Tag: Prof Note

20 March 2019

 

Question: According to MSN: Lifestyle (Brides), what are five (5) signs your marriage is headed towards divorce?

 

Why further financial crises are inevitable – Pg. 9

–          We learnt this month that the US Federal Reserve had decided not to raise the countercyclical capital buffer required of banks above its current level of zero, even though the US economy is at a cyclical peak

–          It also removed “qualitative” grades from its stress tests for American banks, though not for foreign ones

–          ….the Financial Stability Oversight Council…removed the last insurer form its list of “too big to fail” institutions

–          …show that financial regulation is procyclical: it is loosened when it should be tightened and tightened when it should be loosened

–          …with average ratios of assets [banks] to core capital of about 17 to one, their loss-bearing capacity remains limited

–          We can see four reasons why this [procyclicality] tends to happen: economic, ideological, political and merely human

–          There is a tendency for risk to migrate out of the best regulated parts of the system to less well regulated parts

–          The big economic reason is that over time the financial system evolves

–          It is hard for regulators to catch up with the evolution of what we now call “shadow banking”

–          The ideological reason is the tendency to view this complex system through a simplistic lens

–          Politics are also important.  One reason is that the financial system has control of vast resources and can exert huge influence

–          Borderline or even blatant corruption also emerges: politicians may ben demand a share in the wealth created in booms

–          Then there is the human tendency to dismiss long-ago events as irrelevant… (Prof Note: One point of ire that I have is the time I spent in high school learning about European Wars.  I would have been better off learning about global financial crises.)

 

China lenders in a $260bn hold after responding to stimulus – Pg. 15

–          Listed Chinese banks will need to raise about $260bn in fresh capital over the next three years as regulations force shadow-bank loans back on balance sheets and global rules on systemically important groups impose extra requirements on the largest lenders

–          China’s regulator has forcefully implemented Basel III rules on capital adequacy as it seeks to fortify lenders against risks from a decade of debt growth, which is leading to record defaults

–          Bank of China, the country’s fourth-largest lender, in January became the first Chinese bank to issue a perpetual bond, which qualifies as additional tier one capital under the Basel rules

–          …additional tier one and tier two capital represent less than a tenth of China banks’ capital needs

–          Beyond Basel III, the largest China lenders face additional requirements for “total loss-absorbing capacity”.  This requirement applies to lenders that the Financial Stability Board, an arm of the G20, has designated as globally systemically important banks

–          For emerging markets, including China, such banks will have to meet total loss-absorbing capacity requirements beginning in 2025, with a higher requirement taking effect in 2028

–          Chinese regulators led by the People’s Bank of China said last year that they would take inspiration from the global framework and designate some lenders as domestically systemically important banks.  The banking regulator has set the minimum capital adequacy ratio for domestically systemically important banks at 11.5% of risk-weighted assets, compared to the normal 10.5%

 

Answer: (1) There is a sense of contempt; (2) You are fighting about money; (3) You are fighting about chores; (4) You have stopped communicating; (5) You are unhappy

19 March 2019

 

Question: According to MSN: Money, what are seven (7) reasons not to pay off your mortgage before retiring?

 

Business is brisk for Ivy League gatekeepers – Pg. 4

–          Interlaced with the promise of Yale, the company also offers what may be unnerving advice for anxious parents: they should start early – ideally signing their children up by the time they are in the eighth grade – and be prepared to spend upwards of $100,000

–          …US university places had remained stagnant even as applications surged in recent years, including many abroad

–          Services range from test preparation and helping students select suitable schools to coaching them on application essays and, in some cases, building an application over years

–          ….the mere existence of admissions consultants raises questions over a US higher education system that presents itself as striving for fairness but looks to many critics like a game rigged for the wealthy

 

China shadow banking sector cools – Pg. 15

–          As China’s $9.1tn shadow lending industry cools for the first time in a decade, private corporate defaults are on the rise

–          Shadow banking, an industry of loosely regulated, high-yield lending outside the formal banking sector, has attracted the wrath of the country’s watchdogs

–          …equal to 23.5% of China’s total banking industry assets and 68% of its GDP, …

 

Saudi exchange takes first step into global equity benchmarks – Pg.

