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4aca6753013779c2dfc16c78158e46a4 | https://www.cnbc.com/2019/10/30/us-treasury-october-fed-meeting.html | Treasury yields fall after the Fed cuts rates for the third time in 2019 | Treasury yields fall after the Fed cuts rates for the third time in 2019
VIDEO5:0105:01Stocks drop and bond yields rise after Fed cuts rates for third time since JulyPower Lunch
U.S. government debt yields slipped on Wednesday after Federal Reserve officials cut rates for a third time in 2019 and said they'd need to see a marked and persistent rise in inflation before hiking borrowing costs in the future.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 1.789%, while the yield on the 30-year Treasury bond was also lower at around 2.263%. The 2-year Treasury yield, more sensitive to changes in central bank policy, fell to 1.622% following the Fed decision.
Though the Fed voted to cut its overnight lending rate by 25 basis points, yields rose slightly after officials suggested in a statement that its third rate cut for 2019 could be followed by a pause in policy adjustments. The Fed will now target the federal funds rate in a range between 1.5% and 1.75%.
"The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate," the statement said. FOMC members cited weak inflation outlook and global growth concerns in cutting borrowing costs again.
The FOMC removed a key clause that had appeared in post-meeting statements since June, when it began broadcasting that it would "act as appropriate" to sustain economic growth in the U.S. Its removal signaled to some that the series of "mid-cycle adjustments" rate cuts could be put on hold for now.
But Chairman Jerome Powell added later on Wednesday that the central bank would need to see a sustained and significant uptick in price pressures before considering future rate hikes.
"So I think we would need to see a really significant move up in inflation that's persistent before we would consider raising rates to address inflation concerns."
Both Kansas City Fed President Esther George and Boston Fed President Eric Rosengren dissented and would have preferred to leave rates unadjusted. St. Louis Fed President James Bullard, who had previously favored steeper rate cuts, did not dissent with the Fed's October decision.
"I thought the goal of the meeting was to try not to force Powell's hand to cut and I thought the statement he gave on the offset was down that path ... he said things that were more balanced," said Jim Schaeffer, deputy chief investment officer at Aegon Asset Management.
"Then I thought he got more hawkish in the meeting, talking about insurance," Schaeffer added. "But toward the end he seemed to pull it back a little. The bottom line from Powell is not that they aren't going to cut again, but don't expect it."
Since the Fed's September meeting, the economic situation in the U.S. has proved stable, with softness in retail sales largely balancing multidecade lows in the unemployment rate and modest wage increases. Some have suggested that with trade tensions between the U.S. and China easing, better-than-expected corporate profits and stronger data, the Fed will be anxious to halt its "mid-cycle adjustment" of lowering rates.
The government's GDP report on Wednesday showed the economy expanded at a 1.9% rate in the third quarter, better than what economists polled by Dow Jones had forecast but still shy of the 2% in the second quarter.
Treasurys
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3cc7c30915baa2050fdbdbe0c5f3acc2 | https://www.cnbc.com/2019/10/30/what-happened-to-the-stock-market-wednesday-fed-hits-the-right-note.html | Here's what happened to the stock market on Wednesday | Here's what happened to the stock market on Wednesday
The Dow gained 115.27 points, or 0.43% to close at 27,186.83. The S&P 500 climbed 0.33% to 3,046.77. The Nasdaq Composite advanced 0.33% to 8,303.98. The Federal Reserve struck the right tone with investors, noting it is a long way from hiking rates.
The Fed managed to walk a tight rope of keeping the door open to further rate cuts but raising the bar for further policy moves moving forward. The central bank removed a phrase from its statement that said the Fed will " to sustain the current expansion. This signaled a pause to Fed rate cuts. However, Fed Chairman Jerome Powell also said inflation would need to rise significantly before the central bank thinks about hiking.
GE shares surged more than 11% after the company posted earnings that topped analyst expectations. The company also raised its cash flow estimates for the year. Yum Brands, meanwhile, dropped nearly 6% after posting weaker-than-expected earnings that were dragged down by the company's investment in GrubHub.
Investors will digest the latest earnings reports from Apple and Facebook, released after the bell Wednesday. Other company earnings investors will focus on include Dunkin Brands, Kraft Heinz and Fiat Chrysler. Read more here.
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f3fe6d4f3f37b42318c7e0af1115ab42 | https://www.cnbc.com/2019/10/30/when-the-fed-cuts-rate-three-times-and-pauses-history-shows-it-works-out-great-for-stocks.html | When the Fed cuts interest rate three times and pauses, it works out great for stocks, history shows | When the Fed cuts interest rate three times and pauses, it works out great for stocks, history shows
VIDEO2:3302:33Fed Chair Jerome Powell: Current monetary policy stance 'likely to remain appropriate'Power Lunch
The Federal Reserve just cut interest rates for the third time this year and said it will likely pause from here. That scenario is usually very good for stocks.
CNBC used Kensho, a hedge fund analytics tool, to track what happened to the market after the Fed cut interest rates at least three times. In the past 25 years, this has happened on four occasions, and data show that when the third cut was the last cut, stocks got a healthy boost in the following year. When the third cut was followed by more cuts because the economy was slipping into a recession, stocks tumbled.
The central bank's decision Wednesday to lower the overnight lending rate to a target range of 1.50% to 1.75% marks the third rate cut since July, when the Fed lowered rates for the first time since the financial crisis. Powell has attributed the series of cuts to "the implications of global developments for the economic outlook as well as muted inflation pressures."
The FOMC removed a key clause that had appeared in post-meeting statements since June saying it was committed to "act as appropriate to sustain the expansion." This was replaced by a more muted commitment to "monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate," the statement said.
Powell later added in a press conference that officials "see the current stance of monetary policy as likely to remain appropriate."
Between 1995 and 1996 and in 1998, the Alan Greenspan-led Fed cut interest rates three times and then stopped, in order to combat an economic downturn and sustain the expansion. In each of these cases the S&P 500 returned 24.76% and 19.39%, respectively, over the next year.
"We've seen periods of economic slowdowns that had three consecutive 25 basis point cuts, most recently in the mid- and late 1990s," said Ryan Detrick, LPL Financial senior market strategist. "The good news is the economy accelerated after the slowdowns and stocks did quite as well."
Evercore ISI Chairman Ed Hyman, who has been ranked the top economist in Institutional Investor's annual poll for more than three decades, told CNBC on Tuesday a three-cut series was the "magic sauce in the 1990s to get growth to stop slowing." The 1998 expansion ended up being the second-longest in history. The economy is currently in the longest expansion.
Historically, the danger for stocks is when the third cut is not the last and the Fed needs to jolt the economy further.
In 2001 and 2007, during the dot-com bubble and the financial recession, the Fed cut interest rates three times and kept cutting in order to boost the economy. During those cutting cycles, the S&P 500 had dropped 12.64% and a stunning 42.37% one year later.
So stock investors should be wishing that this is the last rate cut for a while.
— CNBC's Fred Imbert contributed to this report.
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708f88ad3bf210261c805eba5ece1707 | https://www.cnbc.com/2019/10/30/wildfires-outside-la-threaten-homes-spare-reagan-library.html | Wildfires outside LA threaten homes, spare Reagan library | Wildfires outside LA threaten homes, spare Reagan library
A mural of former U.S. President Ronald Reagan and First Lady Nancy Reagan hangs on display at the Reagan Presidential Library as an L.A. City Fire helicopter makes a water drop on the Easy Fire.Wally Skalij | Los Angeles Times | Getty Images
A wind-whipped outbreak of wildfires outside Los Angeles on Wednesday threatened thousands of homes and horse ranches, forced the smoky evacuation of elderly patients in wheelchairs and narrowly bypassed the Ronald Reagan Presidential Library, protected in part by a buffer zone chewed by goats.
With California tinder dry and fires burning in both the north and south, the state was at the mercy of gusty winds, on high alert for any new flames that could run wild, and weary from intentional blackouts aimed at preventing power lines from sparking more destruction.
The blaze near the Reagan library in Simi Valley was driven by strong Santa Ana winds that are the bane of Southern California in the fall and have historically fanned the most destructive fires in the region.
The library, which holds the presidential archives and whose grounds include the graves of Reagan and his wife, Nancy, was well-equipped when flames surrounded it. It relies on a combination of high-tech defenses such as fireproof vaults and a low-tech measure taken every year, when hundreds of goats are brought in to feed on the brush and create a firebreak.
An army of firefighters helped protect the hilltop museum, and helicopters hit the flames, leaving some neighbors resentful as they frantically hosed down fires in the surrounding subdivisions and open ranchland.
Armed with just a garden hose and wearing a mask, Beth Rivera watered down the perimeter of her large home to prevent embers from igniting the dry grass. Friends helped evacuate 11 horses from the property. The fire was only 30 yards (27 meters) away and blowing toward her house, with no firetrucks in sight.
Animals could be heard shrieking in a barn burning next door on Tierra Rejada Road, where large ranches with riding stables and horse rings line the road. Two horses bolted into the street from the flaming barn, trailing a cloud of smoke.
"Oh gosh, this isn't fun," Rivera said. "There isn't a fire unit (here) at the moment because they're busy working on the fire close to the library. This is why I'm very worried. Because I can't ... save my home."
Within minutes, a fire crew arrived to help Rivera and her boyfriend protect their home.
The brush fire broke out before dawn between the cities of Simi Valley and Moorpark north of Los Angeles and exploded to more than 1,300 acres (526 hectares), Ventura County officials said. About 7,000 homes, or around 26,000 people, were ordered evacuated, authorities said.
Wind gusts up to 68 mph (109 kph) were reported in the area, forecasters said. Other spots in Southern California were buffeted by even stronger winds. The gusts knocked over a truck on a freeway in Fontana.
