Tag: Prof Note

25 July 2018

 

Question: According to US News & World Report, what are 9 habits that can get you out of a deep debt hole?

 

Venezuela heading for 1,000,000% inflation warns IMF – Pg. 4

–          The figure would compare with levels seen in the Weimar Republic in Germany in the 1920s and Zimbabwe a decade ago, and was the likely outcome if Venezuela continued to pring bank notes in response to its economic crisis,…

–          …expected the economy to contract 18% this year – the third consecutive year of double-digit contractions – and that the worsening social crisis “will lead to intensifying spillover effects on neighbouring countries”, which have already taken in thousands of poor Venezulean immigrants

–          Prices have consistently risen at more than 50% per month – usually considered the threshold for hyperinflation

–          If the IMF’s prediction proves correct, it will put Venezuela on par with the Weimar Republic, where people carried virtually worthless bank notes around in wheelbarrows.  Thankfully for Venezuelans, they can generally use debt cards to make purchases, even for small items

–          Most cases of hyperinflation do not last long, although in Greece during the second world war and in Nicaragua during the late 1980s, prices rose by more than 50% per month for several years

–          At the heart of Venezuela’s economic collapse lies a dramatic fall in oil production, which accounts for virtually all the country’s export revenue

–          Output has more than halved since the start of the century and is at its lowest level for decades

 

Its time for millennials to fight for our rights – Pg. 9

–          …people born between 1981 and 1996 make up the generation that shrugs “yolo” as they hop in an Uber instead of the bus, sip their artisanal gin and plan their next mini-break

–          On the other, they are the generation that came of age in the middle of the global financial crisis: they drink less, smoke less and study harder.  They cling to job security and worry that they will never own homes

–          Millennials say: we are paying a price for a global crash we did not cause

–          Boomers say: it’s hard to take you seriously when you’re frittering away your salary on smashed avocado on toast (Prof Note: I was in a Silver Diner this week and they had Avocado on toast on the menu)

–          …young people are on average more austere, not less

–          In 2001, 25- to 34-year-olds spent roughly the same amount of money as 55- to 64-year-olds on goods and services other than housing.  Now, the younger group spends 15% less

–          …the vital building blocks of a life – housing and education – have become vastly more expensive

–          …millennials in the UK are half as likely to own a home at age 30 as baby boomers were

–          Home ownership rates for young people have been declining for decades as house prices have detached from incomes

–          …in an effort to make the financial system safer, regulators limited how much banks could lend to housebuyers.  Suddenly, many young people needed far bigger deposits to buy their first home, effectively locking them out of the market

–          It would be better to build more houses in areas of high demand, including more social housing; take measures to boost productivity so incomes rise; and rebalance the rights of tenants versus landlords to make the UK more like Germany.  There, the alternative to home ownership is not poor quality housing with no security

 

Answer: (1) Learn how to shift your spending habits (Prof Note: Rarely do I get a drink anymore at restaurants.  $3 for a coke when a 1 litre is 99 cents…no thank you!); (2) Set up an automatic savings account (Prof Note: Forget the auto “anything”…do it manually.  Pay yourself first!); (3) Have an emergency fund (Prof Note: ONLY for familial health issues.  You should have a standard side hustle!); (4) Don’t automatically use an unexpected windfall to pay off your debt (Prof Note: Absolutely true BUT if you have no discipline you may want to reconsider); (5) Pay off smaller debts first (Prof Note: NOOOOO!!!  Pay off the high-interest debts first!); (6) Pay your debts on time (Prof Note: Absolutely!!!); (7) Use cash as much as possible (Prof Note: NOOOOO…then you loose points on credit cards!  Learn credit card discipline and be responsible!  ORRRRRR…as soon as you make a credit card purchase go to the smart phone and transfer from checking to the credit card); (8) Measure your debt (Prof Note: One cannot eliminate what one cannot quantify!); (9) Dine in (Prof Note: There is always room at my table for anyone on the list-serve.  On Nevis, the main is served at 1:00pm promptly!  Olive always makes too much as she never wants me to go hungry! J); (10) Continually monitor your budget (Prof Note: Yes, this is 10 but the question had “9”…I noticed this as well and double checked.  As for budget, stay true to your budget.)

24 July 2018

 

Question: According to MSN:Money, Cutting what 10 costs can make you rich?