–           Saudi Arabia’s $636bn stock market took its first step into the world’s main equity benchmarks yesterday when it was admitted into indices run by FTSE Russell and S&P Dow Jones

–          Saudi Arabia’s stock market, known as the Tadawul, is projected to be the eighth-largest bourse in the MSCI EM index by September – when it is fully included – with a weight of 2.7%,…that is greater than Mexico, Indonesia and Poland

–          Investors outside the Gulf owned just 5.1% of the market as of last week,…

–          Tighter US monetary policy, transmitted to Saudi Arabia via the currency peg it has with the dollar, has helped improve margins for the large financial sector, …

 

Answer: (1) You plan to sell your home; (2) You plan to rent out your home – or a room; (3) It’s ore important to repay debts with higher interest rates; (4) You are still saving for retirement; (5) You are low on cash reserves; (6) You would rather maximize your income through investments; (7) You want to deduct your mortgage interest (Prof Note: In general I am not in agreement.  That said, each case is individual.  There is a mental health issue with paying off one’s mortgage.  In my opinion, better to have that occur as early in life as possible.)

18 March 2019

 

Question: Between Dunkin’ Donuts, McDonald’s, Starbucks and 7-Eleven, which is the best value on a mg of caffeine/$ basis? (Credit to Elliot Eisenberg, Ph.D., www.econ70.com, for this question)

 

Deutsche and Commerzbank begin talks to create banking powerhouse – Pg. 1

–          Deutsche Bank and Commerzbank have formally opened talks on a merger that would reshape Germany’s financial sector and create the eurozone’s second-largest lender in terms of assets

–          ….create the eurozone’s second-biggest lender after BNP Paribas, with 1.9tn (euro) in assets and more than 140,000 employees

 

US retailers fight tradition with own brands – Pg. 8

–          The balance of power is shifting between the biggest US retailers and their main suppliers

–          New industry data show retailers such as Walmart, Costco and Target are boosting sales of their own products almost four times faster than famous American brands, winning over consumers with high-quality goods at low prices

–          That began to change after the financial meltdown of 2008, which crated millions of newly frugal bargain hunters.  Millennials who came of age during the great recession do not have the same attachment to big brands.

–          The increasing popularity of cheaper alternatives undermines the traditional consumer companies’ ability to raise prices, a particular problem when input costs rise

 

Wall Street reduces forecasts for store profits – Pg. 8

–          Wall Street has cut profit forecasts for US retailers as concerns mount that a weaker than expected holiday season may have marked the beginning of an extended slowdown

–          Retailers have been facing rising expenses, from transport to logistics costs, as well as a slowdown in demand…

–          Mall-based companies that have struggled to deal with changing shopper tastes have been subject to some of the biggest forecast declines

 

Investors look to Fed for clarity on bonds while Brexit brings paralysis to UK gilts – Pg. 10

–          Investors and economists are supremely confident that the US central bank will leave policy unchanged at this week’s monetary policy meeting…

–          The Fed Funds market indicates that not only is there virtually zero chance of policymakers raising interest rates this week, it is now pointing to an extended pause from the central bank and a more than 25% chance that it cuts rates by the end of the year

–          …since 2017 the central bank has been shedding the bonds it acquired, deflating the size of its balance sheet to just under $4tn

–          …the pace at which the Fed is offloading the debt was one of the factors behind last years turbulence in financial markets…

 

US education – Pg. 17

–          The price of US higher education has sky-rocketed.  A four-year college degree now costs anywhere between $80,000 and $300,000 for tuition alone, while America’s median household annual income is $61,000

–          …growing share of Americans have been dropping out.  Less than half of students complete their degree within six years.  Many are saddled with debts, now totaling more than $1.5tn, that take a generation to pay off

–          Even if tuition were free, many Americans still do not want to go to college because other costs are steep and not everyone is cut out for four years of college.  Many fail to complete high school, the sole purpose of which is to qualify for university

 

America’s new housing bubble – Pg. 19

–          The latest Consumer Price Index figures show that almost all core inflation, which was weaker than expected, was in rent or the owner’s equivalent of rent (up 0.3%).  Core goods inflation, meanwhile, was down 0.2%

–          ….housing market is once again completely out of sync with the rest of the economy

–          …housing which is not only shelter but also the biggest financial asset for most Americans, is the only major component of the CPI with a national inflation rate that is consistently above the over-all number

–          ….cost of shelter…hit a historic high of 81% of core inflation in the summer of 2017 and remains “the lion’s share”

–          There have not been commensurate salary increases.  Median household income adjusted for inflation remains hardly higher than it was at the turn of the century

–          The whole situation is made more problematic by inflation in another area – higher education.  Student loan debt in the US is at a record high and the struggle to pay it off is real – 12% of borrowers are currently 90 days or more delinquent on their loan payments (Prof Note: Monthly I received calls offering to help me restructure my student loans.  I have NO student loans.  This is big business!)

