Archive | April 26, 2013

The Aftermath of The Cyprus Bailout

Policy makers the Europe have successfully helped to bail out Cyprus out of its economic crisis, but many small business throughout the Euro-zone continue to struggle, which in turn causes their economy to continue on down the path of a shrinking economy. After Cyprus’ banking crisis, the amount of money being help in their banks have seen large decreases and in return other countries have seen increases in deposit. This hit towards Cyprus banks actually helped to stimulate banks in neighboring countries. Although Cyprus saw large conflicts in the money held in their savings accounts, this did not discourage citizens of other countries to feel that their money was unsafe in bank deposits. Though Cyprus’ crisis was not a positive situation, the turn out of the bailout did not have an extreme negative impact.

It is a good sign that people in other countries do not feel threatened by the situation in Cyprus. If people in neighboring countries had felt like the same situation may occur to them, then banks would see a large number of people flooding in to withdraw all the money from their savings accounts, which would in turn lead to an even deeper economic crisis.

Written by: Jessica Ho
Source: The Wall Street Journal

http://online.wsj.com/article/SB10001424127887324743704578446713186211992.html?mod=WSJ_economy_LeftTopHighlights

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Businesses Take a Cautious Approach to Disclosures Using Social Media

In the beginning of this month, Securities and Exchange commission released guidelines and rules regarding the disclosure of company information on social media giants such as Facebook and Twitter.

Zynga being on the first companies to take a stab at this new method of releasing their information through their corporate blog and through Facebook and Twitter. This idea is relatively new and it is still risky for companies to put their corporate information on Facebook or Twitter. There are still a lot of uncertainties about this approach but as technology grows, more companies will able more willing to try out this method.

The new rules and guidelines set by the SEC could be a changing factor for investors in the future, for new start ups and younger corporations, these laws could make easier for the newer corporations to reach out to investors and make it less skeptical for these start ups to do  so.

-Derby Ng

http://dealbook.nytimes.com/2013/04/25/businesses-take-a-wary-approach-to-disclosures-using-social-media/

U.K. Has Unwinnable Battle on Tax Avoidance, Panel Says

Tax evasion has been an issue for many countries around the world because of the difficulty of tracking all funds. The U.S. government has implemented and revised various plans that would eliminate loopholes. However, the United Kingdom has been struggling to find the perfect solution. House of Commons Public Accounts Committee (HMRC) is aiming to increase transparency among private companies. Multinational businesses are reluctant to reveal their books because they would have to follow tax regulations for every country they operate in.  The committee also supports the idea of simplifying tax laws to eliminate businesses’ attempt to avoid paying taxes. The complexity of the system discourages taxpayers from understanding and agreeing with the system.

This situation is very similar to the one that the U.S. is currently dealing with. Analysts find that accounting firms have created multiple tiers of advisory and procedures that makes the system complicated. Although tax laws continue to prevent people from evading taxes, there is little improvement within the system. It will take time for the government to simplify the system because many lobbyists support this complex system.

 

Written By: Melody Mark

Source:

Penny, Thomas. “U.K. Has Unwinnable Battle on Tax Avoidance, Panel Says.” Bloomberg. Bloomberg L.P., 25 Apr. 2013. Web. 26 Apr. 2013.

In China, the License Plates Can Cost More Than the Car

The Chinese automobile industry is suffering largely because of the quota system the government has adopted.  In recent months, Chinese consumers have paid 90,000 yuan ($14,530) for license auctions.  The price for a license plate has exceeded the cost of cheaper cars that thrived in the past.  As a result, only wealthier consumers can afford to drive, and many of them prefer the cars of foreign automakers; more than 90% of cars in Shanghai are made by foreign companies.  The entry of local Chinese automakers into the industry was possible almost solely because of their cheaper prices.  Without the price advantage, they would not have been able to compete with foreign companies, but now they are facing a similar problem.  They must decide on whether or not they are able and willing to make more expensive cars in an effort to compete with the bigger Western companies.

The struggle that Chinese automakers will likely endure is sure to be an uphill battle because they cannot compete with foreign automakers.  Barriers to entry into the Chinese car industry are evidently high, and local businesses should be hit the hardest.

Written by: Constantine Kostikas

Source: Businessweek.com

 

When Things Go South…Then North

Daimler, the maker of Mercedes-Benz autos and trucks represents Germany’s industrial might. However, when even Daimler announces that they are feeling the effects of the European economic crisis, then you know something’s up; it was an ominous sign for the continent. In the past, its been that German exporters have been seen as a beacon of stability in a land troubled with dysfunctional governments, shaky banks, and the large amount of unemployed youth, including the worst automotive slump in the last two decades. Daimler’s foggy forecast for 2013 indicates that relatively healthy countries such as Germany, Austria, and Finland are at the verge of  falling into recession which has been plaguing their neighbors to the South.

In the case that Germany does fall into a recession, a lot of things would be dragged along with it. Germany and the 26 countries of the European Union together represent the world’s second-largest economy, plus a German recession would cause a further delay in the recovery of the European economy and negatively affect growth in the United States, Asia and Latin America. According to Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “The E.U. has made Europe a much more cohesive economy, which is good when things are going up,” he said. “But when things are going down the multiplier is very strong. An outgoing tide lowers all ships.”

Written by Kevin Zhang

Source:

http://www.nytimes.com/2013/04/26/business/southern-europes-recession-threatens-to-spread-north.html?ref=business&_r=1&

GDP Grows 2.5%

Actual growth of the U.S. economy was .7% lower than projections by economists; expansion was reported at a 2.5% rate between January and March. This change reflects the decline in investments by businesses after a strong finish to last year; companies have cut overall spending on new buildings for the first time in two years and lowered inventory levels. “It is likely that the contraction in federal; defense and nondefense spending, reflects the onset of sequestration” said Alan B. Krueger, chairman of the White House’s Council of Economic Advisers. Consumer spending is the primary factor in growth but the increase in payroll taxes has resulted in most expenditures being focused on necessary commodities.  