 

Beijing’s $74bn banking boost increases risk of currency war – Pg. 1

–          China’s central bank injected $74bn into its financial system yesterday to help fortify a weakening domestic economy against the impact of an escalating trade war with the US and growing friction with Washington over its falling currency

–          It follows a renewed threat by Donald Trump, the US president, late last week to impose tariffs on all of China’s $500bn in exports to the US

–          Raising the risk that the US-China trade war could turn into a currency war, Mr Trump has accused Beijing of manipulating the renminbi, which on Friday reached its lowest point for a year against the US dollar and has fallen 5% since the start of last month

–          The injection was the People’s Bank of China’s biggest ever using its Medium-term Lending Facility, a policy tool crated in 2014 to provide loans to commercial banks for three to 12 months

–          The loans come on top of other recent PBoC easing moves, including a cash injection of about Rmb700bn in late June, when it cut the share of deposits that banks must hold on reserve at the central bank, where they are unavailable for lending and investment

–          The extra liquidity shows that Beijing is moving to support growth as a slowdown in housing and infrastructure adds to pressure from the US trade war.  China’s economy grew at 6.7% in the second quarter, ….

–          Financial stress is rising among cash-strapped borrowers: 150 peer-to-peer lending platforms have collapsed since the start of June amid a wave of defaults

 

ECB decision to end easing faces first statistical verdict – Pg. 2

–          After a surprisingly strong 2017, the eurozone’s economy has begun to stagger

–          The question hanging over the ECB is whether the eurozone’s rocky first quarter was a blip or a harbinger of a more serious downturn

–          If growth remains lackluster the ECB will face questions on whether it was wise to declare an end to a policy widely credited with reviving the region’s economic fortunes, before being able to make a proper call on how sever the slowdown will be

 

Sales of US homes fall again as ‘severe’ shortage lifts prices – Pg. 4

–          Sales of previously owned US homes fell for the third consecutive month in June and prices struck a record high amid a “severe housing shortage”…

–          Existing home sales fell 0.6% last month to an annualized rate of 5.38m units…the key gauge of the US housing market was down 2.2% form the same month in 2017

–          The lack of supply and robust demand sent the median price of an existing home to $276,900 in June, up 5.2% year-on-year, setting a new high

–          It forecast a 2.5% rise this year in total home sales, which includes existing homes and newly built ones, with prices rising 6.7%

–          Demand in the sector has been lifted by a labour market and broader economy tha tare firing on all cylinders.  The jobless rate was 4% in June, close to an 18-year low…

 

Technology and society – Pg. 7

–          Digital distraction has been blamed for a range of ills, from ruining dinnertable conversation and disrupting sleep patterns, to interfering with children’s education and contributing to an increase in anxiety and depression – even putting young people at higher risk of suicide

–          In June the WHO created a new classification of “gaming disorder”, to describe people whose personal or professional lives have seen “significant impairment” due to excessive video gaming (Prof Note: This has been around since the late 90s.  I still remember a very good friend of mine in trouble at college as he played too much Nintendo.)

–          Serious legal threats or class action lawsuits have not yet emerged around smartphone addiction

–          (Prof Note: The way I lecture has changed. I use to ride the students to pay attention.  Now, I simply say, “It is in your best interest to pay attention.  Please note I get paid the same regardless of if you pay attention.”  I found that if I tried to reach the students by engaging them in class my evaluations were harmed.  “No good deed goes unpunished.”)

–          Faced with this onslaught of new technology, parents are struggling even to answer questions about how much time on technology is “too much” and at what age it should be limited (Prof Note: I am finding I am putting technology down around 8pm at night.  On Nevis I see the families chowing down on a $300 lunch with all four people on smart devices not talking to each other.  When families come to play the course, the children all have their smart devices and their heads are down.  It makes my heart heavy for what they are missing.  The message(s) will still be there in the evening.)

 

Trump’s Fed broadside puts investors on notice – Pg. 17

–          Two more quarter-point increases this year are still largely expected, bringing the interest rate corridor to 2.25-2.5%

–          Whle the bond market expects the Fed will stop tightening later next year, the US current stands out among leading economies regarding growth and interest rate expectations.  That has helped boost the dollar and short-term borrowing rates

 

Answer: (1) Checking account Fees (Prof Note: Literally, my bank FEARS giving me a fee.  I will absolutely pay interest, when appropriate, but fees send me into orbit, i.e. I start letter writing campaigns); (2) Landline phone service (Prof Note: What is a landline?): (3) Cable TV (Prof Note: Cut the cord over a year ago); (4) Restaurant meals (Prof Note: I had local crab cakes and local first-of-season corn last night for dinner…spectacular!); (5) Soda (Prof Note: Guilty!  There are three 2-litre bottles in my fridge currently BUT purchased at Dollar General for $1.50/2-litre); (6) Bottled Water; (7) Subscription Boxes (Prof Note: Had to learn what these are when I read the article); (8) Alcohol (Prof Note: I did purchase hard ice tea to have with my lemon vodka at dinner last night.  Very refreshing!); (9) Tobacco; (10) Daily Latte (Prof Note: Stop making Starbucks wealthy!)

