October 31, 2012

 Companies and Markets

Apple uses Mini iPad targets education audiences

The introduction of a thinner, lighter, cheaper “mini” iPad is Apple’s attempt to tap the corporate and education markets. It seeks to obtain a new, large source of revenue separate from the traditional consumer. The success of the iPad has allowed it to become a catalyst of growth for other, tablet based companies, like digital textbook publishers.

Food for thought
Technology has become prevalent in schools; companies like Apple are seeking to capitalize on this movement. Children know how to use smartphones before they know how to walk. Consider how the introduction of Apples “mini” iPad, or any other technology, in schools has changed its dynamics.

(Financial Times October 24 2012)

Microsoft changes disclosure policy

Monday Microsoft stated that it would change its recent disclosure policy to inform consumers that personal information collected would not be used in targeted online advertising. Products affected include Hotmail and Outlook.com, which had Service Agreements that allowed Microsoft to collect and use this personal information to produce/promote, targeted online advertising. Products like Internet Explorer will still continue to collect this data, with its Service Agreement remaining unchanged.

Food for thought
With personal information scattered throughout the web, it is easy to believe that companies will not use consumer information without notifying them. Usually this does no more harm than advertising, but how should online privacy be treated?

(The New York Times October 23, 2012)

UBS Cuts Staff

UBS’s restructuring has left many employees at loss for how to move forward. The cuts are called “extraordinary and brutal” and the backlash across social media is widespread. Stories emerged of not knowing you are no longer an employee until you cannot get into the building because their passes have been deactivated and desks are gone. The job cuts will reduce UBS’s payroll by 16% and are aimed at saving $3.6 billion over the next three years.

Food for thought
Employee morale is important in all aspects of business, and can go downhill quickly in company restructuring such as UBS’s. Is UBS handling its morale adequately? How can you prevent laid off employees from being dissatisfied?

(http://search.ft.com/search?queryText=UBS Financial Times)

World News

Hurricane Sandy sets records

Hurricane Sandy wreaked havoc earlier this week, given that it was a record setting storm. Covering an area approximately twice the size of Texas, Hurricane Sandy left behind millions of Northeasterner’s without electricity. While the cost of this hurricane is not expected to surpass that of Hurricane Katrina, Sandy has devastated many areas.

Food for thought:

Hurricanes and other natural disasters are capable of leaving millions without basic utilities and destruction behind. Prevention is not possible but preparation is. How prepared are you for a natural disaster? Social media has allowed for people to share their experiences and bond over disasters, even reach out for help, check out hashtags #hurricanesandy, #sandy, and even #frankenstorm.

(CNN, http://www.cnn.com/2012/10/30/us/sandy-records/index.html?hpt=wo_t5)

Chavez continues nationalizing

The Venezuelan government, led by Chavez, continues to nationalize its economy. Expropriating privately owned companies seemingly without paying the owners. Recently former owners of Siderugica del Turbio SA (Sidetur) came forth and complained that Chavez hasn’t paid for the company, naming the dispossession illegal and violating the constitution.

Food for thought:

The Venezuelan government is drastically different than the American one. Consider President Obama taking over Microsoft, Proctor&Gamble, or Bank of America; this is what Venezuelans are facing, with the implementation of a socialist government.

(Fox News, http://www.foxnews.com/world/2012/10/31/venezuelan-official-says-shareholders-will-be-paid-fair-price-for-expropriated/)

Al-Qaeda claims responsible for attacks during Eid

A statement on Monday from al-Qaeda’s Iraqi branch said the attacks were in response to arrests of Sunni women to pressure their relatives to turn themselves in. The Eid al-Adha attacks killed about 50 people, even though the government tried to secure the four day holiday.

Food for thought:

Holidays are time of celebration, honoring something important, and they exist for every culture. Al-Qaeda finds itself stating that the deaths of Eid participants as justified. 

(Fox News, http://www.foxnews.com/world/2012/10/29/al-qaida-in-iraq-claims-responsibility-for-deadly-attacks-during-eid-al-adha/)

October 23, 2012

US Markets and News

The week kicked off with the third Presidential Debate

in which President Obama ferociously attacked Romney on his foreign policy stance. There were quite a few zingers that Obama hit on Romney, including the statement "the 1980's called, they want their foreign policy back" as a retort to Romney's stance that Russia is the U.S.'s biggest geopolitical foe. There were also concerns that Romney does not have original ideas but agrees with President Obama on quite a few issues.