Another wildfire forced the evacuation of two mobile home parks and a health care facility in Jurupa Valley, 45 miles (72 kilometers) east of Los Angeles, where elderly people were taken out in wheelchairs and gurneys as smoke swirled overhead. The blaze was at least 200 acres (80 hectares) in size.
Meanwhile, nearly 1 million people who rely on Pacific Gas & Electric were without power across Northern California amid the third blackout in a week imposed by the state's largest utility.
In wine country north of San Francisco, fire officials reported progress in their battle against a 120-square-mile (310-square-kilometer) blaze in Sonoma County, saying it was 30% contained.
The fire destroyed at least 206 structures, including 94 homes, and threatened 90,000 more, most of them homes, authorities said. More than 150,000 people were under evacuation orders.
Winds topped out at 70 mph (112 kph) north of San Francisco Bay and began to ease early Wednesday, but forecasters said the fire danger would remain high because of continuing breezes and dry air.
In Southern California, fire crews continued trying to snuff out a wildfire in the celebrity-studded hills of Los Angeles that destroyed a dozen homes on Monday. About 9,000 people, including Arnold Schwarzenegger and LeBron James, were ordered to evacuate.
No deaths have been reported from the recent fires, but toppled trees claimed three lives.
In the battle taking place in the dry hills around Simi Valley, 800 firefighters worked on the ground as helicopters precisely dropped water on the leading edge of the fire.
Firefighters successfully protected the library, leaving it looking like an island in a soot-black sea. Flames came within about 30 yards (27 meters) of the property, but there was no damage, library spokeswoman Melissa Giller said.
Residents were warned of evacuations when their cellphones blared with emergency messages and police officers went door to door.
"Everything started rolling so fast," said Elena Mishkanian, describing the time from the text to when she heard sirens.
Her family was able to gather only some basics. Her daughter, Megan, 17, took some photos and mementos of trips she had taken. Her son, Troy, 13, netted six pet fish from a tank and put them in pots.
"Fish have feelings!" he said when Megan teased him about it. "Even if they don't make it, at least I know I tried."
As they left the house, police tied yellow caution tape around their front door to show they had left.
VIDEO4:0304:03Strong winds worsen California wildfiresSquawk Box
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385d59136b03dec1de153f53c38644e7 | https://www.cnbc.com/2019/10/31/bond-market-investors-are-missing-this-key-point-says-top-strategist.html | Investors are missing this key point about the bond market, top strategist says | Investors are missing this key point about the bond market, top strategist says
VIDEO2:4502:45Investors are missing this key point about the bond market: ETF strategistETF Edge
Bonds are under close watch following the Federal Reserve's latest rate cut, its third this year.
But there's a key point about the bond market that investors, particularly those interested in bond-related exchange-traded funds, are missing, says Mary Ann Bartels, head of ETF strategy at Bank of America Merrill Lynch Global Research.
"What's interesting is if you take bond returns on a risk-adjusted basis, they don't look as attractive as equity returns," Bartels said this week on CNBC's "ETF Edge." "That's what we think clients aren't looking at, is their risk-adjusted returns."
Risk-adjusted return refers to the profit made on an investment relative to the amount of troublesome exposure that investment has faced over a given period of time.
And, according to Bartels' analysis, bond investments as tracked in ETFs like the iShares 20+ Year Treasury Bond ETF (TLT) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) have largely yielded lower risk-adjusted returns than equity investments.
Even so, "we're still bullish on high yield, especially because we think we're going to stay in a low-rate environment," Bartels said. "We're not moving towards a recession, so we're willing to take the credit risk to go into high yield."
They're not the only ones. HYG, the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) are all heavily traded high-yielding names in the fixed-income ETF market, which hit $1 trillion in assets this summer.
"There's still a lot of fear and a lot of caution in the marketplace," Bartels said. "We also do the global fund manager survey, and this is really looking at professional fund managers on a global scale. And they're very defensively positioned, which is amazing, that markets are hitting all-time highs and the market all year has had a very defensive position."
Tim Seymour, founder and chief investment officer at Seymour Asset Management, said the market's defensive stance could even be an opportunity for ETF issuers looking to capitalize on investors' concerns.
"It's been the pain trade, and, obviously, we've had a question about the global growth environment, which has made it very comfortable for people to fly into fixed-income instruments," he said in the same "ETF Edge" interview. "It makes it so ... that the ETFs around that community do need to have greater access points for people to be investing in munis [municipal bonds] and triple-A credits that actually could be more defensive."
But high-yield investments still carry a good deal of risk, said Seymour, who also appears regularly as a trader on CNBC's "Fast Money."
"I'll tell you what: The JNK and the HYG, if we start to see any questions about the economy, liquidity dries up very quickly in high yield and I think they will move to the downside," he warned.
HYG and JNK were both down slightly following Wednesday's Fed decision. VYM was up less than 1%. TLT was up over 1%.
Correction: An earlier version gave an incorrect day for when Bartels was interviewed on "ETF Edge."
VIDEO12:0212:02ETF Edge roundup: Best ETFs for 2019, Virgin Galactic goes public, Amazon effectETF Edge
Disclaimer
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e11e7a991e451742b491e4ffddb3bdbf | https://www.cnbc.com/2019/10/31/chinas-state-telecoms-to-launch-5g-services-on-friday.html | China's state telecoms to launch 5G services on Friday | China's state telecoms to launch 5G services on Friday
A man stands next to a 5G sign at the Tencent Global Digital Ecosystem Summit in Kunming, China, May 23, 2019.Stringer | Reuters
China's three state telecoms on Thursday announced the roll-out 5G mobile phone services, marking a key step in Beijing's ambitions to become a technology superpower at a time when it remains locked in trade tensions with Washington.
China Mobile's, China Unicom and China Telecom's said on their websites and online stores that 5G plans, which start from as low as 128 yuan a month, will be available from Friday, allowing Chinese consumers nationwide to use the ultra-fast mobile internet service.
Beijing had originally said it would launch the ultra-fast mobile internet service, which promises to support new features such as autonomous driving, early next year. But it accelerated its plans as tensions with the United States, especially over its boycott of telecoms giant Huawei Technologies, heated up.
"China will have the largest commercial operating 5G network in the world on Friday, and the scale of its network and the price of its 5G services will have a pivotal impact throughout the supply chain," Bernstein said in a report this week.
Authorities have said that they plan to install over 50,000 5G base stations across 50 Chinese cities in the country by the end of this year, and that big cities, including Beijing, Shanghai, Guangzhou, and Hangzhou, are already covered by the 5G network.
Chinese companies from Xiaomi to Huawei have also unveiled new products in anticipation of the 5G roll out, with Huawei saying that it anticipates to start seeing a revenue uplift from the sector next year.
Smartphone maker Xiaomi said earlier this month that it plans to launch more than 10 5G phones next year and that there was a fear in the industry that consumers would stop buying 4G models.
VIDEO5:0305:03What is 5G?CNBC Explains
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bd3b9c417707dc09da582328d03d791a | https://www.cnbc.com/2019/10/31/consumer-groups-rate-fast-food-chains-on-their-use-of-beef-produced-with-antibiotics.html | Consumer groups rate fast-food chains on their use of beef produced with antibiotics | Consumer groups rate fast-food chains on their use of beef produced with antibiotics
VankaD | Getty Images
Consumer groups give many of the top restaurant chains in the United States failing grades for their policies regarding antibiotics used in their beef supply for burgers and other beef dishes.
The report is the result of a combined effort from the U.S. Public Interest Research Group Education Fund, the Natural Resources Defense Council, Consumer Reports and the Milken Institute School of Public Health at George Washington University, among others.
"Overuse of antibiotics in the beef industry threatens our health, and fast-food companies need to do more," said Matt Wellington, a co-author and antibiotics campaign director for the U.S. PIRG Education Fund.
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Consumer groups graded top restaurant chains on their policies regarding antibiotic use in their beef supply chains.
Source: U.S. PIRG Education Fund
Graphic: Robin Muccari / NBC News
At issue is the rise of drug-resistant bacteria, which occurs when the antibiotics used to control and kill germs are overused or used incorrectly.
"Improving antibiotic prescribing and use is critical to ensure that bacteria don't become resistant to antibiotics," the Centers for Disease Control and Prevention says. "Prescribers should only treat people and animals with antibiotics when they need them for medically sound reasons."
Drug-resistant bacteria in animals used in the food supply can affect humans if people eat raw or undercooked contaminated meat, or come into contact with animal waste through contaminated drinking or swimming water.
The new report looked at whether the restaurants even had a policy to restrict antibiotic use in their beef supply chains, or a plan to phase it out, as well as how they're implementing those actions.
Arby's, Burger King and Jack in the Box received failing grades for having no policies for antibiotics in beef. Taco Bell and Wendy's earned Ds, due to what the report authors called insufficient plans to reduce antibiotic use.
"Restaurants are committed to protecting the health and safety of our guests," Jeff Solsby, vice president of advocacy communications for the National Restaurant Association, said in a statement to NBC News.
"This is a key reason why so many restaurants offer nutrition and ingredient information and are increasingly sharing animal welfare and supply chain policies—including the responsible use of antibiotics important to animal and human health," he continued.
Chipotle and Panera Bread earned top marks in the new report. Both received As for actively seeking out beef suppliers that only use antibiotics in animals when they get sick.
According to Chipotle's website, "antibiotics and hormones are given to a majority of livestock to increase production" but that Chipotle only buys meat from farmers who use antibiotics responsibly.
McDonald's earned a C grade this year — up from an F in 2018 — for its recent commitment to "curtailing routine medically important antibiotic use across its vast global supply chain and set concrete reduction targets by the end of 2020," according to the report.