21 July 2018

 

Question: According to Business Insider on MSN:LIfestyle, what are 20 things to master before you turn 40?

 

Full-scale trade war looms larger – Pg. 1

–       …Angela Merkel warned of the economic damage of US tariffs as Donald Trump said he was ready to impose duties on $500bn of Chinese imports

–       The imposition by the US of tariffs on EU car exports may contravene World Trade Organization rules, …

–       She added that the world would not have overcome the financial crisis of 2008 if countries had acted unilaterally the way the US administration is now

 

North Korea economy suffers worst contraction for 20 years – Pg. 3

–       North Korea’s economy shrank at the sharpest rate in 20 years last year, according to estimates from South Korea’s central bank, as tougher international sanctions imposed over Pyongyang’s nuclear programmes began to bite

–       GDP in the impoverished communist state contracted 3.5% in 2017 from the previous year, when North Korean economy reported 3.9% growth.  The reversal in North Korea’s economy was the biggest since a 6.5% contraction in 1997 when the country was hit by a devastating famine

–       In addition, China, its biggest trading partner, became stricter in enforcing sanctions in the latter half of 2017.  North Korea’s annual per-capita income stood at just $1,300 compared with the $29,600 earned by South Koreans

 

Trump rates blast raises fears over Fed autonomy – Pg. 11

–       US presidents have avoided commenting on Federal Reserve policy since the early 1990s, emphasizing the independence of the central bank and giving it room to implement policies that might be politically unpopular

–       This week, Donald Trump publicly criticized the Fed’s recent interest rate rises, ….

–       The Fed began raising overnight rates in late 2015, and did so again last month against a backdrop of low unemployment, strong economic growth, and inflation approaching its target.

–       The Fed’s target rate for overnight borrowing stands at 1.75% to 2%

 

Answer: (1) Negotiating (Prof Note: I know there are negotiating classes but I think this is a softer skill that one best learns from mentors.  Also, take lessons from the 5 – 7 year old boys in Suks in the Middle East.  I still remember asking about Pistachios and the boy responding immediately, “Buying or selling?”); (2) Establishing a regular sleep schedule; (3) Making small talk at parties (Prof Note: I cannot stand this probably because I am not very good at it!  You will see me float, stay the obligatory time required and disappear!); (4) Finding and sticking to an exercise routine you enjoy; (5) Finding your career ‘sweet spot’ (Prof Note: This is difficult.  I would say I spent the first 10 years learning what I did not like.  Now, each year enhances what I do enjoy); (6) Saving for retirement; (7) Investing in relationships; (8) Saying ‘no’ to people (Prof Note ;Knowing boundaries is very important.  However, also saying “yes” at the right times); (9) Keeping a clutter-free home (Prof Note: Fight the clutter); (10) Practicing hobbies; (11) Making new friends; (12) Failing – and getting back up again (Prof Note: The ability to get back up is critical but also the willingness to fall down.  Be willing to take positions that define your beliefs rather than supporting mainstream); (13) Managing stress (Prof Note: In my opinion, there will always be stress.  However control the type of stress.  One of my favourite expressions, “It is a problem worth having.”; (14) Lifelong learning (Prof Note: There is so much knowledge is books.  Plus, there is so much enjoyment.  Get lost in a book, under a tree, with a light breeze); (15) Time management (Prof Note: Yet another skill that differs men and woman.  In my experience, in life, Woman are much better at time management than men); (16) Cooking (Prof Note: A skill I do not possess though I can open a can, heat, and serve with the best of them!); (17) Knowing your personal values (Prof Note: Embrace your personal values.  These are YOURS.  You own them!  Sure, sometimes they may make one unpopular but they define who you are as a person); (18) Selling yourself (Prof Note: Absolutely.  BUY Foundations of Real Estate Financial Modelling, Second Edition, Routledge, 2018); (19) Being happy with what you have (Prof Note: This has been a turning point in my personal life.  I do not seek “more” (other than investments, etc) but rather seek to improve what I have); (20) Forgiving yourself for your mistakes (Prof Note: In personal traits, intentions matter.  Be pure in your intentions and forgiving yourself becomes much easier.)

