Tag: Prof Note

14 December 2018

 

Question: According to MSN: Lifestyle, what are eight (8) things that happen when you stop drinking alcohol?

 

Draghi calls time on ECB’s 2.6tn (euro) Eurozone stimulus experiment – Pg. 1

–          Although the ECB has long signaled it would end new purchases this month, the move marked a milestone for the Eurozone, which will not be left to manage its economy with more traditional tools such as interest rate changes

–          The US Federal Reserve, which has been steadily raising interest rates for the past two years, has sent strong signals it may need to slow down after another rate rise this month.  The BoE remains in a holding pattern after raising rates twice in the past two year, amid fears that Britain’s exit from EU might dent growth

 

US snubs IMF push to lift permanent reserves – Pg. 3

–          The US has come out against an increase to the IMF’s permanent reserves, dealing a blow to efforts by Christine Lagarde, ….to put the institution on a more stable financial footing

–          While the US appears to have shut the door on an increase in the IMF’s permanent reserves, it appears to have left it open when it comes to US backing for alternative funding mechanisms, such as a renewal of the borrowing facility that pools temporary contributions to the IMF from members

–          The Trump administration’s decision to shy away from a permanent boost to IMF resources reflects its aversion to multilateral institutions.  While an increase for the IMF would have strengthened an institution that has for decades been synonymous with the US-led global economic order, it would have inevitably allowed emerging markets, including China, to wield greater influence within the organization, at a time of high tension between Washington and Beijing

–          The US backed this year’s IMF bailout of Argentina, the largest in its history, but has been more skeptical of interventions in countries that are big recipients of Chinse investment, like Pakistan

 

Warburg in China distressed property push – Pg. 15

–          Rating agencies have warned that smaller, highly indebted Chinese developers are at risk from the current property slump, with prices in major cities stagnant or falling.  Moody’s forecasts that nationwide property sales volume will contract by 5% next year

–          Foreign investors are cautiously returning to China’s distressed debt, after mostly sitting on the sidelines for roughly a decade after the end of the wave of bad debt disposal that began in the late 1990s.  Property is the collateral for a large share of distressed debt, meaning the success of such investments is closely tied to property prices

 

Leveraged loans lose their appeal as investors cut rate rise expectations – Pg. 19

–          Investors are pulling away from bonds backed by riskier corporate loans, raising pressure on highly indebted companies that have enjoyed easy access to the $1.3tn leveraged loan market

–          Leveraged loan investments have grown popular because they pay a floating interest rate, positioning buyers to receive higher returns as the Federal Reserve tightens policy

 

Answer: (1) You’ll sleep more soundly (Prof Note: More soundly than a blackout?); (2) You’ll eat less at dinner; (3) You might crave sugar; (4) You’ll start losing weight; (5) Your skin will clear up; (6) You’ll have more money; (7) Your mood might take a hit; (8) Your cancer risk falls, but your heart disease risk might rise

13 December 2018

 

Question: According to MSN: Money, what are eleven (11) steps to retire at age 50?

 

Former Trump lawyer Cohen sentenced to 3 years in prison – Pg. 1

–          Michael Cohen was sentenced to three years in prison yesterday after a federal judge determined he should face “considerable punishment” for crimes he committed at the direction of Donald Trump, his one-time client and patron

–          …Mr Cohen pleaded guilty, connected to paying hush money to two women who claim to have had affairs….

–          “While Mr Cohen was taking steps to mitigate his criminal conduct by pleading guilty and volunteering useful information to prosecutors, that does not wipe the slate clean,” the judge said.

–          Standing to address the court, his family seated behind him, Mr Cohen again pointed the finger at the president, saying he had been living “in personal and mental incarceration” ever since going to work for Mr Trump in 2007 (Prof Note: There is much to be said for a simple life.  Ask yourself if your morals are “pushed”, “Is it worth it?”, “How much is your freedom worth to you?”)

–          Mr Cohen noted the “heavy price” he had paid to turn against “the most powerful man in the world”

–          Mr Cohen also admitted to lying to Congress about a Trump Tower project in Moscow

 

Slowing inflation data bolster Fed’s caution on rate rises – Pg. 4

–          US inflation rose at its slowest pace in nine months in November as fuel and energy costs fell, in the  latest sign that price pressures are easing after a surge earlier this year

–          Headline consumer price growth slowed to 2.2% from a year earlier, …that is down from the 2.5% recorded in October and in line with economists’ forecasts

–          Lower energy costs – thanks to a 22% fall in global crude prices – helped keep a lid on price gains last month.

