Naira slumps to 523 against dollar at parallel market

Your Morning Snippets – July 29, 2021

On this day in 1909, the newly formed General Motors Corporation (GM) acquires the country’s leading luxury automaker, the Cadillac Automobile Company, for $4.5 million. Cadillac was founded out of the ruins of automotive pioneer Henry Ford’s second failed company (his third effort, the Ford Motor Company, finally succeeded).

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CBN Releases $200m to Banks to Quell FX Speculation​

Your Morning Snippets – July 28, 2021

On this Day in 1971, Wells Fargo launches the world’s first stock-index fund with $6 million from the pension fund of Samsonite Corp. The trader executing the orders for the new fund immediately acquires the sarcastic nickname “Discount Diane.”

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Tesla Reports Stronger-than-Expected Quarterly Earnings

Your Morning Snippets – July 27, 2021

On this day in 1949, the world’s first jet-propelled airliner, the British De Havilland Comet, makes its maiden test-flight in England. The jet engine would ultimately revolutionize the airline industry, shrinking air travel time in half by enabling planes to climb faster and fly higher.

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Getting started as an Investor

Before you get started as an investor, you need to earn the right to invest and to earn that right you need to do the following things:

  • Determine your current financial situation and estimate your net worth – As with every journey, it must start with identifying clearly where you currently stand. This entails accessing your current financial situation – estimating your current net worth (a computation of the value of all your assets – cash, bank balances, property, jewelry and then subtracting from it all liabilities – credit card debts, car loans) and tracking the flow of your finances (a computation of all income sources – salaries, dividends and then subtracting from it all your expenses – home maintenance, utility bills).

The information gives you an idea of how much you are worth i.e. what you own and what you owe. It also helps you track the flow of funds in and out of your life. These are not just academic exercises; they are to help you make key decisions pertaining to your finances – where cuts can be made to increase funds available for investment.

  • Pay off any high interest debts – If the analysis of your current financial situation reveals you have high interest debts, you need to tackle this head-on before you start investing. There is no point investing to earn 10% per annum if you are paying double that or more in interest on your loan. If for example, you have N500,000 in an investment account (at 10% pa) and N500,000 in debt (at 20% pa). You will earn N50,000 in interests while paying out N100,000, resulting in a net interest payment of N50,000. But if you paid off the debt instead of investing, you’d have a net interest payment on zero.
  • Establish an emergency savings fund – Life is full of uncertainties, and from time to time unexpected events happen. Imagine, you’ve paid down your debts and have started investing, but you suddenly lose your job. Without an emergency savings, you’d either have to liquidate your investments possibly at a loss or take on new debt. Alas, you are back where you started – no investment and in debt.

We talk about this in more detail in the Foundations of Budgeting and Savings e-Course. However, you just need to keep in mind that most financial planning professionals suggest that an emergency savings should be able to cover your living expenses for 3 – 6 months.

  • Develop a financial plan – Now that you know where you are, you must from that point determine how to embark on the journey – shortest route, safest route etc. Developing a financial plan would depend on two things: your goals are and your risk tolerance level.

These are a personal issue. As such, you must resist the idea of developing a financial plan on generalized goals – financial security or comfortable retirement. Refer to lesson 2 for additional guidance on investment objectives. Your risk tolerance level can be ascertained by completing a risk tolerance questionnaire (sample attached).

If you have taken the 4 steps enumerated above; you can now be on your way to building your investment portfolio – implementing the things you’ve learnt on this course.

The Widow and the Jars of Oil – Lesson 4

In this final lesson, we see the widow and her sons roll up their sleeves to do some work – In verse 4, they go into production and in verse 7, they go into sales.

“Go into your house with your sons and shut the door behind you. Then pour olive oil from your jar into the pots and pans, setting them aside as they are filled!”…“Go and sell the oil and pay your debt, and there will be enough money left for you and your sons to live on!” 2 Kings 4:4-7 (LB)

What are you producing? How good are your products?

After, doing all the networking and raising capital, a time comes when you need to shut the doors and build products that work.

What are you selling? How well are you selling it?

It’s not enough to just produce, you must also sell then. Even in the corporate world, it’s often not enough to just do your work, you need to sell yourself

After, attending the conferences, seminars, networking events, prayer meetings and fund raisers, don’t forget to do the actual work of producing and selling, that’s how bills get paid.

The Widow and the Jars of Oil – Lesson 3

We move to the third verse. “Then borrow many pots and pans from your friends and neighbours!” he instructed. – II Kings 4:3 (LB)

This speaks about leverage and relationships.

Interestingly, the original problem was a debt problem, now the solution involves more debt.

There’s many approaches to debt – some think it’s a sin, some loathe it, some are indifferent and some swim in debt.

I think when used responsibly, debt provides leverage. How many pots and pans could one household have but by borrowing, they were able to scale their miracle.

Debt isn’t inherently good or bad, the thing is – What are you borrowing for? How would you pay back?

Relationships are also a good source of leverage. Imagine, if they were the nasty neighbours, who would lend them pots and pans?

In summary, have good credit (be creditworthy) and have good relationships. They can be game changers for your finances.

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