20 July 2018

 Question: According to MSN:Money, what are lessons you need to learn from today’s retirees?

 Decade High – Pg. 11

–       The 2% club has a new member.  The yield on the three-month US Treasury bill passed that milestone for the first time in more than a decade as the Federal Reserve remained on course to keep raising interest rates

–       The relentless rise in bill yields reflects a steady tightening of interest rate policy by the Bed, while the US Treasury has substantially boosted sales of short-term debt to help finance a worsening budget deficit

–       Since the 1960s, periods when three-month bill yields have been greater than the dividend yield of the S&P500 have been relatively rare and have certainly not lasted for as long as the past decade.  The most recent period stems from the Fed’s decision during the financial crisis to cut interest rates towards zero and conduct several rounds of bond purchases, known as quantitative easing

–       A further climb in bill yields beckons as the central bank expects to deliver two more 25bps interest rate rises in 2018

 

Jail terms for ex-traders in Euribor case – Pg. 12

–       Two former derivatives traders, including one described by a judge as “perhaps the best in the world”, have been given prison sentences for their roles in a conspiracy to rig the Euribor interbank lending rate

–       Christian Bittar, 46, who pleaded guilty to conspiracy to defraud shortly before the Euribor trial began, was sentenced to five years and four months… (Prof Note: Whoa!)

–       At one point he earned 47m (sterling) in a year in commission on top of his 130,000 (sterling) basic salary, prompting his bank to renegotiate the terms of his employment

–       Euribor is a benchmark interest rate determined by daily submissions from several “panel banks”.  It is tied to trillions of euros of products such as loans and mortgages and was described by an expert witness in the trial as “one of the most globally significant numbers in finance”

–       …”greed alone does not provide a full answer” to Bittar’s actions.  He had been motivated at least in part “by the satisfaction of being able to beat the system undetected for so many years”

–       (Prof Note: I am often asked by students why I left trading.  I really do miss the “high”.  My group earned 2cents/share in 11 months for Constellation so we were highly successful.  The simple answer, upon reflection, I did not like the person I was becoming/had become.  Of course later I was a fund manager.  It is absolutely possible to get drunk on power and the judge was/is correct, money is not the only motivating factor.  I’ll take a sunset any day over those days though I do miss the euphoric highs.  I can remember one Christmas Eve spent at the office at Constellation.  It was H, K, and me. H was our biller extrodinaire and all around supporter.  K was head of Gas and I was MD.  We had a suppler default the day prior.  I was suppose to be on a plane to Budapest but could not leave with the outstanding issue.  H was rescheduling my flights by the hour to get me on a plane as every hour we thought we had the situation resolved.  K had two young children at home and a wonderfully supportive wife that kept calling him to remind him he was missing his young children’s Christmas Eve.  To the credit of H and K, they would not leave me!  At one point the head of risk at Constellation was yelling at me on the phone, reminding me what day and time it was.  I then proceed to scream over him that I was aware and that WE were all still at the office and for him to do his F’n job!  Oh, what a night that was!  It all turned out well and Constellation/Excelon remains in retail gas to this day.  My MD job no longer exists today due to regulation, i.e. I was in charge of front AND back office.  They do not put events like that supplier default and the corresponding results in text books!  (there are many stories like this….similar but also different…every day was exciting!)

–       (Prof Note: Sorry…trip down memory lane.  So, prior to this supplier default, K and I head to Constellation Power Source (It was then CPS) to negotiate quantitative support and potentially a supplier agreement as we had wholesale and retail risk, i.e. the whole enchilada.  So K and I are on the trading floor, looking out to at least 100 traders and analysts, in this massive glass conference room with bagels, coffee, juice, donuts, etc.  We sit down and I explain that we are here for support, potentially a wholesale gas delivery agreement, etc.  The head of CPS looks at me, i.e. my counterpart, and says, “We do not have the resources to assist you!”  I look at him and say, “Are you F’n kidding me!  You are looking at our resources, i.e. 1 K and ½ of me as I also have to manage the Electric business.”  He says, “Then you better start working harder!” Work hard we did!  That business, as mentioned was turned around in 11 months and made 2 cents a share.  I miss those days…I am too old for that level of stress now but I do miss that world!)