"McDonald's believes antibiotic resistance is a critical public health issue, and we take seriously our unique position to use our scale for good to continue to address this challenge," Keith Kenny, global vice president for McDonald's Sustainability, wrote in a statement to NBC News.
A spokesperson for the National Cattlemen's Beef Association said that the group "promotes the judicious use of antibiotics to keep potential risk of developing antibiotic-resistant bacteria extremely low." The group has programs to advise ranchers on "guidelines for antibiotics, such as avoiding using antibiotics that are important in human medicine," according to the statement.
Starbucks also received a failing grade in the new report, despite the fact that the coffee chain does not offer many beef products on its menus. The F grade was given because Starbucks does not have a policy on antibiotic use in its beef supply chains, though it does have such a policy for poultry.
The fast-food industry has already made strides with chicken overall. Last month, Chick-fil-A announced that none of the meat sold at its more than 2,400 restaurants had been treated with antibiotics.
"When we look at chicken, we've seen incredible progress over the last 5 years with restaurants on getting antibiotics out of their supply and that has rippled throughout the entire chicken industry," Wellington said.
Still, humans, not animals are perhaps the biggest culprit in the rise of drug-resistant bacteria. Taking antibiotics for illnesses for which they have zero impact, such as those caused by fungi (like vaginal yeast infections) or viruses (like the flu) drive drug resistance upwards. Antibiotics are only effective for illnesses caused by bacteria, including strep throat and urinary tract infections.
The World Health Organization calls antibiotic resistance one of the top 10 threats to global public health, and issued a dire warning earlier this year: drug-resistant infections could cause 10 million deaths a year by 2050 if no action is taken.
In the U.S., the Centers for Disease Control and Prevention estimates drug-resistant infections such as E. coli and MRSA already sicken more than 2 million and kill 23,000 people every year.
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f1de658200523d186ff1c94a0b14935b | https://www.cnbc.com/2019/10/31/consumer-income-and-spending-rise-slightly-in-september.html | US consumer spending rises moderately | US consumer spending rises moderately
VIDEO1:5801:58Consumer income and spending increase slightly in September, as expectedSquawk Box
U.S. consumer spending rose marginally in September while wages were unchanged, which could cast doubts on consumers' ability to continue driving the economy amid a deepening slump in business investment.
The Commerce Department said on Thursday consumer spending, which accounts for more than two-thirds of U.S. economic activity, gained 0.2% last month as households stepped up purchases of motor vehicles and spent more on healthcare.
Data for August was revised up to show consumer spending climbing 0.2% instead of the previously reported 0.1% rise. Economists polled by Reuters had forecast consumer spending would advance 0.2% last month.
The data was included in the gross domestic product report for the third quarter, which was published on Wednesday.
The government reported that growth in consumer spending slowed to a still-healthy 2.9% annualized rate last quarter after surging at a 4.6% pace in the second quarter, the fastest since the fourth quarter of 2017. That softened some of the blow on the economy from a deepening slump in business investment.
The economy grew at a 1.9% rate in the third quarter after expanding at a 2.0% pace in the April-June period.
Consumer spending is being powered by the lowest unemployment rate in nearly 50 years. There are, however, concerns that business investment, which has contracted for two straight quarters, could eventually spill over to the labor market and crimp consumer spending.
The Federal Reserve cut interest rates on Wednesday for the third time this year, but signaled a pause in the easing cycle, which started in July when it reduced borrowing costs for the first time since 2008. Fed Chair Jerome Powell said he expected the economy to continue on a moderate growth path, supported by "solid household spending and supportive financial conditions."
Inflation was tame in September. Consumer prices as measured by the personal consumption expenditures (PCE) price index were unchanged for a second straight month in September as the cost of energy goods and services dropped 1.3%.
In the 12 months through September, the PCE price index increased 1.3% after rising 1.4% in the 12 months through August.
Excluding the volatile food and energy components, the PCE price index was also unchanged last month after gaining 0.1% in August. That lowered the annual increase in the so-called core PCE price index to 1.7% in September from 1.8% in August.
The core PCE index is the Fed's preferred inflation measure and had undershot the U.S. central bank's 2% target this year.
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b3f410ccb45cf6f602a243e3ed802dbc | https://www.cnbc.com/2019/10/31/europe-markets-traders-react-to-fed-rate-cut-corporate-earnings.html | Europe stocks close lower on new trade deal doubts; Peugeot down 12% | Europe stocks close lower on new trade deal doubts; Peugeot down 12%
European stocks closed lower on Thursday after a report claimed Chinese officials are doubting the possibility of a long-term trade agreement with the United States.
The pan-European Stoxx 600 was down 0.3% at the closing bell, with the China-exposed basic resources and automotive sectors each tumbling more than 1%. Oil and gas stocks shed 1.2%, meanwhile, after results from Royal Dutch Shell. Travel stocks were the strongest performers, adding 1.2% as most sectors slid into the red.
Chinese officials are doubting the potential for a comprehensive long-term trade agreement with the U.S. despite the two sides closing in on an initial "phase one" accord, Bloomberg News reported Thursday morning, citing unnamed sources familiar with the matter. The news caused stocks to sharply reverse course.
However, President Donald Trump later said the U.S. and China would soon announce a new location where he and Chinese counterpart Xi Jinping would sign the preliminary deal. "President Xi and President Trump will do signing," he said on Twitter.
Stocks on Wall Street traded lower on Thursday, as investors digested a fresh rate cut from the Federal Reserve and weighed the latest Sino-U.S. trade developments against better-than-expected corporate earnings.
The Federal Open Market Committee (FOMC) on Wednesday announced a third consecutive 25 basis point cut to interest rates in order to help sustain U.S. growth, but removed the key phrase from its statement pledging to "act as appropriate," suggesting the central bank will halt monetary policy easing barring a significant downturn for the U.S. economy.
Back in Europe, Thursday kicked off with a landmark merger announcement from Italian-American carmaker Fiat Chrysler (FCA) and French rival PSA Peugeot Citroen, which creates the world's fourth-largest automobile manufacturer.
FCA will pay its shareholders a 5.5 billion euro ($6.1 billion) special dividend and the two companies will join forces through a 50-50 share swap. The new company's shares will be listed in New York, Paris and Milan. FCA shares jumped 8% by the end of the session, while PSA slid to the bottom of the European blue chip index with a 12.9% plunge.
Meanwhile, U.K. Prime Minister Boris Johnson and main opposition leader Jeremy Corbyn begin their first full day of campaigning ahead of what promises to be a historic December election.
On the data front, euro zone GDP (gross domestic product) grew 0.2% in the third quarter, slightly better than forecast, while inflation grew 0.7% in October compared to 0.8% in September.
Royal Dutch Shell reported a 15% fall in third-quarter profits before the bell, missing analyst expectations. Shares of the Anglo-Dutch energy giant slipped 3.3%.
French bank BNP Paribas beat profit expectations to post a net income of 1.9 billion euros ($2.1 billion) in the third quarter. Shares ended Thursday's session 0.2% lower.
Air France KLM shares fell 1% after its third-quarter profits tumbled more than 50%, which the Franco-Dutch carrier attributed to the phase out of the Airbus A380 and a strong dollar.
Semiconductor supplier ASM International pared earlier gains to shed 1.7% after reporting a record third quarter, while French satellite operator Eutelsat plunged 7.9% after missing revenue expectations and cutting its outlook.
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dc7c35bb88b44c01524a7ee48a48280a | https://www.cnbc.com/2019/10/31/gm-recalls-638000-us-suvs-and-trucks-for-unintended-braking.html | GM recalls 638,000 US SUVs and trucks for unintended braking | GM recalls 638,000 US SUVs and trucks for unintended braking
2015 Chevrolet Suburban Texas EditionSource: General Motors
General Motors is recalling 638,000 U.S. sport utility vehicles and pickup trucks because a wheel-speed sensor could fail and cause unintended braking, it said Thursday.
The recall covers 2015-2020 Chevrolet Suburban, Tahoe, and Yukon and 2014-2018 Chevrolet Silverado 1500 and GMC Sierra 1500 vehicles equipped with a 5.3-liter engine, a 3.08-ratio rear axle and four-wheel drive.
The sensor failure could result in unintended activation of the driveline protection system, and cause unintended braking of the wheel on the opposite side of the failed sensor. That could cause the vehicle to pull to one side unexpectedly, increasing the risk of a crash, the Detroit automaker said.
GM said it was not aware of any crashes relating to the issue but found 150 field claims alleging the condition caused unintended braking or lateral-vehicle motion.
A GM dealer in May submitted a warranty report relating to the issue in a 2018 GMC Yukon, and two day later, a GM brand quality manager submitted the report to GM's Speak Up For Safety program that tracks potential safety issues, which prompted a GM investigation and testing.
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9cf7519986d894f3c79745d492eb627a | https://www.cnbc.com/2019/10/31/house-set-to-vote-on-trump-impeachment-probe-guidelines.html | House set to vote for first time on guidelines for public hearings in Trump impeachment probe | House set to vote for first time on guidelines for public hearings in Trump impeachment probe
Speaker of the House Nancy Pelosi (D-CA) talks to reporters during her weekly news conference at the U.S. Capitol October 17, 2019 in Washington, DC.Chip Somodevilla | Getty Images
The House is expected to vote Thursday on a resolution outlining the next steps in the impeachment inquiry into President Donald Trump.
The measure, which sketches out guidelines for public hearings in the inquiry and the president's participation in the process, marks the first time lawmakers' votes will be counted on matters related to the Trump impeachment process.
Democrats such as Intelligence Committee Chairman Adam Schiff, D-Calif., say the measure provides a "pathway forward" for the investigation into Trump's request for Ukraine to open probes involving his political opponents.