Companies are sitting on a lot of cash

and are reluctant to invest the extra money in expansion or workers. This doesn't seem very good, but a big reason for this is the imminent fiscal cliff that will hit at the end of the year. The Bush tax cuts will expire and the new age (unless politicians do something about it) will bring about higher taxes, lower spending, and could thus vault the United States into a second recession. Thus, companies are attempting to hedge as much exposure as possible by sitting on cash and hoping to preserve as much capital as possible.

Food for Thought:

The fiscal cliff remains one of the biggest economic concerns the United States faces yet neither of the presidential candidates have really spent much time on it. Will Congress just pass another law that raises the debt ceiling and pushes for to keep the tax cuts? If so, when will this end? We are borrowing at record rates and further borrowing could prove a costly future for the next generation.

NY Times (http://www.nytimes.com/2012/10/23/opinion/the-final-presidential-debate.html?_r=0)

CNBC (http://www.cnbc.com/id/49519419)

Companies

Monster’s shares have suffered 

as the FDA investigates reports that individuals have died after drinking Monster products. Issues of “caffeine toxicity”, consumer deception and “adverse reactions” are all under investigation.  Last year, sales of energy drinks have risen 16% drawing scrutiny to all energy drink manufactures. The concern is that the energy drink industry is deceiving consumers with misstatements about the ingredients and health value of their products.

Food for thought:
Monster, and energy drinks in general, is a staple during midterms, finals, and sometimes even everyday college life. With these investigations underway, there is an expectation of tighter FDA controls on these products overall. Have energy drink sellers, such as Monster, crossed the line from exaggeration to deception?
Wall Street Journal (http://online.wsj.com/article/SB10001424052970203406404578073111208066432.html?mod=googlenews_wsj)

Apple unveiled the iPad mini 

and the iPad 4 as well as an updated MacBook Pro, iMac, and Mac Mini. After looking at the specs, it seems as if the only new "innovation" that Tim Cook, CEO and former COO of Apple, is releasing are thinner and slightly faster versions of the previous generations. The gap that Apple had created in its products relative to competitors (and was thus able to price in at a premium) seems to be decreasing and can be seen reflected in Apple's stock price, which has dropped nearly $100 in a month.

CNBC (http://www.cnbc.com/id/49517995)

Facebook revenues jump 32%

in its earnings call today, beating analyst estimates. The stock is currently trading at $19.50 which is half the price it was when it first filed for IPO. it seems as if around $20 is the fair valuation for the company which begs the question, how were bankers so off from its first price? It's not a bad deal for Facebook, considering they sold their shares at the IPO price of $38, but Facebook is now a stock that has a red light around it when it is mentioned and could be tough to remove that perception going forward if Facebook decides to sell additional stock to raise capital.

CNBC (http://www.cnbc.com/id/49522459)

World News:

China data signal fall in growth stablishing

after a successful month of accelerated investments, production, and retail sales in September. Economists and Chinese officials were predicting such a prosperous month would help China recover from their weakest growth since the financial crisis. However, this fruitful Chinese economy has appeared to “bottom out in the third quarter.”

Food for Thought:

In the past decade, China, the world’s second largest economy, has consistently grown at a percentile of 8% and up. Due to such a consistent growth rate, China’s expectation has fallen this year, as they cannot exceed an average growth of 7.4%. Such an event has proven to be the slowest annual growth pace of the Chinese economy since 1999. As a result, the weakening in China can potentially impact global recovery efforts negatively as exports in countries (such as: Japan, Germany, and the US) fell. Nevertheless, after numbers showing an increase in industrial production and retail sales in China, in comparison the August, were released for September, risks of a catastrophic change to global recovery declined. In hindsight, such a fall in China’s economy can possibly hurt global recovery efforts in the long run.

(Financial Times Newspaper)

October 15, 2012

Companies and Markets:

Earnings season is out
and many analysts are waiting to see how companies are going to report their financials to see if the U.S. is back in recovery.

Some notable earnings:
RIMM (Research in Motion) - lost $235 million in the second quarter but beat analysts estimates so shares soared 14%
WFC (Wells Fargo) - Revenue was lighter than forecast (even though profits beat estimates by a penny); shares were down 1%
JPM (JP Morgan) - Shares were up 1.5% due to profits and higher revenues. The bank looks to put the loss from the London Whale behind them as they move forward.
COST (Costco) - Shares were up 2% in pre-market trading due to profits and revenues that beat analysts estimates. Shoppers seem to be buying at wholesalers and retailers like Walmart during these tough times.
ORCL (Oracle) - Reported earnings that were in line with analyst estimates but revenues were short by about $200 million so shares dropped
NKE (Nike) - Net income fell 12% because of higher input costs for their clothing but they beat analyst expectations. However, shares dropped because investors are worried of slowing future demand.

