Archive | March 2013

Ben Bernanke… I Love Your Package

The end is near! (for the Federal Reserve’s stimulus package)… but not really. With U.S. Stocks reaching highs and Treasury yields at close to all-time lows, some investors are beginning to speculate that the Bear market will be coming around sooner than later. Everything depends on how and when the FED will change its $85 billion monthly bond buying program which has infused the economy with “cheap-to-borrow-money”. Investors such as John Brynjolfsson, managing director of the hedge fund Armored Wolf LLC, have been bracing for what they view as an impending decline of the U.S. Economy by buying put options on the S&P 500.

I personally don’t believe the FED will change its monetary policy in 2013 due to its target unemployment rate; 6.5%. The current rate sits at 7.7%, reflecting a 0.2% drop over the period of approx. 5 months. I cannot claim to be well aquainted with the field of economics but the FED has repeatedly stated that they have no intention of changing their current policy until the target unemployment rate is met. If inflation is kept in check and the FED does not prematurely withdraw its program, faith in the economy will prevail. As an unspoken rule of the market says… Don’t fight the FED.

Evan Chang

Source:

http://online.wsj.com/article/SB10001424127887324685104578390893470777874.html?mod=WSJ_hp_LEFTWhatsNewsCollection

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Egypt Fueling the Pressure

Over the past two weeks in Egypt, food prices are soaring due to fuel prices climbing, electrical power is in question, and fights over gasoline have already killed five and wounded dozens. According to economists, the root of Egypt’s problem is that they don’t have enough cash to further import fuel, not helped by the fact that the government is trying to contain violent protests initiated by political rivals.

Due to farmers already lacking the fuel needed for their fields’ irrigation pumps, it seems out of the question that they would have enough fuel for their tractors that are supposed to harvest their wheat. If they don’t manage to harvest their crops in time, it just rots in the fields. Overseeing the issue, the U.S. recommends that Egypt carry out tax increases and make use of a $4.8 billion loan they can acquire from the International Monetary Fund. However due to disputes over how Egypt would raise taxes and cut subsidies, the loan has been stalled. Unfortunately, Egypt needs this loan badly because the $4.8 billion could reassure other future lenders of Egypt’s credit worthiness. Incredibly Egypt’s own president, Mohamed Morsi has so far resisted an I.M.F. deal, insisting that Egypt can wait, which does not seem like a wise decision.

 

Written by Kevin Zhang

Source

Kirkpatrick, David D. “Egypt, Short of Money, Sees Crisis on Food and Gas.” The New York Times. The New York Times, 31 Mar. 2013. Web. 31 Mar. 2013. <http://www.nytimes.com/2013/03/31/world/middleeast/egypt-short-of-money-sees-crisis-on-food-and-gas.html?pagewanted=all&gt;.

Why Innovators Get Better With Age

As we venture further into the future, we see that many companies are starting to hire younger and younger employees. From their initial point of view, it makes sense to do so. More energetic, less weathered, lower annual salaries and a lot lower health care expenses and retirement costs. However with age comes experience and also innovation. Innovation comes with time, and according to research by Benjamin Jones of Northwestern University, a 55-year-old has significantly more innovation potential than a 25-year-old. Although many people look toward Mark Zuckerberg of Facebook and Steve Jobs of Apple as leaders of innovation, they are only the exception. When you look at other places of innovation and creativity such as in books and theatre, many authors and directors are older.

I think this topic is controversial and definitely can use more research. Although I am looking forward to companies hiring younger employees fresh out of college, I can’t help but feel used. I really don’t agree with employers firing older employees because we will all sooner or later find ourselves in their position.

URL: http://www.nytimes.com/2013/03/31/jobs/why-innovators-get-better-with-age.html?_r=0

-Jonathan Chan

Data Storage Player Prepares to Compete Overseas

The past couple of years, cloud storage or online storage has been growing in popularity. The most popular applications such as Google drive and DropBox has made their way to most smartphones and computers. Aaron Levie, the cheif executive of Box, a relatively new private cloud storage company, has stated that their company are planning to expand to France and Germany. 

