warned that the proportion of highly leveraged corporates had risen from 32% in 2007 to 37% ten years later, a risk that was marked by the low rate of defaults

–          Nearly two-thirds of respondents say the US is the best region for offering a return on profit

–          If the US is in vogue, alongside defensive stocks, out of favour are banks, emerging markets and Eurozone stocks

–          Commodity allocations are at there highest in eight years, and tech stocks are still strongly favoured for the fifth month in succession

–          Fund managers were confident in the Fed’s rate policy but thought a fall in US inflation would be the most likely reason for the central bank to stop tightening.  They also believed the S&P 500 would peak at 3040 – a 9% premium to current levels – and did not expect a recession until the first half of 2020

–          They considered the biggest risks to be a trade war, a central bank policy mistake, and a euro or emerging market debt crisis

 

Answer: 17%

12 June 2018

Question: 20 Expert-backed ways to improve your mental health everyday?

Stark warning from Citi over automation of bank jobs – Pg. 1

• Citigroup’s investment bank head has suggested that it will shed up to half its 20,000 technology and operations staff in the next five years, as machines supplant humans at a growing pace
• If replicated across the industry, the potential job losses would represent a steeper rate of cuts than in 2007-17, when almost 60,000 jobs were slashed from eight of the world’s top-10 investment banks…

Financials – Pg. 9

• At JPMorgan, the world’s biggest investment bank by revenue every year since 2010, investment bank head Daniel Pinto sees global growth driving revenue higher in the coming years, while big banks like his deploy technology to cut costs and win clients
• Investment banks have spent much of the decade under a shadow since the meltdown of the US mortgage market. They have watched private equity firms and hedge funds take their place at the top of the finance food chain
• Investment banks have also regained their cachet among ambitious graduates
• …investment banks have to navigate a very different environment. Regulations have in effect banned them from once-lucrative activities such as trading stocks on their own behalf and co-investing in funds with clients
• Europe’s investment banks have fallen out of the world’s top five since 2015 after a series of strategic exits from Asia, the US and continental Europe

Answer: (1) Plan your day more efficiently; (2) Use the buddy system; (3) Call a time-out; (4) Know how to say “no”; (5) Develop a healthy arrogance; (6) Prioritize you; (7) Delegate ruthlessly; (8) Respect the unexpected; (9) Generate a solution that you can implement immediately; (10) Be comfortable with discomfort; (11) The bend over backwards; (12) Focus on somebody other than yourself; (13) Turn trouble into transformation; (14) Pick the low hanging fruit; (15) Relieve the past to face the future; (16) Use a spotter; (17) Create a three-legged life (home, work, self); (18) Recognize the power of your imagination; (19) Stop comparing yourself; (20) Call someone (National Suicide Prevention Lifeline, (800) 273-8255)