 

Answer: (1) Plan for the retirement you want (Prof Note: What have I been saying for years!  Understand the expense in today’s dollars and plan for passive income, after-tax, that will provide that retirement); (2) Review Employer matching contributions (Prof Note: At least invest to the match to get the free money); (3) Social Security won’t pay for everything (Prof Note: Understand this!); (4) Pay off high-interest credit card debt (Prof Note: This is debt that, barring a medical emergency, really should not even exist); (5) Don’t put your investments on autopilot (Prof Note: Also see the advice of experts.  Do NOT be scared or hesitant to ask someone their credentials.  Would you taking sailing advice from an English major that never has seen the water?); (6) Costs of living in retirement can vary dramatically; (7) Start saving early (Prof Note: At birth!); (8) Consider investment returns before paying off debt (Prof Note: I CANNOT stand this statement!!!  If you payoff your mortgage at 4.5% that is risk-free return!  You may, MAY, earn the historical average of 8.00% in the S&P…MAY!); (9) Borrow from your 401(k) only as a last resort (Prof Note: No McFly!  Get yourself a finance degree!  Many 401(k) plans allow borrowing as an option with a stated interest rate, i.e. 6 or 8%.  If that money goes back to you, which it often does, and the money was taking from a money market or ultra-low risk bond fund, where are you better served?  It is a question worth understanding the answer!); (10) Execute Powers of Attorney (Prof Note: I have been ranting about this for years.  However, it is NOT enough to have PoAs executed.  My bank still will NOT recognize my financial power of attorney drafted by K&L Gates!  It is not always textbook.  The bank insists that I execute there PoA…ridiculous!); (11) Create an Estate Plan (Prof Note: YES!); (12) Don’t forget beneficiary designations (Prof Note: You need to consider if the recipient can handle the inflow of cash…very important); (13) Retirees value people over activities (Prof Note: I am truly blessed with some of the best people in life…thank you all!); (14) Don’t sacrifice your retirement savings to pay for college (Prof Note: Remember children have a great ability to pay it back.  Also, in your estate plan you can leave wealth to your children to pay off their debt or reimburse them for having to pay for it initially); (15) Don’t assume everything will go right (Prof Note: Little Willy is down AGAIN!  I continue to get water in the fuel.  Never did I think I would become a Little Willy expert but I am getting there.); (16) You might not spend less in retirement (Prof Note: What kind of life do you want to live in retirement.  I still remember a story on Nevis.  A hard-charging expat female came ramming through the gates at Cat Ghaut.  Trust me, as a mischievous redhead, I know when an older adult woman is angry and this one was furious.  I was ready!  Turns out the ire was not directed at me, thank god, and she was furious at a local bank as she had not gotten a check and was unable to pay her contractors in a few days.  Never could she have expected that.  I offered to help, she accepted and paid me back immediately when check cleared.  Moral of story: the unexpected does happen.); (17) Talk to your children about money (Prof Note: Or possibly take a class together.  I am amazed at how few people truly understand money); (18) Life a healthy lifestyle (Prof Note: just back in from a 4.5 mile jog.  However, sadly, scale said I was up!); (19) Income Roth accounts in retirement planning; (20) Personal connections matter more as you get older (Prof Note: Friends, especially long-term friends, are the best.  I just had dinner with Margot R from Hopkins.  We talked all about Mike A!); (21) Don’t ignore investment fees (Prof Note: Do not ignore fees of any kind!); (22) Take advantage of catch-up contributions; (23) Gray divorce is increasing (Prof Note: Divorce among people age 50 and older increased by over 100.0-% between 1990 and 2015); (24) Consider long-term care policies; (25) Social Security benefits might be taxable; (26) Keep your home in good condition (Prof Note: All my home renovations on Nevis are being completed in stone.  Yes, it absolutely looks wonderful but also my motto: one and done!); (27) Your ability to borrow is based on income (Prof Note: Not quite true but largely so.  I get so angry over this!  Income does not equal cash.  Also, higher income equals higher taxes.  So it is best to target optimal income.  This is a moving target largely not discussed in the classroom but lived day-to-day by many!); (28) Health savings accounts have multiple uses; (29) Don’t try to time the market (Prof Note: While I absolutely agree with this for the average investor, I will admit my powder is dry at the moment); (30) People will ask you for money (Prof Note: Sadly, this is VERY true!  The main reason for the P(Gain) Foundation is absolutely to give back.  However, an added benefit is that it shields me from individual support requests.); (31) You might still have student loan debt; (32) Be prepared for changes