Tag: Prof Note

30 July 2018

 

Question: What are the seven types of financial misconduct?

 

Asset Management – Pg. 7

–          Asset managers play a critical role in the global economy, such as investing the retirement savings of hundreds of millions of workers.  But while their influence has grown, the industry is undergoing profound changes that threaten the way they do business

–          Fees are under pressure as customers move to cheaper products and costs are rising because of new regulatory burdens.

–          ..unlike the largest US managers, which invested heavily in developing passive funds over the past two decades, Europe’s managers have tended to focus on more traditional pricier products such as actively managed funds

–          European asset managers are being forced to pull out of markets and lay off staff

–          M&A strategies have become less about market domination and more about survival

–          One of the main drags has been the continual downward pressure on fees that began in the US and has spared to Europe

–          Over the past two years, the amount of new investor money flowing into passive funds increased their total assets by 19%, while active funds grew by just 1%…

–          Since the financial crisis, the fund industry has been hit by an avanlanche of regulation resulting in increased operational spending

–          Lower fees and higher costs result in squeezed profits

 

Seven sins of financial world stuck on repeat, study finds – Pg. 16

–          The seven broad types of financial misconduct it identified were: price manipulation, inside information, circular trading, reference price influence, collusion and information sharing, improper order handling and misleading customers

–          In the field of price manipulation, the research found that the media by which false information was published had changed, but the techniques remained the same

 

US lenders face M&A skepticism – Pg. 16

–          Us regional bankers face rising shareholder disapproval over dealmaking in the sector, clouding the prospects for further consolidation between the country’s 5,600 lenders

–          US bank deals worth $21bn have been announced so far this year….compared with $26bn for the whole of 2017

 

Answer: (1) Price manipulation, (2) Inside information, (3) Circular Trading, (4) Reference price influence, (5) Collusion and information sharing, (6) Improper ordering handling, and (7) Misleading customers

28 July 2018

 

Question: According to CNBC what are the 5 things to do if you hit the $512m Mega Millions jackpot?

 

Twitter figures rattle Wall Street – Pg. 1

–          The social networks have been dented by concerns over the limits of their users’ attention and the fallout from cleaning up their acts after scandals

–          Twitter’s stock dropped 19%, a day after Facebook’s shares shed 19% in the biggest one-day loss of value in US stock market history (Prof Note: I have never sent nor received a “Tweet” nor do I have a FaceBook page.  However, Cat Ghaut has one and we have five friends! J)

 

Statistics review shows Americans saving more than thought – Pg. 4

–          The data show the average savings rate at 7% between 2013 and 2017, up from the previous figure of 5%

–          The bureau also revised down GDP growth for 2017 from 2.3 to 2.2%, with much of the reduction falling in the second half of the year

–          The personal savings rate in the US has been on a long decline since the 1970s, a trend that began to reverse after the financial crisis.  The figure is calculated by comparing the difference between disposable incomes and personal expenditures

 

BoJ steps in for second time this week after benchmark bond yield hits 18-month high – Pg. 13

–          Japan’s central bank has made its second intervention in a week to support the domestic bond market after the yield on 10-year government debt hit its highest in 18 months

–          The BoJ yesterday launched a special bond-buying operation to suppress yield, which moves inversely to price, back below 0.1%

–          In a rare move, the BoJ offered to buy unlimited amounts of the 10-year notes at a yield of 0.1%, 1 bp lower than its operation on Monday at 0.11%.  The yield on the 10-year note closed a basis point higher at 0.09%

–          Japan’s central bank faces pressure to rein in its ultra-loose monetary policy, which has failed to boost inflation to tis targeted level, while weighing heavily on bank profits

–          The yield curve control policy was introduced in late 2016 in part as a measure to offset some of the pain of the negative interest rate policy that it introduced earlier that year

 

Answer: (1) Chill (Prof Note: I have some clients with whom that I work that go through a business and/or entity sale.  My first piece of advice is to take things slowly and calmly.  Find the team and hire them.  Also, depending upon the size of the sale, consider two teams for opposing advice…..yes, I do this with attorneys all the time); (2) Protect your ticket; (3) Keep quiet (Prof Note: When the world believes you have money, it is like having a giant target on your back.  Remain anonymous.); (4) Weight the payment options (Prof Note: Lump sum or payment over time.  Review options with tax accounting AND financial advisor.  You may not want to be a creditor if the entity paying you does not work out); (5) Take a deep breath (Prof Note: I generally advise one (1) toy!  Right now I am working with a person and the toy is a watch!)

27 July 2018

 

Question: According to MSN:Money, what things should you do to boost your net worth?

 

Facebook sheds $120bn in value as ‘bombshells’ spark record sell-off – Pg. 1

–          The share price plunge of more than 19% marked the biggest one-day value destruction of a listed company in US history, almost equal to the entire value of McDonald’s and Nike, and larger than the likes of General Electric, Goldman Sachs, BlackRock and the entire Argentine stock market

–          …came less than two weeks after investors inflicted similar punishment on Netflix….