VIDEO2:0002:00House releases resolution outlining impeachment probe processClosing Bell
But the White House and Republicans, who have previously maligned the Democrats for launching the impeachment inquiry without a formal vote, are not satisfied, with many calling the resolution a "sham."
"Codifying a sham process halfway through doesn't make it any less of a sham process," tweeted Rep. Jim Jordan, the Oversight Committee's ranking Republican.
The impeachment inquiry is examining Trump's request for Ukraine President Volodymyr Zelensky in July to "look into" unsubstantiated allegations against former Vice President Joe Biden and his son, as well as asking for a probe into a discredited theory that Ukraine interfered in the 2016 presidential election. Hundreds of millions of dollars in military aid to Ukraine, allocated by Congress, were withheld during this period without a clear explanation from the White House. That aid was eventually delivered in September.
After debating the measure in the Democratic-controlled House, lawmakers are expected to vote before 11 a.m. ET, according to House Majority Leader Steny Hoyer, D-Md. The resolution was announced Monday and marked up in a House committee Wednesday.
House Speaker Nancy Pelosi, D-Calif., had earlier argued against holding a vote to "authorize" the probe, defying pressure from the White House and the GOP and accusing them of attacking the process to distract from Trump's conduct.
"We're certainly not going to do it because of the president," Pelosi said in early October of a vote on the impeachment process.
Such dismissals, along with GOP complaints, bred speculation that some Democrats — especially freshman who flipped red-leaning districts in the 2018 midterm elections — were reluctant to be counted in any kind of formal vote. One such Democrat, New Jersey Rep. Jeff Van Drew, said this week that he will likely vote against the resolution.
But Pelosi confirmed Monday that Democrats would hold a vote this week on how the inquiry will move forward in the House in part to pressure the White House to participate.
"We are taking this step to eliminate any doubt as to whether the Trump administration may withhold documents, prevent witness testimony, disregard duly authorized subpoenas, or continue obstructing the House of Representatives," Pelosi said.
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b932ba08e48b80cd8ef3777a08078f84 | https://www.cnbc.com/2019/10/31/marathon-announces-plans-to-spin-off-its-speedway-chain-and-bring-in-a-new-ceo-next-year.html | Marathon announces plans to spin off its Speedway chain and bring in a new CEO next year | Marathon announces plans to spin off its Speedway chain and bring in a new CEO next year
Gary Heminger, CEO of Marathon PetroleumAdam Jeffery | CNBC
Marathon Petroleum chief Gary Heminger will retire next year after almost a decade in charge, the U.S. refiner said on Thursday, as it announced plans to spin off its gas station business Speedway and review its midstream assets.
The moves, which follow media reports earlier this week that the company was preparing to shake up management, respond in part to pressure from activist investors Elliott Management Corp and DE Shaw & Co for changes at the company.
CEO Heminger will retire next year when his current term ends. He has worked for Marathon since the mid-1970s and has been at the helm since 2011.
Last month, Elliott renewed its call for the company to be split into three separate entities and sought to remove Heminger, three years after the hedge fund asked the refiner to consider spinning off businesses.
Elliott said on Thursday it was supportive of Marathon's actions announced on Thursday, saying it expects these will unlock substantial value for shareholders.
Billionaire Paul Singer's Elliott, which owned 0.7% of Marathon as of June 30, according to Refinitiv data, has argued a split would boost shareholder value by as much as $40 billion.
DE Shaw, which owns a 0.9% stake in Marathon, has backed Elliott's call to split the company.
Regarding the spinoff, Marathon said Speedway would trade as an independent public company after the separation is completed.
Separately, Marathon beat analysts' estimates for quarterly profit on Thursday, benefiting from transporting higher volumes of crude and natural gas across its pipelines.
Excluding items, the company reported an adjusted profit of $1.63 per share, compared to analysts' average estimates of $1.38 per share, according to IBES data from Refinitiv.
Net income attributable to the company rose 48.6% to $1.10 billion or $1.67 per share, in the third quarter ended Sept. 30.
Total revenue and other income rose to $31.20 billion from $23.13 billion.
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12d5c3c2924e3fb0bb7ff35d3bb4c3f6 | https://www.cnbc.com/2019/10/31/north-korea-launches-two-projectiles-japan-and-south-korea-say.html | North Korea launches two possible 'ballistic missiles' into sea, Japan says | North Korea launches two possible 'ballistic missiles' into sea, Japan says
North Korean leader Kim Jong Un supervises a "strike drill" for multiple launchers and tactical guided weapon into the East Sea on May 4, 2019KCNA | Reuters
North Korea fired two projectiles, which Japanese authorities said appeared to be ballistic missiles, into the sea between the Korean peninsula and Japan on Thursday, according to the Japanese coast guard and South Korea's military.
The two "unidentified projectiles" were fired Thursday afternoon from South Phyongan Province, in the center of the country, South Korea's Joint Chiefs of Staff (JCS) said in a statement.
Japanese authorities said that they and landed outside Japan's Exclusive Economic Zone (EEZ), which extends 200 nautical miles (370 kilometers) from land.
"Objects that appeared to be ballistic missiles were launched from North Korea," Japan's defense ministry said in a statement. "They did not land within our territory."
The American air base at Misawa, 700 miles (1,127 km) north of Tokyo, posted a "real world missile alert" and urged personnel to seek shelter, before later issuing an "all clear."
The afternoon launch timing was a departure from this year's string of tests, which usually took place around dawn.
It also occurred on the day that South Korean President Moon Jae-in attended the funeral of his mother, who died on Tuesday.
In a message delivered via the border village of Panmunjom late on Wednesday, North Korean leader Kim Jong Un had expressed "deep condolences" and "consolation" over Moon's loss, Moon's office said on Thursday.
On Wednesday, South Korea's Yonhap news agency cited an unnamed military source who said that movements of transporter erector launchers (TEL), used to fire missiles, had been detected in North Korea.
South Korea's National Security Council held an emergency meeting after the launch on Thursday, and expressed its concern about what it called "short-range projectiles."
"Our military is maintaining a readiness posture while tracking and monitoring related developments in preparation for another launch," the JCS said in a statement after the launches on Thursday.
Kim Dong-yup, a former navy officer who teaches at Seoul's Kyungnam University, said the launches could be a so-called "running test fire" of a recently developed multiple-rocket system, with the aim of fine-tuning the system for full production.
Relations between the two Koreas have cooled since a flurry of personal meetings between Moon and Kim last year, and denuclearization negotiations between North Korea and the United States appear stalled.
On Sunday, North Korea said there had been no progress in North Korea-United States relations.
Kim has set an end-of-the-year deadline for denuclearization talks with Washington, and in the Sunday statement a senior North Korean official said it would be a mistake for the United States to ignore that deadline.
North Korea has tested several new missile designs this year, including a new submarine-launched ballistic missile fired from a platform in the sea on October 2.
It says the missiles are necessary to defend against new warplanes and weapons acquired by South Korea, including the advanced F-35 stealth fighter jet.
North Korea has also accused the United States and South Korea of continuing hostile policies, including military drills.
On Monday, South Korea began its annual Hoguk military exercises, which it says are for self defense.
North Korean state media, however, blasted the drill as practice for invading the North, and said "South Korean military warmongers are driving the situation into an extreme one."
American officials have played down recent tests, saying they were short-range missiles.
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ddebfe9d0f8ed0d738163b0d948e3d74 | https://www.cnbc.com/2019/10/31/oscar-winner-brian-grazer-on-producing-films-in-the-age-of-streaming.html | How Oscar winner Brian Grazer decides which streaming services are best for his films and shows | How Oscar winner Brian Grazer decides which streaming services are best for his films and shows
VIDEO3:2003:20Brian Grazer on the import of 'face-to-face' meetingsClosing Bell
Academy Award-winning producer Brian Grazer told CNBC on Thursday that he wouldn't just take his upcoming projects to whichever streaming service pays the best price.
Instead, the producer behind "A Beautiful Mind" and "Apollo 13" said the "personalities" of the services play the most important role in making sure that projects reach their full potential.
"Many times, every one of these streaming services, they all have different personalities," Grazer said in an interview on "Closing Bell." "So you want to match your show or movie or documentary to the platform that is going to best service that movie, television show or documentary."
Grazer's comments come just ahead of the debut of Apple's streaming service, the latest entrant in the streaming wars. AT&T's WarnerMedia announced details of HBO Max on Tuesday, Disney's service launches in about two weeks and Comcast's NBCUniversal will bring its own offering to consumers next year.
Brian GrazerRichard Bord | Getty Images
All of these companies are seeking to compete with Netflix, Amazon and Hulu, creating an entertainment landscape that gives content creators all sorts of choices while forcing streaming services to spend billions on new shows and movies.
Grazer's remarks suggest that big Hollywood producers are taking a multilayered approach when considering where they want to go.
Grazer said there are some films he knows fit with a particular company. For example, he said his upcoming project on Aretha Franklin, for the third season of "Genius," works best with Disney.
"That's a perfect Disney program," Grazer said. "And I don't mean Disney in the G rated ... It celebrates genius, and that's within the ethos of what they do."
As for Netflix, Grazer said he has two movies that "really should be there." They are the film adaptation of J.D. Vance's best-selling memoir, "Hillbilly Elegy," and Lin-Manuel Miranda's directorial debut.
"That's perfect for that service," he said. "Absolutely perfect."
Grazer said that producers willing to do the research will find access to plenty of data to show them which services are best for which shows.
"Their algorithms pretty much do know what their audiences are," he said. "Any good producer is going to take advantage of that data."