Throughout the past year, Box has raised over $150 million in capital to compete with their competitors. Aaron Levie said their main focus right now is to expand internationally and they are doing so in order to keep up with companies like Dropbox. Paris and Munich are the first targets of Box and rest of the Europe and beyond will be Box’s focus in the near future.

Personally, I do not have enough files and the necessity to pay for extra cloud storage. So I don’t think I will ever have the need to pay for it. I am assuming businesses and companies with mass files have the absolute need to have cloud storage. We’ll see if this was a wise move for Box.

-Derby Ng

http://www.nytimes.com/2013/04/01/technology/box-a-data-storage-company-prepares-to-expand-in-europe.html?ref=business&_r=0

Audi Wants to Change a 45-Year-Old U.S. Headlight Rule

Audi is planning to put its new A8 sedan in showrooms around the  world, but its new headlights will not be featured until a piece of American legislation from 1968 is repealed.  This regulation requires that headlights have a switch between a high setting and a low setting.  Although these new headlights don’t meet this requirement, they do much more.  They illuminate around corners as well as adjust automatically to pedestrians, traffic, and road conditions.  The improved headlights, if and when they are approved, are expected to raise sales for Audi.  According to Jeremy Anwyl, vice chairman of auto researcher Edmunds.com, new headlights are considered “jewelry.”  For this reason, Audi is teaming up with Mercedes-Benz, BMW, and General Motors to lobby lawmakers to change this piece of regulation.
It is not surprising to see that as technological advances are made, laws from the past are becoming obsolete.  It seems obvious that these new headlights can help drivers travel more safely, but, because of the recent cuts made to government spending, the effort by auto makers should be a challenge.

Written by: Constantine Kostikas

Source: Bloomberg Businessweek

Investors Check Out of Commodities

As the first quarter of 2013 comes to an end, investors begin to notice a decline in commodities index by 1.1%. For several years, demand for commodities has increased in a steady pace. However, this quarter reflects otherwise. Several factors that contribute to this decline are the decrease in China’s demand for commodities and the strengthening of U.S. currency; a stronger dollar leads to more expensive commodities. This behavior is different from the trend of the overall market. While stocks reflect a recovering market, the demand for commodities portrays one that is weakening. There is also a noticeable decline in the number of investors who treat commodities as financial assets; stocks have better returns with 11% increase in S&P 500-stock index. Furthermore, J.P. Morgan’s analysts have tracked low volumes in some of the most liquid commodities, namely oil, gold, and copper.

Investors often refer to the commodities super-cycle theory as a measure of the market’s performance and the value of commodities. However, it may be unexpected that its current performance is not in-sync with the performance of stocks. For example, the trend of copper’s value is often used as an indication of the economy’s activity. This was not the case for the first quarter because copper fell 6.8% this quarter. Although investors fear the decrease in China’s demand, this decline is brief as China continues to expand its economy.

 

Written by: Melody Mark

Source:

Berthelsen, Christian. “Investors Check Out of Commodities.” Wall Street Journal. Dow Jones & Company, 31 Mar. 2013. Web. 31 Mar. 2013.

Oil Pipeline Ruptures in Arkansas

03-31-2013 - Exxon Pipeline Bursts in Arkansas

On Saturday, Exxon Mobil’s Pegasus pipeline ruptured in Arkansas, causing a leakage of oil that spread across the local town of Mayflower. Approximately “4,500 barrels of oil and water had been removed by Saturday evening,” and Exxon has shut down the pipeline to try and prevent any further damage. The oil leak was bad enough that 22 homes had to be evacuated. Exxon worked to ensure that the nearby lake was not harmed by the leak.

I feel that while the damages may not be enough to really hurt Exxon, it may provide some fodder for the opponents of the Keystone XL pipeline proposition. The main criticism of the pipeline lies with its environmental impact, focusing on the carbon dioxide that is produced when gathering fuel from oil sands, which is produced at a relatively higher level when compared to other methods of fuel generation. However, this latest incident provides physical evidence of potential damages. It is not much, but it is something to consider, and it could have some effect on the analysis of the pipeline. In the broader perspective, I doubt this single incident will have a large impact on the oil industry, let alone Exxon. Exxon quickly responded and reduced damages.