 

The next crisis is brewing in pension funds, not banks – Pg. 9

–          Risk has been gently and painlessly excised from the US banking system over the past 10 years.  On any sensible measure, US banks are far safer now

–          It grows ever clearer that risk has been moved, primarily to the pension system.  This means that the long-term dangers in the financial system have become more insidious: easier to ignore but ultimately even more dangerous

–          Pension funds have been the principal losers from quantitative easing, the main tool used to bail out the banks.  QE bond purchases pushed down bond yields.  This created pain for pension funds, which buy bonds to offer their members a guaranteed income.  The lower the yield on bonds, the more expensive it becomes for them to fund any given guarantee.  This problem has created a true crisis among US public sector pensions.  Many are looking for ways out of the guarantees made to their members, only to find that courts – rightly – defend the members

–          In the US, pension deficits – the gap between assets and the notional cots of funding the guarantees – widened sharply after the financial crisis

–          …comp[anise in the S&P 1500 index currently face a pension deficit of $229bn, or 11% of their assets

–          With bonds barely offering an income, many funds have resorted in taking greater risks.  That has meant buying into funds and strategies that go under the umbrella term of “alternative assets”, may of which rely on leverage for their returns

–          Unlike a banking crisis, a pensions crisis has no one month of critical danger.  Its ill effects settle in over time, and there is opportunity to fix them

 

Answer: (1) Start with cutting out unnecessary expenses (Prof Note: Stop with the Starbucks!); (2) Take Risks (Prof Note: Calculated and quantifiable risks); (3) Know what you want in life (Prof Note: This is absolutely critical.  I still ponder this thought.  Great people is a consistent answer.); (4) Believe that you can be rich (Prof Note: I cannot stand this word “rich”!  What does it mean?!  What one really wants is Passive Income exceeding active expenses!); (5) Now to build net worth (Prof Note: this is SOOOO WRONG!!!  Net worth is nothing!  A high net worth can be created by an asset requiring significant feeding!  What is really desired is Low-risk passive income); (6) Diversify your assets (Prof Note: This single employer system is dangerous….diversify one’s income); (7) Have specific financial goals (Prof Note: Know the passive income required to live the life that you desire!); (8) Do something you love (Prof Note: Absolutely!  I love development as I love creating.  Also, see the value is creating something from nothing.  Creating jobs, raising standards of living, etc.); (9) Learn how to invest smartly; (10) Build your net worth over time (Prof Note: I am going to flip OUT!  NOOOO…build your passive income streams over time.); (11) Increase your contributions each year; (12) Raise your bottom line; (13) Consistently invest your income; (14) Invest in yourself (Prof Note: While this is absolutely true, be cognizant of the return.  If you go to No-name business school, is the return really going to be there for the money spent?  Of course the return could be personal satisfaction, which is priceless.  However, enter with eyes wide open!)

26 July 2018

 

Question: According to Nerdwallet, what are three (3) money tasks you shouldn’t tackle on your own?

 

Draghi expects grilling over mixed ECB messages on rates – Pg. 2

–          …vital issue on when interest rates will rise from their record lows

–          …bank said it expected to keep interest rates on hold until “at least through the summer of 2019”.  The markets interpreted this phrase as meaning interest rates would stay at their current levels until September next year – longer than previously expected

 

Chinese economy – Pg. 7

–          …how it started [debt boom]…the trigger was the global financial crisis.  Between early 2004 and the late 2008, Chinese gross debt was stable at between 170 and 180% of GDP.  This was higher than in other emerging countries, but was not much higher

–          Then, in 2008, came the meltdown of the western financial system and subsequent deep recession in high-income countries.  China responded with a huge investment programme, amounting to some 12.5% of GDP, probably the biggest ever peacetime stimulus

–          The challenge confronting Beijing was to offset the impact on demand of a fall in China’s net exports of 6% of GDP between 2007 and 2011.  In 2007, net exports had been close to 9% of GDP.  Since this was neither economically nor politically sustainable, the fall was permanent

–          Such a decline in net external demand needed a permanent offset

–          …the share of gross investment in GDP soared from an already extremely high 41% of GDP in 2007 to 48% in 2010

–          ….between the fourth quarter of 2008 and the first quarter of 2018 China’s gross debt exploded from 171 to 299% of GDP

–          A simple measure of the efficiency of the investment is the incremental capital output ratio, which measures the ratio of the investment rate to the growth rate.  Until the crisis, the ICOR had not exceeded four for any sustained period.  Ever since 2011, it has been close to six

–          It was as though the high-income countries has passed the credit baton to china.  For Beijing, this response to the financial crisis has an additional drawback – distracting it away from a necessary rebalancing of its economy

–          By 2017, next exports were back down to 2% of GDP: that did represent a rebalancing.  But investment was still higher than in 2007, at 44% of GDP, private and public consumption was still only 54% of GDP and debt had soared to three times GDP.  In sum, the rebalancing of China’s external accounts came at the cost of still greater domestic imbalances

–          So what happens now?  There are four conceivable possibilities: a crisis, followed by lower growth; a crisis, not followed by lower growth; no crisis, but reduced growth; and no crisis and no reduction of growth

–          The salient characteristics of a system liable to a crisis are high leverage, maturity mismatches, credit risk and opacity

 

Answer: (1) Deciding when to retire (Prof Note: The question is best asked, “When do you want the option to retire?”  Remember retirement is NOT an age but an question, i.e. Passive Income >= Active Expense.); (2) Handling an IRS audit (Prof Note: Everyone runs to hire a CPA…I recommend hiring an attorney that has a CPA); (3) Filing for bankruptcy if you have anything to lose  (Prof Note: This is a complicated process and not one to be taken lightly)