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
WATCH: Brian Grazer on the import of 'face-to-face' meetings
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83829f6d2431a2b430d196f1e5e3227c | https://www.cnbc.com/2019/10/31/stock-market-outlook-for-friday-jobs-data-manufacturing-data-exxon-earnings.html | Jobs data, manufacturing report, Exxon earnings: 3 things to watch in the markets Friday | Jobs data, manufacturing report, Exxon earnings: 3 things to watch in the markets Friday
A worker builds a 2020 Ford Explorer car at Ford's Chicago Assembly Plant in Chicago, June 24, 2019.Kamil Krzaczynski | Reuters
Here are the most important things to know about Friday before you hit the door.
The Labor Department will release nonfarm payrolls and unemployment data. Economists are estimating 75,000 jobs created in October, according to Dow Jones, a slowing from the 136,000 jobs added in September. GM's UAW strike negatively skewed the employment picture. The unemployment rate is expected to come in at 3.6%, a tick higher from the 3.5% rate in the prior month.
We'll get a gauge of U.S. manufacturing in October, a sector that showed decade-low weakness in September, weighed on by the U.S.-China trade war. The ISM U.S. manufacturing Purchasing Managers' Index fell to 47.8 in September; any reading below 50 signals a contraction. Economists are expecting a reading 49.1 for October, according to Dow Jones.
Energy companies Chevron and Exxon Mobile both report quarterly earnings before the bell on Friday. Wall Street is expecting Exxon's earnings to plummet by more than 50% from a year ago, according to Refinitiv.
Dominion Energy and Sempra Energy also report earnings on Friday.
Major events (all times ET):
8:30 a.m. Unemployment rate
8:30 a.m. Nonfarm payrolls
8:30 a.m. Avg. hourly wages
9:45 a.m. Manufacturing PMI (Oct. final)
10:00 a.m. ISM manufacturing
10:00 a.m. Construction spending
12:00 p.m. NY Fed President John Williams speaks
1:00 p.m. Vice Chair Richard Clarida Speaks
1:00 p.m. Vice Chair Randal Quarles
1:00 p.m. San Francisco Fed President Mary Daly
2:30 p.m. NY Fed President John WilliamsMajor earnings:
Exxon Mobil (before the bell)
Chevron (before the bell)
Alibaba (before the bell)
Abbvie (before the bell)
Dominion Energy (before the bell)
AIG (before the bell)
Sempra Energy (before the bell)
Newell Brands (before the bell)
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5f59996bc7826c816bff8fb99567efde | https://www.cnbc.com/2019/10/31/the-last-time-ge-did-this-it-plummeted-20percent-in-little-over-a-week.html | The last time GE did this, it plummeted 20% in little over a week | The last time GE did this, it plummeted 20% in little over a week
VIDEO4:0004:00The last time GE did this, it plummeted 20% in little over a weekTrading Nation
General Electric stock surged as much as 14% after the company beat on earnings and boosted its free-cash-flow guidance.
However, Wednesday's gains may have set it up for a troubling parallel. Its relative strength index, a momentum measure, has peaked at above 70, indicating overbought conditions. The last time it was this overbought — in February — it tumbled nearly 20% in just over a week.
Mark Newton of Newton Advisors said GE could be in for some more losses, but he likes the stock for the long haul.
"GE does look to me to be in a longer-term bottoming process. Back in 2016, the stock was at $30, and went promptly to $6 last year. It gradually has made some progress, went up above $10, has really been sideways for the majority of this year since February. I do view that the stock is longer-term attractive at these levels, [but] I do think it's going to take time," Newton said Wednesday on CNBC's "Trading Nation."
"We seem to be breaking out above at least a minor trend line since last May. That is encouraging," said Newton. "Bottom line is that it really needs to make a little bit more progress getting up above the highs we saw earlier this spring — $10.79 would allow it for a much larger move up into the mid-teens."
It briefly touched $10.79 in July and has not closed above $11 in a year. It was at $10 in Thursday's premarket, down 1% from Wednesday's closing price.
"For now I think it's a good risk-reward only because it's likely done going down, you know, so the near term is probably still good to own that stock and it trends sideways if not higher," said Newton.
Industrials in general look like a potential buy, according to Chad Morganlander, portfolio manager at Washington Crossing Advisors.
"We have 2x exposure to industrials. … We think that the valuations are really cheap. And that's even with a base case of continued global deceleration with global growth of roughly about 2 to 2.5% for 2020," Morganlander said during the same segment.
However, it's not a blanket buy across the sector. He advises picking and choosing the industrials stocks to own, based on a few criteria.
"We do caution investors that if you're buying industrials going into the later stages of an economic cycle like we are, you want to be in industrials that don't have a lot of leverage on their balance sheet, that are consistently growing, consistently profitable and are well diversified," said Morganlander. "Look also for industrials that have a rising dividends thematic with consistent well-diversified product lines as well as customer base."
The XLI industrial ETF yields 2%, slightly higher than the S&P 500. Some of its components carry a far higher dividend — for example, 3M yields 3.4%, UPS 3.3% and Caterpillar 2.9%.
Disclaimer
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b79ff06f879436b91a8de16d218f44a9 | https://www.cnbc.com/2019/10/31/third-rate-cut-china-doubts-the-deal-and-peugeot-fiat-plan-merger.html | What to watch today: A third rate cut in place, China doubts the deal, and Peugeot, Fiat make it official | What to watch today: A third rate cut in place, China doubts the deal, and Peugeot, Fiat make it official
U.S. stock futures were falling before the final session of October, following a Bloomberg report that Chinese officials were unsure they could reach a comprehensive long-term trade deal with the United States. Futures had started Thursday on a positive note a day after the Federal Reserve cut interest rates by 25 basis points for the third time this year. * S&P 500 closes at a record as Fed signals no rate hikes until inflation rises 'significantly' (CNBC)Federal Reserve Chairman Jerome Powell said Wednesday that the central bank would need to see a sustained and significant uptick in price pressures before considering future rate hikes. He also detailed the Fed's decision to cut interest rates for the third time in 2019, saying that officials "see the current stance of monetary policy as likely to remain appropriate." (CNBC)
It's a busy day for economic numbers, starting at 8:30 a.m. ET with the release of initial jobless claims, personal income, and consumer spending. The Chicago Purchasing Managers index comes out at 9:45 a.m. ET. (CNBC)
Earnings reports out this morning include Altria (MO), Avis Budget (CAR), Bristol-Myers Squibb (BMY), Cigna (CI), Clorox (CLX), Dunkin' Brands (DNKN), DuPont (DD), Estee Lauder (EL), Hanesbrands (HBI), Intercontinental Exchange (ICE), Marathon Petroleum (MPC), Sirius XM (SIRI), Tempur Sealy (TPX) and Kraft Heinz (KHC). After-the-bell reports include Celgene (CELG), El Pollo Loco (LOCO), U.S. Steel (X) and Western Union (WU).
Apple (AAPL) and Facebook (FB) each beat market expectations in quarterly results released after the market closed on Wednesday, and their stocks were moving higher in after-hours trading. (CNBC)* Apple is laying the groundwork for an iPhone subscription (CNBC)
Lead negotiators from the U.S. and China will hold trade talks on the phone Friday. The news comes after Chile canceled the Asia-Pacific Economic Cooperation summit because of domestic unrest. President Donald Trump and President Xi Jinping were expected to meet at the summit, to discuss a potential "phase one" trade agreement between the world's two largest economies. (CNBC)
Treasury Secretary Steven Mnuchin said it will take time for Chinese purchases of U.S. agricultural goods to "scale up" to the $40 billion to $50 billion annual level touted by Trump if the two sides can seal a "Phase 1″ trade deal. The $40 billion to $50 billion target is "a lot," he said, but is based on "very specific discussions" of product purchase commitments by China. (Reuters)
House Democrats have asked Trump's former national security advisor John Bolton to testify in their impeachment probe on Nov. 7. The top lawyer for the National Security Council, John Eisenberg, has been called to testify next Monday, as has Michael Ellis, another lawyer for the council that advises presidents on security and foreign policy issues. (CNBC)* Former Trump advisor next in line to be asked about Ukraine (AP)Democrats have set the stage for certain House approval of the ground rules lawmakers will use when they consider impeaching Trump as the chamber braced for its first showdown over the inquiry. There's no doubt the Democratic-controlled body would approve the eight pages of procedures Thursday, with each side likely to lose a handful of defectors, if any. (AP)
Peugeot and Fiat Chrysler (FCA) on Thursday confirmed their intention to merge, in what would be a 50-50 share swap and create the world's fourth-largest carmaker. The proposed tie-up would reportedly create an industry behemoth with vehicle sales of nearly 9 million and a combined 400,000 employees. (CNBC)
Ford Motor (F) and the United Auto Workers reached a tentative deal on a new labor contract Wednesday night without a strike. The four-year deal includes $6 billion in new investments from Ford and the creation or retention of 8,500 U.S. jobs, according to the union. (CNBC)
Twitter (TWTR) is axing political ads from its site, CEO Jack Dorsey said. The move sets Twitter in stark contrast to Facebook (FB), which has received criticism from lawmakers and its own employees in recent weeks over its policy to neither fact check nor remove political ads placed by politicians. (CNBC)
Santa Ana winds were expected to linger for a final day Thursday after driving more than a dozen wildfires through California, sending thousands fleeing. Firefighters managed to tamp down or at least partially corral fires that for the past few days surged through tinder-dry brush, though much of LA and Ventura counties remain under a red flag warning. (AP)
Starbucks (SBUX) matched Wall Street estimates with adjusted quarterly profit of 70 cents per share, with the coffee chain's revenue above analyst forecasts. Global comparable store sales grew a better-than-expected 5%, helped by a jump in cold drink sales.
Lyft (LYFT) posted smaller-than-expected losses for its latest quarter. The ride-hailing service's revenue exceeded expectations, and Lyft said it anticipated reaching profitability in about two years.