Sources:

http://www.nytimes.com/2013/03/31/us/oil-pipeline-ruptures-in-arkansas.html?_r=0

http://www.bloomberg.com/news/2013-03-27/state-department-won-t-release-comments-on-keystone-study.html

Companies Find Loopholes For Oversea Deposits

Many large firms hold large amounts of money overseas, and although this money is held overseas some of these companies are making usage of that money in the United States. Several companies have been finding loopholes in the IRS and have been legally borrowing money using their oversea assets to buy back their own stocks or to run daily company activities. The money being taken out is short term, so the laws binding the money are different than those for long term. With even more loopholes companies do not have to pay taxes on this money, and as more companies are depositing their money oversees such practices become more common. Companies that do this do not need to disclose this information, thus the public is not aware of how many companies use such tactics.

It is difficult for the IRS to close all possible loopholes, as our country advances more methods are being exploited to decrease cost and increase profit of companies. Although it may be very difficult to close all loopholes the IRS should try its best to close loopholes that they know exist, especially if the loopholes are used in an unfair manner by large corporations.

Written by: Jessica Ho
Source: The Wall Street Journal

Linebaugh, Kate. (2013) How Firms Tap Overseas Cash. The Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424127887323361804578388522312624686.html?mod=WSJ_business_whatsNews

Bank of Cyprus’s Customers May Lose as Much as 60% on Deposits

The financial collapse of Cyprus Popular Bank has declined the trust in the banking industry. Many people will be losing a portion of their hard earned money as part of a deal to prevent the country from going bankrupt. Customers of the Cyprus will lose as much as 60% of their deposits that exceed 100,000 euros or $128,000 in US currency. Of the 60% 37.5% of customer deposits will be converted into shares with full voting rights and future dividend while the remaining 22.5% will be frozen. The deposits of customers that will be frozen to ensure that lenders can recapitalize will receive a 10% interest rate above the current interest rate and will be released soon. Cyprus will also be divided into good and bad banks, deposits of less than 100,000 euros will go to the good banks and deposits of more than 100,000 will go to the bad bank.

With the failure of major banks, depositors will lose their trust in the banking industry. A similar situation with the failure of banks led to the great depression and this situation could lead to a similar downfall of the country. Banks should take more precautions and have more effective back up plans if situations like the financial collapse of Cyprus Popular Bank arise.

Written by: Wilson Tang

Source:

http://www.bloomberg.com/news/2013-03-30/bank-of-cyprus-s-customers-may-lose-as-much-as-60-on-deposits.html

Approval for Facebook’s Acquisition of Atlas Corp.

Facebook has successful won the approval from the U.S. antitrust authorities for their acquisition of Atlas Advertiser Suite, an advertisement company. The U.S. Federal Trade Commission announced approval on March 29, 2013; an victory for Facebook since the social network service based company relays heavily on advertisement clients for profit.

This acquisition of Atlas by Facebook, will be a threat to Google especially since Google has a 18 percent U.S display-ad market while Facebook only trails slightly behind with a 15 percent market share.

The service that Atlas contributes include monitoring the performance of the effectiveness of an advertisement campaign on its own company and well as other sites on the web; Atlas can also help companies choose and place ads on certain websites that are envisioned, based on statistics, to be the most effective. This information and service that Facebook will potentially own is a great measure in making more efficient and better marketing campaigns. The purchase of Atlas is a decision that is deemed to be brilliant, since online advertising business is set to grow at a continual pace for many years to come.

Written by: Victor To

Source:http://www.bloomberg.com/news/2013-03-29/zuckerberg-deal-with-microsoft-wins-antitrust-approval.html

Court Approves Winner in Rhythm & Hues Bankruptcy Auction

Prana Studios Inc. has acquired a visual effects company that filed for bankruptcy protection in February, called Rhythm & Hues Studios Inc. Prana Studios Inc. is a world-class animation company that has done cutting-edge visual effects and used innovative technology.  During the bankruptcy auction that took place, Prana had the winning bid of $1.2 million in cash and would also finance other costs up to $17 million that included other payments and debt obligations.  Other unfortunate companies such as Prime Focus Ltd. And Brave Vision Investments Limited lost the auction to 34×118 Holdings Inc., which emerged the winner.