–          Core inflation, which strips out volatile food and energy prices and is of greater interest to the Federal Reserve, edged up to 2.2% year-on-year in November, from 2.1% the previous month

–          Fed funds futures are pricing in a 34% chance that the central bank does not touch interest rates next year

 

US homebuilder stocks under pressure as interest rates bite – Pg. 19

–          Having returned more than 70% last year, the sector is down by 30% in 2018 and facing its worst year since the global financial crisis as a combination of higher mortgage rates and lofty home prices raise concerns for the housing market

–          …knocked over $20bn off the sector’s market value this year

–          Such has been the intensity of the sell-off that all 15 members of the S&P super-composite homebuilder index have at one point found themselves in a bear market this year.  By contrast, the wider S&P 500 is about flat in 2018

–          …housing has been a weak link in an otherwise strong US economy underscores the impact successive rate rises from the Fed have had on the market’s outlook

–          Housing starts and building permits in October were a seasonally adjusted 2.9% and 6% lower, respectively, from a year ago

–          Signs of weakening demand came as housebuilders were also squeezed by rising material and labour costs

–          The biggest test for the US housing market will come early next year when the key house-selling season kicks off around the time of the Super Bowl, which is set for February 3

–          The biggest homebuilders, as a group, are trading at a price to book multiple of 1.3 times, which is round fair to cheap by historical standards, …

 

Answer: (1) Start with how much you’ll spend in retirement (Prof Note: Remember that once you stop earning passive income you are most likely tied to this level of spending ONLY); (2) Plan for the cost of health care; (3) Calculate how much you need to retire at 50 (Prof Note: While this article clearly means capital amount, what it should and must mean is passive income flow); (4) Save like your retirement depends on it; (5) Keep your expenses low (Prof Note: Do you really need that Starbucks?); (6) Be smart about taxes; (7) Increase your income (Prof Note: Also, diversify income streams); (8) Invest for growth; (9) Plan how you’ll spend your time in retirement (Prof Note: This is important.  Will expenses go down/up?  Will you have expenses travel?); (10) Write your early-retirement plan down; (11) Choose your retirement year wisely (Prof Note: Most importantly, remember retirement is not a concept, it is not a year, it is NOT an age, it is an equation.  When Passive Income >= Active Expense one is retired!)

11 December 2018

 

Question: According to MSN: Money, what are nine (9) things no one tells you about Social Security?

 

India central bank governor quits after disputes over independence – Pg. 1

–          The head of India’s central bank abruptly resigned yesterday in the midst of a bruising battle with the prime minister over the institution’s independence and the future direction of the country’s financial sector

–          Tensions between the RBI and Mr Modi have been building for months over the central bank’s hawkish monetary policy, use of its mounting reserves and the tough measures taken to clean up bad loans at India’s state-run banks

–          India’s rupee fell 1.8% against the dollar and analysts warned of a further sell-off unless the government moved quickly to restore faith in the central bank – particularly with three closely watched state elections scheduled for today see as dress rehearsals for next year’s general elections

 

EU refuses to renegotiate Brexit accord – Pg. 2

–          EU leaders have told Theresa May they “will not renegotiate” her Brexit deal but are prepared to offer assurances that would help convince the House of Commons to approve the exit treaty

–          Negotiators are looking at options for a supplementary declaration from EU27 leaders, including a possible target date, to provide the “further assurances” that the UK prime Minster wants to allay “widespread and deep concern” in Westminster over the backstop plan to avoid a hard border with Ireland

 

Britain can unilaterally cancel divorce, says bloc’s highest court – Pg. 2

–          Britain is free to cancel its notification to leave the EU without the consent of other EU states,…

–          In one of the most rapid decisions in its 66-year history, the Luxembourg court confirmed that the Article 50 exit clause can be “unilaterally revoked”, allowing a country to reverse its decision to leave the EU during the two-year period for negotiations

–          “A member state cannot be forced to leave the European Union against its will”, a summary of the ruling said