Etsy (ETSY) matched Street forecasts with quarterly profit of 12 cents per share, while the online crafts marketplace saw revenue exceed Wall Street forecasts. Gross merchandise sales were up by more than 30%, but the company also saw gross margins decline by more than three percentage points.
The Washington Nationals stunned the Houston Astros 6-2 in a winner-take-all Game Seven on Wednesday to secure their maiden Major League Baseball World Series title in a Fall Classic unlike any other. The victory set off celebrations in Washington, a city whose last World Series victory came in 1924 when the Senators defeated the New York Giants. (Reuters)
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8c493a5c7c4256ec0491a39c132782d9 | https://www.cnbc.com/2019/10/31/uk-election-is-needed-richard-dearlove-former-mi6-chief-says.html | Britain in a 'dead-end street' without political change, former spy chief says | Britain in a 'dead-end street' without political change, former spy chief says
Pro-EU demonstrators protest outside the Houses of Parliament on 30 October, 2019 in London, England.Barcroft Media | Barcroft Media | Getty Images
A snap election in the U.K. in December is what's needed to break parliamentary paralysis over Brexit but details on defense and security in the EU withdrawal agreement are not good enough, Richard Dearlove, the former chief of the U.K.'s Secret Intelligence Service, told CNBC Thursday.
"We're stuck politically with a Parliament that is composed in such a way that it's not keen to implement Brexit in the way originally envisaged by the referendum," Dearlove, who ran the U.K.'s secret intelligence agency known as MI6 from 1999 to 2004, told CNBC's Nancy Hungerford in Singapore.
"So, unless we have a parliamentary change, we're almost in a dead end street with nowhere to go, so I'm very pleased indeed that that decision has been taken (to hold a vote)," he said.
VIDEO2:4902:49Very pleased there'll be a UK general election: Former head of MI6Capital Connection
The snap election that is taking place on December 12 is seen as a way to break an parliamentary impasse over Brexit. The U.K. has been given a further extension to sort out its departure from the EU, and to ratify a Brexit deal, until January 31, 2020.
If the U.K. Parliament approves the Brexit divorce deal, or "Withdrawal Agreement," before then it can leave the bloc ahead of the deadline. Voter polls show that Prime Minister Boris Johnson's Conservative Party could win a majority in the election.
Richard Dearlove has made several notable political statements since leaving MI6 and most recently on Brexit. Ahead of the 2017 general election, he said it would be "profoundly dangerous" for the U.K. if Jeremy Corbyn, the leader of the main opposition left-wing Labour party, became leader.
Then in November 2018, Dearlove co-signed an open later published in a British newspaper that heavily criticized the Brexit deal negotiated by the then-Prime Minister Theresa May. In the letter, Dearlove said the deal, as it was then, "surrenders British national security by subordinating U.K. defence forces to Military EU control and compromising U.K. Intelligence capabilities."
Dearlove and his co-signatories stated that the deal jeopardized the U.K.'s "Five Eyes" alliance (an anglophone intelligence pact between the U.K., U.S., Australia, Canada and New Zealand) and therefore threatened Western security; "No risks are greater than the Withdrawal Agreement's terms of surrender," the letter concluded.
Since that letter in November 2018, the government has had a change of leadership and the Brexit deal has been amended. Asked on Thursday how he felt about the deal negotiated under Johnson's government, Dearlove said he expected further changes.
"I'm not sure exactly where we stand on that and in a way it's surprising that I'm not. But there's a lot of the detail that was in the Withdrawal Agreement, particularly on defense and security issues, with which I disagree. And that was one of reasons why I was very unhappy with the negotiation that the previous prime minister had completed," he said.
"The specific difficulty was that we were agreeing to areas of cooperation with the European Union, on issues of defense in particular, which we had not been enthusiastic about joining whilst we were a member. So it seems to me rather anomalous that we were making those conditions," he said.
"I'm pretty sure that some of those elements will be coming out now, or won't live beyond future negotiations with the EU," he said.
Dearlove has also been vocal about another divisive security issue in the U.K. — whether to allow Chinese tech giant Huawei to build 5G infrastructure. Dearlove has repeatedly warned of security risks to the U.K. from allowing the telecoms firm to have a role, saying in May that it would give the Chinese government a "potentially advantageous exploitative position in the U.K.'s future telecommunications systems."
A decision on whether to exclude Huawei from having a role in proving 5G infrastructure is now not expected until after the election, Bloomberg reported Wednesday, citing two unnamed sources familiar with the plans.
Huawei and the Chinese government have repeatedly rebuffed security concerns and the company has denied that its equipment could be used by the Chinese government for surveillance. Huawei has also offered to sign "no-spy" agreements with governments to reassure countries like the U.K. But security experts like Dearlove remain unconvinced.
"I think now with 5G we have a real problem and it's not too late to draw a line and say as we build out 5G we don't want to do it with Huawei … but I think that decision now is suspended for now and not likely to be reviewed by a new government," Dearlove said.
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410ccca05d346a0436370fe912d55629 | https://www.cnbc.com/2019/10/31/us-weekly-jobless-claims-rise-to-218000-vs-215000-estimate.html | US weekly jobless claims rise more than expected | US weekly jobless claims rise more than expected
Job seekers wait in line to speak with representatives during a Choice Career Fair in Los Angeles.Patrick T. Fallon | Bloomberg | Getty Images
The number of Americans filing applications for unemployment benefits rose slightly more than expected last week, but the trend in claims remained consistent with strong labor market conditions.
Initial claims for state unemployment benefits increased 5,000 to a seasonally adjusted 218,000 for the week ended Oct. 26, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported.
Economists polled by Reuters had forecast claims would rise to 215,000 in the latest week. The Labor Department said no states were estimated last week.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, slipped 500 to 214,750 last week.
The claims data has no bearing on October's employment report, which is scheduled to be published on Friday, as it falls outside the survey period.
While the low levels of claims suggest solid labor market conditions, job growth is expected to have slowed sharply in October because of a 40-day strike by workers at General Motors. Government data last Friday showed 46,000 GM employees were idle at the automaker's plants in Michigan and Kentucky during the October nonfarm payrolls count.
Striking workers who do not receive a paycheck during the payrolls survey period are treated as unemployed. The strike by members of the United Auto Workers union, which ended last Friday, had ripple effects on the auto industry.
Economists estimated the work stoppage cut between 75,000 and 80,000 jobs from October payrolls. As a result, the employment report will likely show only 89,000 jobs were added in October, down from 136,000 in September, according to a Reuters survey of economists.
The unemployment rate is forecast to rise one-tenth of a percentage point to 3.6%. Even discounting the GM strike, job growth has been slowing in line with ebbing demand and a shortage of workers.
The Federal Reserve cut interest rates on Wednesday for the third time this year, but signaled a pause in the easing cycle, which started in July when it reduced borrowing costs for the first time since 2008. Fed Chair Jerome Powell acknowledged the moderation in the pace of job growth this year, but said "the job market remains strong."
Thursday's claims report also showed the number of people receiving benefits after an initial week of aid rose 7,000 to 1.69 million for the week ended Oct. 19. The four-week moving average of the so-called continuing claims increased 8,750 to 1.69 million.
VIDEO1:5801:58Consumer income and spending increase slightly in September, as expectedSquawk Box
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42f39e6b69c809cef57f149cbcca8464 | https://www.cnbc.com/2019/10/31/watch-house-democrats-talk-after-passing-resolution-to-formalize-trump-impeachment-inquiry.html | Watch: House Democrats talk after passing resolution to formalize Trump impeachment inquiry | Watch: House Democrats talk after passing resolution to formalize Trump impeachment inquiry
[The stream is slated to start at 11:30 a.m. ET. Please refresh the page if you do not see a player above at that time.]
House Democrats were set to address the media Thursday after voting to establish guidelines in the ongoing impeachment probe of President Donald Trump.
The guidelines, released in an eight-page resolution on Tuesday, direct Democrat-led House panels to "continue their ongoing investigations" as part of the inquiry into "whether sufficient grounds exist for the House of Representatives to exercise its Constitutional power to impeach" Trump.
House Republicans were also set to discuss the matter:
Subscribe to CNBC on YouTube.
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f57dcf6c37b63a56e220b147ec0881ab | https://www.cnbc.com/2019/10/31/why-fridays-manufacturing-data-may-be-the-bull-markets-next-big-test.html | Market bull Jim Paulsen predicts manufacturing will rebound and drive stocks deeper into record territory | Market bull Jim Paulsen predicts manufacturing will rebound and drive stocks deeper into record territory
VIDEO1:3301:33Manufacturing holds key to the market's next leg higher: Jim PaulsenTrading Nation
The market's next big test may come Friday.
That's when the Institute for Supply Management releases its October U.S. manufacturing purchasing managers' index.
According to The Leuthold Group's chief investment strategist Jim Paulsen, it will be an even more important market event than this week's Federal Reserve decision on interest rates.
"The manufacturing recession, globally and particularly in the United States, is one of the primary reasons that people fear a recession," he told CNBC's "Trading Nation" on Wednesday.
Last month, the survey contracted to its worst level in a decade, fanning jitters about a recession.
"That really set off a sell-off in the stock market and escalated recession fears," said Paulsen. "If we see solid data here in the next few months that the manufacturing sector is bouncing given how healthy the consumer sector is, I think the recession ghost will be thrown away."
Paulsen, who correctly predicted a sharp rebound from last December's historic plunge, expects better manufacturing data will set off a bullish chain reaction.
"Earnings estimates will start to rise, and that could really be the catalyst to create one more nice upward leg in the stock market," he added.