Food for Thought:
Even if companies post positive earnings, shares move based on analyst expectations. For example, RIMM lost over $200 million but their shares surged 14% which shows that analyst expectations are everything. Some companies tend to smooth out their earnings as much as possible because if they keep on beating analyst estimates then their stock will start to fall if they post positive earnings but can't measure up to analyst estimates.

CNBC (http://www.cnbc.com/id/15839135)

Softbank to buy 70% of Sprint for $20 billion

Softbank Corp, a Japanese telecommunications and internet corporation, will purchase a majority of Sprint Nextel for $20.1 billion, by mid-2013. Sprint Nextel, the third largest wireless carrier in the U.S. will distribute $12.1 billion to stockholders and $8 billion back into the company. This investment will allow Sprint to improve their network quality, something that has held Sprint back in the American marketplace. This move comes in response to T-Mobile’s recently announced merger with MetroPCS, which also would allow T-Mobile to better compete with Verizon, AT&T, and Sprint Nextel.

Food for thought

The telecommunications market is dominated by four key players; Verizon, AT&T, Sprint Nextel, and T-Mobile. Usually controlled by Verizon and AT&T due to their higher network quality, the market faced a pivotal point with the introduction of mobile Internet capacity, data plans, and smart phones. With these mergers and investments, is it possible that the market dominance of AT&T and Verizon will change? What drives customers of all these companies to and away from each? Despite claiming to serve public interest, the AT&T and T-Mobile merger was denied by regulators. What type of changes to the telecommunications industry would serve the public interest?

USA Today (http://www.usatoday.com/story/money/business/2012/10/15/sprint-softbank-tokyo/1633911/

New York Times (http://dealbook.nytimes.com/2012/10/15/sprint-clinches-deal-with-softbank/)

World News:

China snubs IMF and World Bank in Islands spat

as tension between Japan and China again aroused as Chinese financial officials withdrew from an annual meeting in Tokyo. After these top officials withdrew from the meeting, due to “scheduling problems,” four of China’s largest banks followed along. This excuse to pull out of the meeting has been proven false as their true intention for their impulsive decision is due to a century long dispute for an island territory. It is evident that this conflict can negatively impact world economics, as China and Japan are the two largest economies in the Asian-Pacific (China being the second largest in the world). While the world sees this conflict as an economic spin for the worse, Chinese Communist leaders are using this act as a way to promote strength.

Food for Thought:

The past two became involved in a conflicted dispute regarding the possession of the island, known to the Japanese as Senkaku and to the Chinese as Diaoyu. The background of the story states that Japan took China’s island during their era of expansionism and never returned it during the late 19^th century. However, their past is not their intention for the sudden change in decision as China’s Communist leaders are currently transitioning to be replaced. Like the current presidential election where candidates are attempting to look tough on China to gain votes, Chinese officials are attempting to gain the edge, as they must not “look weak on Japan.” Japanese and Chinese officials are both confident that this issue will die down, as China’s need for Japanese capital will overpower “national sentiments in the long run.”

(Financial Times Newspaper)

September 24, 2012

U.S. Markets:

The rise in the S&P500 could be due to different reasons than before

The S&P500  is up 16.4% so far this year and is currently at 1,456. However, the DOW Jones Transportation Average is down which could signal a slowdown in the global economy. This year has been very abnormal in terms of stock movements because investors are basing a majority of their decisions on the moves by the Central Bank (both the Fed and the ECB) rather than the standard economic data that they have been using in the past - creating for more volatility than before.

Food for Thought: The stock market rises dramatically due to the Quantitative Easing efforts by the Fed as well as the bond purchases by the ECB. However, the economic data has been poor in the U.S. and worldwide and should be something to consider going forward. When will the economy begin to pick up and will the central banks continue to support the markets with their funding?

(Financial Times Newspaper)

Companies and Markets:

BAE ready to quit deal if its relationship with the Pentagon is at risk

The proposed merger between BAE, the British defense company, and EADS, the aerospace company that owns Airbus could come to a halt. The merger created lots of political talk about creating a monopoly in the industry, as this would by far be the largest aero-defense company in the world. However, BAE has a tight relationship with the Pentagon since it provides defense materials to the U.S. government. A merger would mean that France would have access to very private information from the U.S. government and could sever the ties that BAE originally had.