–          ….the judges did note that a decision to revoke Article 50 should be “unequivocal and unconditional”, suggesting the recision cannot be used as a tactic in a negotiation about membership terms

–          The ruling will mean the British parliament could prevent a no-deal Brexit by ordering the government to revoke Article 50

–          The judges said the revocation would be a “sovereign decision” to end the Article 50 process and would leave the member state’s status within the EU unchanged, since they were “neither suspended nor altered by that notification”

 

Turkey recession on horizon as growth slows – Pg. 3

–          Turkish economic growth cooled dramatically in the third quarter after a current crisis fueled record inflation rates and curbed consumer demand, raising the spectre of the country slipping into recession

–          The country’s GDP expanded an annual 1.6% between July and September, its slowest rate since 2016, when a bungled military coup hit economic activity

–          The construction sector, which makes up as much as a tenth of the economy, contracted 5.3%, and household consumption slumped to only 1.1% growth, compared with 6.4% the previous quarter, …

–          …inflation remains above 20% and the government could resume stimulus spending ahead of nationwide municipal elections in March

–          The central bank lifted its benchmark rate to 24% in September in its biggest single rise in 15 years, helping the lira recover from a record low in August, …

–          Households are feeling the pain of inflation that peaked at 25% in October, driven by prices rises in essential items such as food and housing…

 

Men are still winning 75% of new jobs in boardroom, research finds – Pg. 14

–          France had the highest proportion of women on boards, at 42%, compared with less than 6% in Japan, Hungary, Saudi Arabia, South Korea and the UAE

–          In the US, the percentage of female directors has risen just 3.2% since 2012.  Meanwhile, women make up less than 4% of chief executives, including Norway, Germany and Canada, there were no female CEOs (Prof Note: The best Boss I have had in my career (and I have had many great ones (crappy ones too)) was a woman, Dale R, in construction, Clark Construction.  One of my many favourite stories about her was my resignation.  I tendered my letter to her personally, she put her pen down and read the letter and asked of my new opportunity.  She said, “Roger, as you are aware, we will make extreme attempts to keep great employees and prefer they not leave.  We are NOT going to do that in your case!”  I stood there and I believe I said something like, “Thank you Dale.  Not sure there was a need to say that but I understand the implications.”  Then she said with a rare smile, “Roger, it is not that you are not worth the efforts.  It is that we have nothing better to offer you and you need to accept the offer.”  (I was leaving to be Managing Director Commodities at Constellation).  Then she said, “May I offer one piece of advice?”  I said, “Yes, of course.”  Then she said, “Take the blame for everything and give all the credit to others.”  Dale R was just that type of person!)

 

BNP Paribas given panda bond license in show of openness by Chinese regulators – Pg. 19

–          BNP Paribas received a license to underwrite bond sales by foreign companies in China, ….

–          BNP is the third locally incorporated foreign bank in China to receive a license to underwrite so-called panda bonds, ….no US bank has yet achieved such a license

–          Market participants expected that panda bonds would gradually replace dim sum bonds – the term for notes issues in Hong Kong’s offshore renminbi market – as a primary tool for foreign companies to sell renminbi-denominated debt

–          Issuers include the government of Hungary, Malaysian lender Maybank, the Canadian province British Columbia and the government of the Phillippines

–          Beyond panda bonds, foreign banks have long sought licenses allowing them to underwrite debt by Chinese issuers

–          But in China’s fragmented bond market – where different agencies regulate different categories of debt – no single licence enables a bank to underwrite all types of debt

–          China is seeking to expand foreign participation in its onshore bond market as investors as well as issuers.  A bond connect programme launched last year allowed foreigners to buy mainland bonds through Hong Kong brokers

 

Answer: (1) You can get a do-over if you file too early; (2) You can collect benefits even if you never worked; (3) Your benefits might be subject to federal taxes; (4) Your home state might tax your benefits; (5) If you’re self-employed, your payroll taxes are doubled; (6) You can collect benefits even when living outside the U.S.; (7) The programme cannot go broke; (8) Your benefits will not become available the moment you file; (9) It is designed to pay the same total lifetime benefit regardless of when you first file

10 December 2018

 

Question: A peer of mine has a 14 year old daughter.  He recently viewed her google history (Prof Note: I did not ask why there was a need or how he was able to access the history).  What did he find?