Paulsen is also watching the Labor Department's October employment report, which also comes on Friday. According to Refinitiv, nonfarm payrolls should rise by 75,000 while the unemployment rate ticks up to 3.6% from 3.5%.
"There's a degree of health in this economy which is being covered up by that manufacturing slowdown," said Paulsen, who is tilted bullishly toward cyclicals and international parts of the stock market. "If that changes, there's a lot to like in the rest of the economy."
On Wednesday, the S&P 500 saw its third all-time high in a row and its 15th record close of 2019. The Dow was less than 1 percent from its record high, while the tech-heavy Nasdaq was just a half percent away. The three indexes were lower in Thursday's premarket.
Disclaimer
VIDEO6:3806:38Why Friday's manufacturing data may be the week's most important numberTrading Nation
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32cf7f7288d309acb7fc6beac41ced4c | https://www.cnbc.com/2019/11/01/asia-markets-november-1-us-china-trade-war-caixin-manufacturing-pmi-nonfarm-payrolls.html | Asia stocks mostly advance amid renewed US-China trade concerns | Asia stocks mostly advance amid renewed US-China trade concerns
Stocks in Asia mostly advanced on the first trading day of November amid renewed concerns over the potential for a long-term trade deal between China and the U.S.
Mainland Chinese stocks rose by the close The Shanghai composite advanced 0.99% to about 2,958.20 and the Shenzhen component gained 1.73% to 9,802.33. The Shenzhen composite also added 1.288% to approximately 1,637.00.
A private survey of factory activity in China showed manufacturing activity in the country expanded more than expected in October. The Caixin/Markit Purchasing Managers's Index (PMI) for the manufacturing sector came in at 51.7, above expectations of 51.0 by analysts in a Reuters poll. The 50 level in PMI readings separates expansion from contraction.
A day before, official data showed manufacturing activity in China shrank for the sixth straight month in October. The official PMI survey typically polls a large proportion of big businesses and state-owned enterprises. The Caixin indicator features a bigger mix of small- and medium-sized companies.
In Hong Kong the Hang Seng index rose 0.57%, as of its final hour of trading, as shares of ESR Cayman jumped in the company's public debut on Friday. The shares had surged 7% in the morning.
Meanwhile, South Korea's Kospi advanced 0.8% to close at 2,100.20. The S&P/ASX 200 in Australia recovered from an earlier slip finish its trading day fractionally higher at 6,669.10.
Japan's Nikkei 225 lagged as it slipped 0.33% to close at 22,850.77, while the Topix index ended the trading day largely flat at 1,666.50. Shares of gaming firm Nintendo surged 7.46%, after the company announced on Thursday a second-quarter profit that exceeded expectations.
Overall, the MSCI Asia ex-Japan index was 0.41% higher.
Investors watched for developments in U.S.-China trade amid renewed jitters after Bloomberg News reported Thursday, citing sources, that Chinese officials have been casting doubt over the possibility of a long-term trade deal with the U.S. The report added Chinese officials are concerned about U.S. President Donald Trump's "impulsive nature" and the risk of him backing out of any kind of deal.
That development came amid recent optimism for a "phase one" deal to be signed between the two economic powerhouses soon. The deal had been initially been expected to be signed at a November summit in Chile, an event which has since been canceled by the country due to ongoing anti-government protests.
For his part, U.S. President Donald Trump said Thursday a new location for signing the "phase one" trade deal with China "will be announced soon."
Beijing and Washington have been engaged in a trade war since 2018, with tariffs having been slapped on billions of dollars worth of each other's goods.
"Both sides (US and China) are keen to sign a deal, but doubt overshadows," Vishnu Varathan, head of economics and strategy at Mizuho Bank, wrote in a note.
"To be sure, a limited (low-hanging) 'phase one' deal (which circumvents thorniest of issues such as China's industrial, IP and technology transfer) is within grasp," Varathan said. "But that does not quell doubts about meaningful progress beyond."
Overnight on Wall Street, trade jitters sent shares on Wall Street lower. The Dow Jones Industrial Average closed 140.46 points lower at 27,046.23 while the S&P 500 slid 0.3% to end its trading day at 3,037.56. The Nasdaq Composite fell 0.1% to close at 8,292.36.
The October jobs report for the U.S. is set to be out Friday stateside, and expected to be unusually weak due to the strike at General Motors. Economists expect that just 75,000 jobs were created in October, and the unemployment rate is expected to tick up slightly to 3.6% from 3.5%, according to Dow Jones.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 97.212 after slipping from levels above 97.4 yesterday.
The Japanese yen, often seen as a safe-haven currency in times of market uncertainty, traded at 107.98 against the dollar after strengthening from levels above 108.5 in the previous session. The Australian dollar changed hands at $0.6906 after falling from levels above $0.692 seen yesterday.
Oil prices were mixed in the afternoon of Asian trading hours, with international benchmark Brent crude futures shedding earlier gains to decline 0.1% to $59.56 per barrel. U.S. crude futures gained 0.13% to $54.25 per barrel.
— CNBC's Fred Imbert, Patti Domm and Huileng Tan contributed to this report.
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4cc812f8e4b0a037de2d4bab2bf23060 | https://www.cnbc.com/2019/11/01/beto-orourke-is-dropping-out-of-the-2020-presidential-race.html?&qsearchterm=beto%20o%27rourke | Beto O'Rourke is dropping out of the 2020 presidential race | Beto O'Rourke is dropping out of the 2020 presidential race
Democratic presidential candidate and former Rep. for Texas Beto O'Rourke speaks at the Iowa Federation Labor Convention on August 21, 2019 in Altoona, Iowa.Joshua Lott | Getty Images
Former Texas Senate candidate Beto O'Rourke said Friday that he will drop out of the 2020 presidential race, making him the latest candidate to exit the still-crowded but narrowing Democratic primary contest.
"Our campaign has always been about seeing clearly, speaking honestly, and acting decisively," O'Rourke announced in a series of tweets. "In that spirit: I am announcing that my service to the country will not be as a candidate or as the nominee."
O'Rourke TWEET
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The announcement also included a link to a lengthy post on Medium, in which O'Rourke vowed to support the eventual Democratic nominee.
"We will work to ensure that the Democratic nominee is successful in defeating Donald Trump in 2020," O'Rourke wrote in the blog post. "I can tell you firsthand from having the chance to know the candidates, we will be well served by any one of them, and I'm going to be proud to support whoever that nominee is."
O'Rourke had told some of his donors earlier this week that he was likely going to drop out, people familiar with the matter told CNBC.
Mark Gallogly, the founder of investment firm Centerbridge Partners and a lead bundler for O'Rourke, told CNBC that "Beto consistently raised important issues with great integrity and energy for all Americans."
O'Rourke, 47, was a U.S. representative from Texas before giving up his seat to run for Senate in 2018 against incumbent Sen. Ted Cruz. His impressive fundraising numbers and large crowds in that race garnered national attention, raising hopes among Democrats that Texas, traditionally a reliably Republican stronghold, could be turned blue.
VIDEO3:0403:04Watch five key moments from the fourth Democratic debatePolitics
Despite losing to Cruz, O'Rourke announced in March that he would run for president. But his national campaign was rarely able to match the enthusiasm he generated in Texas.
The RealClearPolitics polling average never showed O'Rourke cracking 10% in the polls, and his popularity appeared to trend downward as the Democratic primary wore on.
His campaign's fundraising numbers also fell well below the front-runners in the primary: He posted $4.5 million in the most recent quarter, compared with Vermont Sen. Bernie Sanders' $25.3 million and Massachusetts Sen. Elizabeth Warren's $24.6 million in the same period.
"Though it is difficult to accept, it is clear to me now that this campaign does not have the means to move forward successfully," O'Rourke wrote in his Medium post.
President Donald Trump, who was traveling to Mississippi for a campaign rally, taunted O'Rourke in a tweet.
"Oh no, Beto just dropped out of race for President despite him saying he was 'born for this.' I don't think so!" Trump tweeted, referring to a quote from a profile in Vanity Fair, in which O'Rourke said he was "just born to be in" the race for the White House.
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O'Rourke emerged as the most hard-line gun control advocate in the field in August, following a deadly mass shooting at a Walmart in his hometown of El Paso, Texas, that left 22 dead and dozens injured.
O'Rourke was scorned by Republicans for his defiant stance on confiscating AR-15 rifles, which have become associated with mass shootings in the U.S.
"Hell yes, we're going to take your AR-15, your AK-47," he said during a primary debate in September.
VIDEO6:0706:07Democratic candidates sound off on Trump and trade at third debateSquawk on the Street
— CNBC's Brian Schwartz contributed to this report.
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6bddd428f6b1559ef46ef0650278adbc | https://www.cnbc.com/2019/11/01/big-stars-not-path-to-glory-says-ex-showtime-ceo-on-apple-tv-plus.html | Big stars such as Jennifer Aniston are 'not necessarily the path to glory' for Apple TV+ | Big stars such as Jennifer Aniston are 'not necessarily the path to glory' for Apple TV+
VIDEO5:5405:54Former Showtime CEO on Apple TV+: Big name celebs may not be 'the path to glory'Squawk Box
Apple's strategy to bank on big stars, including Jennifer Aniston and Jason Momoa, to attract subscribers to its new video streaming service does not guarantee success, according to former Showtime CEO Matthew Blank.
"It's not necessarily the path to glory," Blank told CNBC's "Squawk Box" on Friday, the day Apple TV+ launched with original programming including "The Morning Show," starring Aniston, and "See," starring Momoa.
Blank compared Apple's bet on well-known Hollywood actors and actresses with Netflix's success with unknown talent. "Who was the star of 'Stranger Things' before it was on the air?" he asked, rhetorically.
