Top Reads this Week (4 August)

Rounding up top reads from around the web, including articles shared by fellow investors in the Financial Horse Facebook Group.

Latest Trump tariffs to directly hit consumers (CNA)

“This hits consumers straight on,” Steve Pasierb, president of the Toy Association, said in an interview. “This is finished products. It’s not raw materials.”

The tariffs, a 10 per cent levy on US$300 billion in Chinese goods that Trump said would go into effect on Sep 1, is expected to affect just about all finished products imported from China.

Shares of retailers fell sharply Thursday, with the biggest drops affecting a group that included Best Buy, Target and Macy’s. Others to decline included Apple and Nike. Retail giants Amazon and Walmart also dipped, but by less than most of their rivals because they are viewed as having more leverage with suppliers.

Thursday’s move could threaten US consumer spending, a bedrock of support of the American and global economy that has continued to show strength in economic indicators even as manufacturing and corporate spending trends have weakened.

A Short History of Fed Rate Cuts (A Wealth of Common Sense)

The current period is unique. Interest rates, unemployment, and inflation are all low by historical standards. And this would be the first rate cut in over a decade. Plus there’s the fact that stocks have once again been hitting all-time highs in recent weeks.

The short-term impact on the markets will always be driven by whichever story investors decide to latch onto. Some will assume a rate cut will signal a weakening economy. Others will assume the Fed will ease in time to keep the party going.

Eventually, those short-term narratives have to be backed up by long-term fundamentals or they run the risk of being outed as frauds. Even with nearly 140 rate cuts since 1960, there have been 30 double-digit stock market corrections and 8 recessions in the U.S. over that time. Regardless of what they do, the Fed can’t fight off recessions or bear markets forever.

The Fed Just Cut Interest Rates. Here’s What That Means for You. (NY Times)

Technically speaking, Federal Reserve officials did not touch any of those rates when they announced a quarter-point interest-rate cut on Wednesday, the first cut in a decade. The rate they reduced is the federal funds rate, which is what banks and other financial institutions charge one another for very short-term borrowing.

By moving to reduce rates, now and possibly again this fall, policymakers are trying to reduce the risk that millions of Americans could be thrown out of work. They are trying to ward off the prospect of a job-killing recession by giving the economy a little extra boost.

Singapore manufacturing sentiment dives, services less optimistic: surveys (The Business Times)

Business sentiment for the second half of 2019 sank among manufacturers in Singapore on the back of global trade tensions, according to the latest quarterly survey by the EDB.

A weighted 22 per cent of manufacturers expect a softer business outlook for the period between July to December 2019, while only a weighted 11 per cent anticipates business conditions to improve.

How I invest my own money (Reformed Broker)

Very simply put, I’m a mixture of active and passive, a mixture of mutual funds, individual securities and ETFs, a mixture of public and private assets. What is consistent is that almost everything I do is with a long-term bias. I don’t day trade or swing trade, because I’m bad at it and I feel as though those activities are a full-time commitment. I don’t want to commit to any investing style that requires my attention all day long because I’m building and running a company. My priority is my firm, my clients and my employees. So when I invest in something, I usually intend to stay invested.

I’m not buying individual stocks because I think I’m going to generate alpha. I just love stocks and have ever since I was 20 years old. And it’s my money, I get to do whatever I want with it. Life isn’t always consistent.

My asset allocation and outside bets make sense only for me, just like your portfolio ought to make sense only for you. There is no such thing as a one-size-sits-all portfolio, because we all have different time horizons, risk factors, wants and needs and emotional triggers. I figured out what works for me, but only after a lot of trial and error over the last two decades. And lots of mistakes.

Citi to Cut Hundreds of Trading Jobs in Bad Wall Street Omen (Bloomberg)

Citigroup Inc. is preparing to cut hundreds of jobs in its trading division – stark new evidence that an industrywide slump in revenue this year may be more permanent than the tweets and policy moves rattling clients. The New York-based bank plans to slash jobs across its fixed-income and stock-trading operations over the course of 2019, according to people familiar with the matter. That includes at least 100 jobs in the equities unit, which would amount to almost 10% of the division’s workforce, the people said. About 80 of the cuts will take place at Citigroup’s London operations, one of the people said.

