The Widow and the Jars of Oil – Lesson 2

We move to the second verse. “What shall I do?” Elisha asked. “How much food do you have in the house?” Nothing at all, except a jar of olive oil, ” she replied. – II King 4:2 (LB)

What came to mind here is this – it isn’t just about resources or the lack thereof but resourcefulness i.e taking what you have and putting it to work.

Even though, the widow had written it off as nothing. She didn’t think it was worth much and it probably wasn’t worth much anyway. Here we see a miracle that changed the story from a jar of oil (probably half used) to jars of oil.

The question then becomes what do you have in your life or in your house that you have written off?

That voice, that inquisitive mind, those creative hands… They may not be worth much now but with some effort and a big dose of favour, you’d be shocked at what could come out of it.

In simple English, do not write off any thing or any skill or any relationship. Explore every one of them, you never know which one will ‘blow’

The Widow and the Jars of Oil – Lesson 1

I was reading II Kings 4 and it occurred to me that there was a bit more to it than a miracle. Will try to unpack it as much as I can in a 4 part series.

“One day the wife of one of the seminary students came to Elisha to tell him of her husband’s death. He was a man who loved God, she said. But he had owed some money when he died, now the creditor was demanding it back. If she didn’t pay, he said he would have her two sons as his slaves” – II Kings 4:1 (LB)

Some of the things I picked out –

🔳The now-deceased husband was educated (seminary student) but that didn’t mean he had the appropriate financial education. That you understand Bible/ financial modelling doesn’t mean you know how to manage your money.

🔳It’s good to follow and worship God but that may not necessarily remove you from the consequences of a lack of financial education or bad financial decisions.

🔳It appears he carried his wife along in his financial decisions given she was aware of the debt. Which is a good one. But could she have signed off on it, knowing those terms?

🔳He signed off on a loan agreement but did he even recognise/understand the terms that were in the fine prints.

The overarching lesson to me was this – Life happens and those you leave behind would have to deal with the consequences. So as much as possible try have things tidied up.

Negative crude oil, what happened there?

Perhaps, we can try to put yesterday’s negative oil story in proper context.

There are different types of crude oil and crude oil contracts, which is typically based on the quality of the crude. There are two main types: Brent and WTI. Some others include Bonny Light, Qua Iboe etc.. It was just the WTI that went below zero, Brent was still about $25.

And Nigeria’s Bonny Light is priced relative to the brent.

Oil is sold via futures contract (story for another day). It was the contract for May delivery that went below zero. The contracts for delivery at dates further in the future were still in the +$20 level.

Why did it go sub zero?

There was an issue with storage. The world is running out of storage capacity. So nobody, wanted to buy a May delivery contract and have to take delivery in a few days time when they have no place to keep it.

A lot of crude oil is really just staying on ships, floating on sea and that comes at a cost.

So buyers, simply said – you have this oil and you have no where to keep it. I can buy it from you but you’d have to pay me to keep it.
Hence, the negative price on WTI for May delivery.

In Nigeria, our Bonny Light is not selling at zero or negative yet. Although, there is the issue of no buyers and having to sell at high discounts.

Besides, there is also the issue of our production cost which is almost $30, so at $25, we are basically selling at a loss.

Finally, Nigeria needs the price to go to about $133 per barrel to balance the budget. Clearly, that’s not happening anytime soon.

Are we heading into a recession?

That’s one of the big questions out there. Understanding the GDP would help answer that question.

If you are a maths person:

GDP = Household Consumption (C) + Business Investment (I) + Government Spending (G) + Exports (X) – Imports (M)

Now, there are two main issues the economy is facing right now:

The decline in the price of crude oil. Prices have barely budged, even after OPEC+ announced a historic production cut.

The lockdown and its impact on regular activities.

Now, let’s unpack that equation:

Though there’s more spending on food, other things like entertainment, transport is significantly impacted. So (C) would have reduced.

Though some companies have seen higher IT expenses, not many businesses are expanding or hiring or undertaking any major projects. So (I) would have reduced.

Though there is higher government spending on COVID-19 intervention, there’s a halt on infrastructure spending as well as a sizeable part of government recurrent – travel, training. Besides, the decline in crude means lower government income. So (G) is probably down.

Our major export is crude, with lower oil prices our export is certainly down. So (X) is going to be lower.

Our major international partners are on lockdown, so most likely that there is a slowdown in import as well. So (M) is probably down.

If we add up all 5, GDP is probably lower.

However, to officially be in a recession, it needs to decline for two consecutive quarters (6-months). In Nigeria, things have been slowing down since February. Now, we are in April, how soon do you think things would be back to normal?

To avert a recession the government in some developed countries are putting money in people’s account to manage the fall in (C) – Fiscal Policy

We are also seeing central banks slash or freeze interest rate to support (I) – Monetary Policy

Directory of Stockbrokers in Nigeria with an Online Trading Portal

Did you know we have over 200 securities brokerage firms in Nigeria? Ye, they are that many.

If you want to buy/sell stocks and bonds in Nigeria, you’d need to open a brokerage account with a stockbroker that is a dealing member of the Nigerian Stock Exchange (NSE). Interestingly, in recent years, we’ve also seen some fintech platforms provide brokerage services in affiliation with a licensed dealing member firm.

Here you can find a list of all the active stockbrokers in the country.

The NSE also publishes a list of top ten stockbrokers every week. You can see that of last week here.

It’s important to note that not all brokers serve individual client, some focus on only institutional clients. Also, not all brokers have a web portal for remote trading.