(Financial Times)

Resilient Toyota bounces back after tough economic times

that caused it to lose 70% of its share price from its early-2007 peak. It was grossly unprepared for the touch economic times that had Toyota greatly discounting its prices on current cars to retain market share (which dropped from 17% to 15% since 2009). However, after a bit of soul searching, Toyota has rebounded very quietly but strongly as it engaged in major cost cutting schemes. Toyota forced its suppliers to slash their prices, standardized their parts, and have employees forgo bonuses and wage cuts for the sake of the company. Toyota has also been able to overcome disaster-related supply chain woes in Japan quicker than most expected to get back on track.

Food for Thought: It's interesting to see great companies like Research in Motion (RIMM) and Kodak fall from the sky in a matter of a couple years due to poor management and poor financial decisions whereas companies like Toyota are able to rebound ferociously to regain the top spot in their respective industry. It's very important to see a company's management when analyzing a potential company for investment due to these issues. Stocks generally have volatility on a very short-term basis, but when analyzing these companies on a fairly long-term basis, it comes down to the company's management and financial decisions.

(Financial Times Newspaper)

World News:

Greece asks for more time in European bailout crisis

Ever since the European Central Bank (ECB), lead by Mario Draghi, proposed its purchase of unlimited bond buying to lower interest rates and offer a bit of breathing room for countries in financial turmoil, countries have been hesistant to ask for the money. Mainly because, the country would lose much of its sovereignty to a central authority (similar to the company bailouts by the U.S. government -eg. AIG) Countries like Greece and Italy are asking for more time to implement their austerity measures before asking for money from the ECB.

Food for Thought: The Euro zone crisis creates a conflict for the countries. On the one hand, a country such as Greece has unemployment nearing 25% and needs a stiumulus in its economy to boost GDP and get it back on track. However, a government controlled by a central authority may not be the best thing for its citizens which would then implement severe austerity measures (high taxes, spending cuts, etc.) that could ultimately have capital leaving the country as foreign investors and residents would place their assets in other foreign banks and countries.

(The New York Times)

September 18, 2012

U.S. Economy:

The Fed launched its third round of Quantitative Easing

by purchasing $40bn worth of mortgage backed securities each month until the year end. The Federal Reserve vows to launch continuous efforts at monetary stimulus until the labor markets improve. This is one of the first times that the Fed has tied policy to developments in the economy.

Food for Thought: The Federal Reserve has launched a new round of quantitative easing (asset purchases) when the economy seems to slow down and economic indicators (GDP growth, unemployment) seem to stagnate. This creates an interesting situation for investors who can confidently predict another monetary stimulus boost by the Fed if the economy seems to slow down again, creating a "floor" for the markets.

(Financial Times)

Companies and Markets:

Apple crushes forecasts on new iPhone 5

and analysts believe that it will sell 26m units by the end of the 2012 calendar year. The orders have surpassed the supply, pushing back delivery dates until late October units for customers.

Food for Thought: With the rollout of Apple's iPhone 5, three of the largest competitors have introduced phones: Google's Motorola Mobility, Nokia's Lumia 900 (powered by Microsoft) and Apple's new iPhone. One thing to watch out for is Nokia because they are desperately trying to hang on to the little market share they have in the smartphone market. If not, this company could very well go extinct. Furthermore, some analysts think that Apple is not providing the features to its phones that used to set it apart (such as Near Field Communication (NFC) which would pave the way for mobile payments). They believe that Apple is simply trying to capitalize on its brand that it has built over the years but it will be interesting to see how this plays out if Google and other large competitors begin releasing phones and tech devices with supreme capabilities that we have yet to see.

(Forbes)

Facebook introduces real-time advertising
called FBX (Facebook Ad Exchange) that allows marketers to bid in real-time to buy ad space that they can then target specific ads at users based on their recent search histories and clicks. This will allow Facebook to compete with Google and Yahoo, both of which have provided this service for a while.

Food for Thought: Facebook (FB) has greatly underperformed in the stock market since its IPO. One of the main concerns was its revenue streams, which analysts weren't sure how Facebook would ultimately make money despite the large volume of users that visit the site on a daily basis. With this new advertising method, Facebook is hoping to capitalize on its access to millions of users that marketing agencies can target directly. This will be interesting to see how it will play out in Facebook's next annual report.

(Telegraph.co.uk)

World News:

China Construction Bank is looking to invest $16bn
in European banks as China is looking to expand its financial services. China has been heavily buying European debt and positioning itself for future long term expansion. The valuation for many of the European banks are at an all time low and marks a good time to buy their assets.

Food for Thought: Although many analysts think China's decelerated growth is a sign of trouble, China has been constantly been on the prowl for cheap assets to purchase during this financial crisis which could position this economic giant for the future very, very well.

(The Standard)