Nissan’s pain worsens on 99% profit plunge, 12,500 job cuts (Business Times)

Nissan Motor Co more than doubled its planned job losses and unveiled fresh production cuts after reporting its first-quarter earnings were nearly wiped out by an ageing product line-up and a slide in vehicle sales in the US and Europe.

About 12,500 jobs, mostly in manufacturing, will be eliminated globally, the automaker said in a statement on Thursday (July 25). That represents about a tenth of Nissan’s workforce, and far exceeds the 4,800 reductions announced in May. The drop in fiscal first-quarter operating profit outpaced the 66 per cent decline anticipated by analysts.

A short history of risk and reward (Alan Steel) 

I found an interview with Bernstein which took place in 2004. When asked “what are investors’ most common mistakes?” he replied, “Extrapolation.  Leaving fund managers in down years to go to whatever’s hot. The refusal to believe that shock lies in wait.  Believe me, individual investors are not the only ones who mire themselves in this mistake. It’s endemic throughout the investing community” And he continued, “I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place.  If you’re comfortable with everything you own, you’re not diversified.”

Fortunately at ASAM we still follow the advice of Benjamin Graham and Peter Bernstein.  Be curious, check for yourself (Nullius in Verba) and diversify. Diversify over styles and processes.  Embrace discomfort. Build forward from your defence. Behavioural scientists show that investors feel twice as bad about losses than they do about gains.  I keep a table handy which reminds me that from 1926 to 2018, on 54% of the days the S&P 500 rose and on 46% it fell. So reacting emotionally to negative news daily means you’ll feel terrible on average every day, since the pain from the “loss” outweighs the joy from the “gains.”  Don’t do it.

Withdraw cash at OCBC ATMs with QR code (The Business Times)

The bank is the first to offer customers cardless withdrawal. It says ATMs are still frequently used and it wants to ‘make this old-line banking activity a little more digital’.

Digital bank Atom starts to make money on loans (FT)

The UK’s first digital-only bank has finally started making money on its loans after a “painful” year in the highly competitive mortgage market. Mark Mullen, Atom Bank’s chief executive, said the group was now generating positive net interest income, as it receives more in interest in loans than it pays out to savers, by shifting towards more profitable borrowers such as first-time buyers. The bank, which gained its full banking licence in 2015, also plans to introduce several new products as it attempts to become a profitmaking business.

BlackRock lost $90bn investing in fossil fuel companies, report finds (The Guardian)

BlackRock, the world’s biggest investor, has lost an estimated $90bn over the last decade by ignoring the serious financial risk of investing in fossil fuel companies, according to economists. A report from the IEEFA has found that BlackRock has eroded the value of the $6.5tn fund by betting on oil companies that were falling in value and by missing out on growth in clean energy investments.

The report found that BlackRock’s multi-billion dollar investments in the world’s largest oil companies – including ExxonMobil, Chevron, Shell and BP– were responsible for the bulk of its losses. The fund was also stung by the collapse of big US fossil fuel companies, including General Electric, and the coal mining company Peabody.

9 in 10 Americans Regret Making This Money Mistake (Motley Fool)

To avoid impulse buys, you need to know yourself. If you’re prone to wasteful purchases — especially if you have very little room in your budget — then you have to take steps to control yourself. This is an area where anyone can improve, but you have to do the work beforehand. If your credit card isn’t in your wallet when you go to the mall (maybe it’s hidden in the car) it’s harder to spend more than the cash you budgeted to spend. Take whatever steps you need to protect your budget and avoid a serious case of buyer’s remorse.

Warren Buffett: This is the No. 1 mistake parents make when teaching kids about money (CNBC)

When asked what he thinks is the biggest mistake parents make when teaching their kids about money, the billionaire said, “Sometimes parents wait until their kids are in their teens before they start talking about managing money — when they could be starting when their kids are in preschool.”

In 2011, Buffett helped launch a children’s animated series called “Secret Millionaire’s Club,” which featured himself as a mentor to a group of students. There are 26 episodes in the show, and each one tackles a financial lesson, such as how a credit card works or why it’s important to track where you put your money. “I taught all [three] of my kids the lessons taught in ‘Secret Millionaires Club,’” Buffett told CNBC. “They are simple lessons meant for business and for life.”

Monthly household income in Singapore rising faster than expenditure (CNA)

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