Here is a list of some of the stockbrokers with online trading portals:

Apt E-trade
ARM Stocktrade
Bancorp eTrade
Reward TradeBook
Stanbic IBTC E-Trade
Source: Proshare

In recent years, we have also seen some fintech platforms provide brokerage services in partnership with some dealing member firms. For instance we have partnering with Sankore Securities Limited.

Please note that this is not an exhaustive list and we would continue to update it with time.

Just contact any of them via their website to get guidance on their internal processes and fees.

Articles Worth Sharing

We will share the link to blog post from around the interweb that we think is worth your reading time.

April 05, 2020
Why Most People Will Never Be Good at Investing

April 16, 2020
7 people confess the biggest mistakes they made during the last recession — and how they’ll protect themselves next time

April 25, 2020
How to design an antifragile career

June 14, 2020

Peter Thiel: Seven Surprising Keys To Market-Creating Innovation

The Side Effects of Social Distancing

First off, we all need to take seriously the social distancing guidelines issued by the government. The health and lives of many people depend on it.
Asides from the current social and economic effects of the corona virus, there would be aftereffects.

For instance, would we be surprised to see a baby boom in the next 9-months?
Also, could we see global warming dial back given the sharp reduction in emissions from factories, airplanes etc.

Now that couples are stuck with each other in the house, maybe they actually have those deep conversations. It could also pan out that they are in each others face to much and that could throw up issues of its own.

Anyway, I’m certain we would come out of this situation. However, many areas of our life and business are going to be completely upended.

While some industries/ businesses are going to be hurt and we would have some new industries/businesses and some would start bloom.

After this COVID-19 situation it may pan out that businesses realize they can do this remote work thing, so they scale back on leasing large office spaces in favor of co-working spaces.
It may also pan out that people figure they can leave in Ikorodu and work on the Island, if they only need to make the commute once or twice in a week.

Anyway, I think there would be many unintended consequences from this crisis and those who are able to correctly identify the winners and losers would be the success stories of this decade.

How to Allocate your Monthly Salary

Remember the popular 50.30.20 budget? Do you feel it’s appropriate for you?

Last weekend, someone in the Tribe asked why he should allocate only 20% of his salary to savings/investments. He felt it was too small.

I just want to point out that the 50.30.20 budget is only a guide. You can spin it anyhow you want.
The important takeaway is you need to have a structure that works for you in terms of where you are financially and where you want to get to as well as the things that are important to you.

Here I share about 4 systems:

50.30.20 – I call this the balanced budget basically because all the main allocations are close together. – This is basically the balanced budget but with a dedicated allocation to giving. (Aggressive Saver)- This could work for a dual income family. It could also work for families that live in their own house and don’t have to pay a rent or mortgage. (Extreme Saver) – This could be a typical graduate on his/her first job and living with their parents. It could also be someone looking to hit financial independence very fast.

Just to reiterate, you can spin the ratios anyhow you want. So long as you have an allocation for savings and investments and you want that to be at least 10-20%. The rest you can change as you please.

What can you invest in- Bonds (Fixed Income)

These are debt securities that pay a pre-determined rate of return on pre-determined dates and also promise to repay the principal at a pre-determined date.

You are pretty much giving out a loan just like a bank would do to a company or the government.

These are more risky than cash/cash equivalents, hence they offer higher returns particularly when it involves a corporate or a state government.

The investment options here include:

â–¶FGN Savings Bond – Medium term loans to the federal government of Nigeria. With tenures of 2 & 3 years. This has a minimum of N5,000 and is sold in the first full week of every month.

â–¶FGN Bond – Long term loan to the federal government. It can be as long as 20 years. You get your coupon (interest) every six months. This gets advertised in the newspapers.

Others include:

â–¶State/Municipal Bonds – Issued by state governments and local governments.

â–¶Corporate bonds – Issued by large companies.

â–¶Eurobonds – Dollar denominated bonds issued by the government or companies.

â–¶Supranational Bonds – Issued by multilateral organisations like the World bank, IFC.

These typically get snapped up by institutional and high net worth individuals, so you may not see this advertised. To know about these, you’d have to be on the mailing list of an investment bank, stockbroker and other closed groups. They typically would have a minimum threshold of about N5 million.

Some investment banks and fintech platforms also retail them.

What can you invest in -Cash & Near Cash Options

According to a 2018 report by UBS and Campden Wealth, the world’s super rich had 7 percent of their portfolio in cash and near cash instruments.

So even though the rates have dropped, you still need to have some of your money in this asset class, particularly your emergency savings.

Apart from making cash available for unforeseen events, it also makes some cash available to grab so fantastic opportunities.

In general, these are low risk investments with tenures of less than one year. As such the returns are quite low. However, it is possible to get higher returns if you are placing money with non-bank financial institutions or a microfinance bank.

The investment options here include:

ï”·Traditional savings account with a commercial bank – This have the lowest return and are insured by the government to a certain level.

ï”·Online savings account – They have much higher yields and offered mostly by fintech startups. They mostly do not have any form of deposit insurance except for those affiliated with commercial banks.

ï”·Fixed deposit account with a commercial bank – This is a termed deposit account and the rates are negotiable depending on the size of the fund and the duration of the deposit.

ï”·Fixed deposit account with a microfinance bank – Same as fixed deposits with commercial banks but offered by microfinance banks. As such, they are higher risk given that Mfbs give unsecured loans.

ï”·Treasury Bills – Short term loans to the federal government.

ï”·Commercial Paper – Short-term borrowing by the biggest private companies. With tenures of less than 1-year. This has a minimum of N5 Million.

You can invest in any of these directly or through money market fund.