–          …impact of student loans on the housing market estimates that high student loan drag has knocked 2m young adults out of the market, resulting in a 1.5% lower home ownership rate.  That means they cannot build wealth…

–          The US looks more and more like an emerging market economy in the sense that the basics of the American dream – housing, education and upward mobility – have all been compromised

 

Answer: 7-Eleven (129mg/$1); Starbucks (125mg/$1), McDonalds (122mg/$1), Dunkin Donuts (100mg/$1) (Prof Note: As an aside, the cheapest gas between Scotland, MD and DC is 7-Eleven in Waldorf.  Great halfway point for gas and coffee!)

16 March 2019

 

Question: According to MSN: Money, what are four (4) finance secrets rich people know?

 

Italy weighs loan from China-led bank to ease fears over joining Belt and Road – Pg. 1

–          Italy is considering borrowing from the China-led Asian Infrastructure Investment Bank as part of plans to become the first G7 country to endorse Beijing’s “belt and Road” global investment programme

–          ….resisting pressure from Washington and Brussels to drop those discussions as concerns rise over Beijing’s ambitions and its potential security threat

–          The Italian government intends to sign a “memorandum of understanding” on the BRI on March 22…

–          Until now, the overwhelming majority of BRI infrastructure loans have come from the China Development Bank and the Export-Import Bank of China, two bilateral lenders that grant loans in secrecy that are almost always tied to construction contracts for Chinese companies

 

Bribery scandal reflects success of USC push for funds and status – Pg. 3

–          ‘University of spoilt children’ tries to limit damage from admissions scam

–          USC admitted more of Mr Singer’s clients – many of them falsely depicted as student-athletes – than any other school mentioned in the complaint

–          USC said on Thursday it would toss out any current applicants tied to Mr Singer while beginning the messy business of determining what to do with those previously admitted

–          Yet while the admissions scandal may be a black eye for the school, it is also a sign of its success.  In the criminal complaint, USC has joined the likes of Yale, Stanford and Georgetown as schools targeted by Mr. Singer’s clients

–          Its admissions rate has narrowed over that time from 70% to a stingy 13% (Prof Note: Hopkins is 13% according to my online research.  Bucknell, my alma mater, is 25%.)

–          The obsession with fundraising led some to question whether senior administrators had lost their bearings.

–          (Prof Note: I love to bash Academic Ethics BUT, from what I am reading, do the schools deserve such a black eye in this case?  The schools were not accepting money.  The more I read it seems there were just a lot of bad eggs willing to sell their souls to the devil.  Just my current thought as I continue to follow this fascinating story!  I also worry, and this is unusual for me to say, that athletic departments are receiving a black eye.  I support the automatic slots for a few talented athletes.  Do the academics not have the same for the top scoring students?!  While overhyped, in my opinion, athletics is a viable and honourable career path.  Athletics also earns revenue for the schools.)

 

Foreign business wary of cuts to Chinese investment law – Pg. 3

–          China has passed a foreign investment law that it hopes will help smooth the way to a new trade deal with the US, granting foreign companies equal standing with state-owned businesses

–          The foreign business community has complained that the law leaves out many details that were in a 2015 version drafted by the Ministry of Commerce, opening the door to hidden impediments being written into the more detailed regulation

–          The rule, which will come into effect on January 1 2020, establishes a “negative list”, meaning that any sectors that are not declared closed to foreign business are automatically open to investment

 

Pot stocks a big draw after Wall St gets hooked on weed – Pg. 13

–          Less than a year after Canada broke the mould in allowing adult recreational usage, hedge funds, individual investors and long-only mutual funds are piling in

–          In 2018, some Canadian groups also started trading on the New York Stock Exchange, a unit of Intercontinental Exchange, and Nasdaq, which allow companies to list so long as their business is legal in the jurisdiction where they operate.  In the meantime, some US-based companies that are operating under state and not federal approval have listed stock in Canada

–          Insiders point to cannabis a having a multitude of untapped applications across industries including pharmaceuticals, packaged foods and beverages as well as cosmetics and beauty

–          Many of the cannabinoids, or chemical compounds present in cannabis, are believed to have therapeutic effects

–          One getting a lot of attention is CBD, or cannabidiol, which can be used to treat anxiety, convulsions, depression and nausea as well as serving as a sleep aid or muscle relaxant,…

 

US equity funds benefit from fears in other regions – Pg. 13

–          ….mortgage bond funds have been enjoying a renaissance this year on indications that the Federal Reserve would take a more patient approach in its plans to raise US interest rates

 

Answer: (1) Your money should be working for you; (2) Keeping up with the Joneses will cost you every time; (3) Time is your most valuable currency; (4) Its best not to go it alone