Rhythm & Hues filed for bankruptcy protection because many of their movie projects have been delayed as well as 254 of the 718 employees were laid off. The company is popular for winning the visual effects Oscar for “Life of Pi,” which cost them tax subsidies in foreign countries and competition from lower-developing markets. When a company like Prana acquires companies that file for bankruptcy, I believe that it can be beneficial to both. Since Prana is a well-known company for specializing in animation, which can bring success to Rhythm & Hues as well. This acquisition and bring more profit to both companies and decrease their competition in the market.

Written by: Samantha Chin

Source: The Wall Street Journal

Fritz, B. (2013, March 30). Court Approves Winner in Rhythm & Hues Bankruptcy Auction. Retrieved March 31, 2013, from The Wall Street Journal : http://online.wsj.com/article/SB10001424127887324685104578391562557075092.html

Americans Are Earning More Money, and Aren’t Afraid to Spend It

The American economy is accelerating, as signaled by the rise in consumer spending in February.  Similarly income growth rose, which will help to prepare Americans for the $85 billion-worth of cuts in government spending.  Last month, the price of gas increased by 35 cents a gallon, which accounted for a big portion of the 0.7% increase in consumer spending.  However, Americans also bought more long-lasting goods like automobiles.  The increase in consumer spending, which accounts for 70% of the United States economic activity, came as a surprise because of the tax hikes Americans saw in the first quarter.

Perhaps the most encouraging number the United States has seen is the 0.7% increase in disposable income.  Despite the tax hikes, American households were able to spend more money on consumer products and services last month than they were in January.  The American economy is driven by consumption, so the numbers posted for February are definitely a good sign going forward.

Written by: Constantine Kostikas

Source: The New York Times

 

China’s Tactics to Prevent a Housing Bubble Crisis

The American housing bubble crisis has been sent a signal to many countries for their outlook on any possible similar situation. China has taken precautions when they saw a possibility of a housing bubble occurring in China. In China’s capital, Beijing, there is a law that forbids any single-person households from buying more than 1 residential unit and for those with the second homes, the government bumped up the minimum down payment.

To further an effective cool down in the rise of property demand increase, the government tries disincentive people to buy housing property by initiating a 20 percent capital gain tax on the property. Despite these laws to deter people from causing a housing bubble crisis, researchers at the Chinese Academy of Social Sciences proclaims that this will only cause a short term cool down since the demand for properties are still going to rise in the long run.

Examples of growth are shown in last year statistics where Beijing had a 5.9 percent increase compared to 2011; in Shanghai, housing prices grew a substantial 3.4 percent when compared to previous year.

Written by: Victor To

Source: http://www.bloomberg.com/news/2013-03-30/beijing-bans-single-person-households-from-buying-second-homes.html

The Dying Breed of Toys “R” Us Kids

Toys “R” Us Inc. has abandoned plans for an initial pulic offering after almost three years since the company announced it’s intention to pursue one. The company had first registered for an IPO in May 2010 but has pulled it’s decision due their lackluster performance and a change in management. In the period of a year, Toys “R” Us reported a decrease in profit from $343 million to $239 million; Interest expense and income tax expense increased accordingly.

Toys “R” Us has been hit by the increase of online retailers and the shifting trend away from toys in favor of electronic gadgets. Consumers no longer have to leave their homes to buy any variation of presents; a development which has affected electronic retail giant Best Buy as well. The toy company has a website where constomers can purchase their products but retailers such as Amazon are much more popular and have a greater online presence. The toy company should change it’s marketing strategy if it hopes to regain it’s previous financal status.

Evan Chang

Source:

http://online.wsj.com/article/SB10001424127887324000704578390740125752704.html?mod=WSJ_hp_LEFTWhatsNewsCollection