 

‘Outright recession probable’ in event of disruptive no-deal – Pg. 3

–          The UK would struggle to avoid a recession next year if it crashes out of the EU, but the severity of any downturn would depend on choices in Brussels that could ease the fallout…

–          …”disorderly” Brexit scenario outlined last month by the BoE, in which the UK economy would shrink 8% in 2019 and interest rates would rise to 5% to protect sterling and guard against rampant inflation

–          …estimated a disruptive no-deal Brexit – where the UK and the EU do not co-operate – could knock 3% off Britain’s national income by 2020 “with an outright recession probably”

–          …”managed” no-deal scenario – where the two sides seek to minimize disruption in key areas, for example by agreeing arrangements to enable flights between Britain and mainland Europe – would only involve a pause in economic growth next year and a 1% hit to GDP by 2020

 

US expected to slow as Asia and Europe falter – Pg. 4

–          The US is likely to feel the effects of sharply slowing growth elsewhere in the world, …in response to signs of a loss of momentum in a broadening range of economies

–          …not expecting a recession in the US, but he expects growth to progressively slow in 2019 and 2020 as the effect of tax cuts and spending increases diminishes

–          Worries about declining growth in Asia and Europe have started to bear upon the US policy outlook, as the Federal Reserve prepares for a likely increase in short-term interest rates this month.  Although the US unemployment rate is hovering at its lowest level since the 1960s, gauges of manufacturing growth drifted lower in November in countries including Germany, France, Italy, Japan and South Korea – while in China measures of expert orders have started to contract

–          …swelling “downside” risks to the largely positive US performance.  Among them are the overseas deceleration, turbulent financial markets, and continued fears over the trade war between the US and China

 

Should the US rein in share buybacks and put an end to the spending spree? – Pg. 11

–          US corporations are on a spending spree: they are on track to shell out more than $1tn on stock buybacks this year.  This practice is holding companies, workers and our economy back, and it is time for the SEC to adopt new policies to curb buybacks

–          Stock buybacks allow a company to repurchase its own equity on the open market, which has the effect of driving up share prices…it may sound harmless, but the practice enriches executives and those who sell their shares at the expense of the company and our economy

–          When companies spend their money on buybacks, that means they are not using it to lower prices for customers, increase wages for workers, or invest in new equipment and innovation (Prof Note: I thought the goal of a company was to increase shareholder value?!  Hmmmm…I’m confused….)

–          Buybacks particularly benefit top corporate leaders, who control the timing of share purchases and can personally profit from buying and selling shares as the stock price rises (Prof Note: In B-school this is referenced under “Agency effect” and is not new…hence vesting…)

–          Economists also argue that companies buy back stock only when they have no better use for their capital.  This ignores the reality that many companies would benefit from retaining a financial cushion for when inevitable economic downturns strike (Prof Note: I thought this was the purpose of pre-negotiated credit lines which have less expense than holding cash?!)

–          The enthusiasm for buybacks also ignores the employees who work hard to create corporate wealth (Prof Note: WHAT???  I thought an employee’s salary was compensation for doing their job?!  I remember when I had my first year review at Clark Construction.  I met with the CFO and had my spreadsheets of quantifiable and provable results to the company.  After listening to me, and agreeing with me, she put her hand across the table and said, “And Roger, this is why we would like to invite you back for another year of employment.”  I was completely disarmed!  The point, I had done my job, I had earned my salary.  There was no expectations/promises beyond that.  (Note: I LOVED my time at Clark Construction and learned a lot about business.  I consider my position at Clark to be my “break out” role from Analyst to Executive.  I am a proud Clark Alumni!))

–          The rise of stock buybacks can be traced to an SEC provision known as rule 10b-18, or the “safe harbor” rule.  This 1982 rule shields companies buying back their own stock from liability for share price moves, provided they meet certain conditions about the timing and volume of the purchases.

 

Fewer than 5% of Europe and US CEOs are female – Pg. 18

–          …women held 4.9% of the top roles across 13 countries, with female representation in the chief executive position ranging from 6.9% in the US to zero in Denmark and Italy

–          Women’s low representation in leadership roles has attracted growing attention from policymakers, with some countries setting targets to increase their share of female directors

 

Answer: “What percentage of your paychecks goes to taxes in Maryland?”  His daughter wants a car and is starting the calculations to earn one!