The economy has grown for 15 consecutive quarters at an average of 2% annually; this is considered weak by historical standards. The 2.5% rate of expansion in the first quarter is raising concerns of slow growth this year.

Evan Chan g

Source: The Wall Street Journal

http://online.wsj.com/article/SB10001424127887323789704578446513668963282.html?mod=WSJ_hps_LEFTTopStories

Shopping Tax Free on the Web Nears End

Last Thursday, the Senate passed a 63-to-30 procedural vote to pass the Marketplace Fairness Act, which is a bill ending tax-free shipping online. The final Senate vote is scheduled for May 6. With the growth of online retailers who are beginning to expand their operations nationwide, they have been benefitting from not having to charge shoppers a sales tax. This bill would replace a Supreme Court decision that was made in 1992 where it held that states could not force a retailer to collect sales tax unless they had a physical property such as a store or warehouse. The Chief Executive of eBay, John Donahoe believes that it would damage smaller retailers because it would be treating them the same way as it treats larger merchants. Amazon gave their employees color-coded U.S. maps so that it would show present red states that symbolized it would trigger sales-tax collection if travelled that far. Amazon thought of a technique to go around this by building distribution centers close to urban centers for delaying the start of sales-tax collection.

I believe that the Chief Executive of eBay made a strong point about the new bill that could possibly affect smaller businesses. Since eBay and possibly other online Web Stores collect commission fees from sellers, having a sales tax to online retailers could take away these small retailers. Overall this new sales tax on online orders can affect the amount of consumer spending through online stores, as well as have a decline in the small businesses or individuals who choose to have their business through online rather than storefronts.

Written by: Samantha Chin

Source: The Wall Street Journal

http://online.wsj.com/article/SB10001424127887324743704578445220306876996.html?mod=WSJ_business_whatsNews

Samsung Galaxy Drives Record Profit as S4 Hits Stores

The gap between Samsung and their biggest competitor Apple is gradually closing as Samsung overtakes Apple’s market shares. The highly anticipated Samsung Galaxy S4 went on sale in South Korea and the US will begin to sell the device soon. The demand for the Samsung Galaxy S4 is so great that the release date had to be pushed back to May 30th. As Samsung is gradually taking the lead in the smartphone industry, massive profits are being generated. The net income rose 42% to 7.15 trillion won and as smartphones sales increased by 56% to 69.4 million units. The amount of smartphones sold by Samsung is nearly double of Apples output.

Samsung is motivated to take back their number one spot in the smartphone industry which Apple has taken with the release of their iPhones. Each time Samsung releases a new and innovative product, Apple loses a portion of their market shares to Samsung. An analyst at IBK securities Co. said “it yet again succeeded in taking away some of the smartphone share from Apple”. Although the release of the S4 did not have much effect on the market because investors already knew about the profits from earlier, the company is expected to grow at a very rapid rate to shorten the gap between their biggest competitors.

Written by: Wilson Tang

Source:

http://www.bloomberg.com/news/2013-04-25/samsung-electronics-profit-beats-estimates-on-galaxy-sales.html

Treasuries Gain as U.S. Economic Growth Is Slower Than Forecast

It would seem that the celebrations about a recovering economy started a little too early. There is a looming slowdown threatening to appear in the U.S. recovery. Recently, some economists were considering the possibility of tapering off the current stimulus policy in place by the Fed, but those plans will surely be halted now. Consumers seem to be losing faith. Confidence has slipped, and “the economy has already lost momentum.”

In observing the treasury markets, there seems to be the belief that the government will be continuing its quantitative easing for quite some time. Volatility has hit a record low and the ten-year note yield continues to fall. The current yield, 1.155, is lower than the forecast from a Bloomberg news survey, 1.163.

It would seem that the lingering recession is still on the economy’s tail, forcing the Fed to remain aggressive in its fight against deflation. Thankfully, the Fed has set benchmarks that it hopes to reach through its quantitative easing, and until those goals are all reached, it is expected that Bernanke will stay the course. However, Bernanke may not be the one in charge of the recovery efforts if the process takes too long, since his second term ends in January 2014.

Source:
http://www.bloomberg.com/news/2013-04-26/treasuries-little-changed-before-gdp-data-after-volatility-drops.html

Corporate News: Penney Gets Shot In the Arm From Soros

J.C Penney Co. has been in a state of turmoil due to a very deep decline in sales. The blame for J.C. Penney’s sales decline has been placed on the former Chief Executive, Ron Johnson. His revolutionary plan to cut sales in favor of everyday low prices has backfired and alienated many of their “bargain” shoppers. This untested strategy which failed essentially led J.C. Penney to replace Ron Johnson with his predecessor, Myron “Mike” Ullman. Another hurdle Penney is trying to pass is the legality of selling Martha Stewart brand goods, exclusively at their home department.

Despite their unstable position, Financier George Soros purchased roughly a 8% stake in J.C. Penney Co. which expresses confidence in a better future. Soros Fund Management LLC acquired around 17.4 million Penney shares and this helped raise some funds for Penney’s deteriorating cash flow.

This is not only extremely important, but also relevant to all of our lives. Most of us have been to or seen J.C Penney. The failure of this major department store could have catastrophic effects on our economy.

URL: http://online.wsj.com/article/SB10001424127887324743704578445213440385802.html

-Jonathan Chan