The young cast of "Stranger Things," including Millie Bobby Brown, became household names because the show was so good and got popular, not the other way around. Netflix's introduction of lesser-known talent through its originals has paid off thus far, so much so it even mentions the numbers of its stars' Instagram followers in its earnings reports.
Apple TV+ becomes the latest entrant to the streaming wars dominated by incumbents Netflix, Amazon and Hulu. Soon-to-be rival Disney+ launches later this month, followed by Comcast's Peacock in April and AT&T's HBO Max in May.
In an effort to woo viewers, companies are offering various freebies — for example, Verizon customers can get Disney's service for free, and AT&T and HBO subscribers can get free HBO Max. Apple TV+ will be free for a year with the purchase of an iPhone, an iPad, an iPod Touch, an Apple TV streaming box or a Mac computer.
However, Blank said the flood of initial free subscribers could be a problem for investors. "That's going to make it really hard to say if any of these strategies are really successful."
Earlier on "Squawk Box," Gene Munster, co-founder of start-up funding and research firm Loup Ventures, said Apple TV+ will "probably add about 200 million free subscribers." Munster was a Wall Street tech analyst for years before starting Loup.
Apple has also reportedly spent billions of dollars on content for the service, in a TV-show and movie arms race with rival streamers. Netflix, for example, has planned $15 billion in content spending for 2019.
Netflix's latest big splash is Martin Scorcese's $159 million gangster epic, "The Irishman," about hitman Frank Sheeran, who claims he killed Teamsters boss Jimmy Hoffa in 1975. Robert De Niro plays Sheeran. Al Pacino plays Hoffa.
"The Irishman" debuts in select theaters Friday before becoming available on the Netflix streaming service on Nov. 27.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
VIDEO6:2406:24Why the price point for Apple TV+ is so lowSquawk Box
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582825f7e4e2e9c093f4c7c658787893 | https://www.cnbc.com/2019/11/01/elizabeth-warren-has-dehumanized-leon-cooperman-ex-omega-employee-writes.html | A former Omega employee defends Leon Cooperman against Elizabeth Warren: 'She has dehumanized an admirable human being' | A former Omega employee defends Leon Cooperman against Elizabeth Warren: 'She has dehumanized an admirable human being'
Leon Cooperman on CNBC's "Halftime Report."Scott Mlyn | CNBC
My lawyer friends often warn me never to ask a question to which I don't know the answer. Sen. Elizabeth Warren, despite her tenure as a Harvard Law School professor, needs to remember that advice.
Her recent tweet to billionaire investor Leon Cooperman — "Leon, you were able to succeed because of the opportunities this country gave you. Now why don't you pitch in a bit more so everyone else has a chance at the American dream, too?" — proves the point. More worrisome, her heated rhetoric ignores the bottomless generosity of one of America's greatest investors.
First of all, those of us who know him call him Lee. I worked for Lee at Omega Advisors in the early 2000s. He was a demanding boss. Hedge funds don't succeed without demanding leaders. My firsthand experience over the course of several years working for Lee at Omega provides an answer to the combative tweet that Sen. Warren won't like.
On September 11, 2001, Lee sent me — from our offices just a few blocks from the World Trade Center — to a bank conference at the Pierre Hotel in midtown Manhattan. After the towers collapsed, I had no way to reach the office. I also lost contact with my wife who worked just a few blocks from Omega. Like most New Yorkers, I spent that distressing day trying to make sense of what happened. I also worried about the safety of my Omega colleagues whom I had left downtown that horrible morning.
When I finally stumbled home that evening, I found three voicemail messages from Lee inquiring about my safety. I immediately returned his calls. His wife, Toby, answered the phone. She asked me several times if I was OK. The concern and alarm in her voice echoed the gravity of the day's events. Each time I assured her I was fine she yelled, "Lee, Mark Brennan is safe." And each time she yelled, Lee yelled right back, "Thank God."
The Coopermans also asked me repeatedly if the rest of my family was safe, knowing my wife worked near the towers. Even after I reassured Toby we were fine, she insisted I call her and her husband back for any help. Not surprisingly, Lee rang me shortly after that conversation to repeat his wife's offers of help. Lee and his wife are generous with their time, their money, and, most importantly, their concern for others. Sen. Warren's vilification ignores these important qualities in both Lee and his wife.
Each year at bonus time, Lee made those of us he paid well pause to give thanks. One year he invited me to a breakfast at the Damon Runyon Cancer Research Foundation, where he served on the board. Thanks to Lee's generosity, Damon Runyon funds researchers early in their careers. As I learned at the breakfast, the dream of each of those curious scientists is to eradicate cancer. But their early career status limits their ability to tap grant money from established institutions. Lee has stepped up to provide them a chance through his donations of both time and money.
I was so moved by the promising stories the researchers told me at breakfast that I immediately made a donation when I returned to the office. In the subsequent haste of the market open, I emailed Lee to thank him for bringing Damon Runyon's work to my attention. I also told him I had donated money on the spot in memory of my father, who was then battling cancer.
My phone rang right after I hit "Send." It was Lee. He began to thank me but stopped when his voice started cracking and he hung up. The events that morning taught me that my boss – the demanding, aggressive investor – cared enough to fund what Damon Runyon proudly identifies as "the most audacious and ambitious ideas" as well as Sen. Warren's "dreams" of those who could even think such ideas.
I am now a Stage 4 cancer victim myself. In my new state, I often think of Lee's shortened call to thank me and his cracking voice. Lee's donations to Damon Runyon and the chance he provides its researchers to make their dreams a reality might be the only thing that keeps me alive. Sen. Warren's vitriolic comments ignore Lee's benevolence. Even worse, they do nothing to advance the common good. Lee's donations do.
Thanks to Lee's largess, I was able to leave the hedge fund industry and become a college professor. I now teach ethics to both undergraduate and graduate students at the Stern School of Business at New York University. I dreamed of that job when I worked at Omega. In paying me as he did, Lee gave me the chance to make my dream a reality. When I bumped into Lee a few years ago and told him I am now teaching, he smiled as he parted and said, "You are doing God's work."
Since 2011 more than 1,000 students have passed through my classroom at NYU. They have all learned of Immanuel Kant's belief in the inherent dignity of each and every human being. Kant insisted we never use another human being as a means to an end.
Sadly, Sen. Warren has violated Kant's most basic teaching. She has dehumanized Lee Cooperman with her vicious attacks. Her absurd caricature of him as a greedy, selfish billionaire erases the generous human being who helps others, sometimes without even realizing it. Her rhetoric only serves to further divide an already painfully divided nation. And worst of all, her irresponsible tweets deny the dignity of a human being who has helped improve society in ways she refuses to acknowledge even as she uses his caricature to advance her political agenda.
Elizabeth Warren does not know Lee Cooperman the human being. She knows an imaginary Leon Cooperman, a greedy billionaire. But that image is a figment of her fevered imagination.
Speaking as one professor to another, Sen. Warren needs to remember and practice the most important lessons taught to law students. Her political ambitions have blinded her to the most basic of lawyerly practices, knowing the answer to one's questions beforehand. Even worse, she has dehumanized an admirable human being.
Mark G. Brennan, PhD., is an adjunct associate professor of Business Ethics in the Business & Society Program at New York University's Stern School of Business, where he teaches both undergraduate and graduate students.
VIDEO3:4703:47Billionaire investor Leon Cooperman: Stop portraying billionaires as criminalsSquawk Box
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de9cd77ef186bd81deb07cc883f7577e | https://www.cnbc.com/2019/11/01/exxon-says-efforts-to-ban-fracking-will-benefit-foreign-oil-producers.html | Exxon says efforts to ban fracking will benefit foreign oil producers at the expense of US | Exxon says efforts to ban fracking will benefit foreign oil producers at the expense of US
Banning fracking in the United States will aid foreign oil producers at the expense of the American economy, an Exxon executive said Friday.
"Any efforts to ban fracking or restrict supply will not remove demand for the resource," Exxon vice president of investors relations Neil Hansen said on the company's third quarter earnings conference call. "If anything, it will shift the economic benefit away from the U.S. to another country, and potentially impact the price of that commodity here and globally."
He was asked specifically about how the company is evaluating political risk ahead of the 2020 election because Senator Elizabeth Warren has said that if elected, on her first day as president, she would ban all fracking and put a moratorium on new fossil fuel leases for drilling on offshore and public lands. Senator Bernie Sanders has said he would do the same.
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Exxon has access to federal lands in New Mexico, Alaska, Delaware and the Gulf of Mexico. The oil-rich Permian Basin is a key center of production for the company. In the third quarter, production in the area grew 7%, and was up more than 70% year-over-year.
Analysts have warned that banning fracking could hurt smaller companies, particular those in the capital-intensive exploration and production areas of energy, while driving up global oil prices.
"I think any efforts obviously to ban fracking would have a negative impact on industry efforts to develop resources like the Permian. There's no doubt in that," Hansen said. He added that "it's difficult to speculate on the impact of a policy without details on implementation." He noted that Exxon's global operations helps it mitigate risks in specific areas.
He said the company shares concerns about climate change and emissions reductions, but believes that there are more effective ways to curb emissions such as instituting a revenue-neutral carbon tax. "It's uniform, it's transparent, it will incentivize the market to find solutions," he said.
On Friday, Exxon reported a 49% decline in third-quarter earnings as lower oil prices and higher costs pressure its bottom-line. The results, however, did slightly top Wall Street expectations and the shares were trading higher on Friday.
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572312e0803e035f6fc58c4ad84eaaed | https://www.cnbc.com/2019/11/01/facebook-blamed-for-aristas-disappointing-guidance.html | Facebook blamed for Arista's disappointing guidance | Facebook blamed for Arista's disappointing guidance
President and CEO of Arista Networks Jayshree UllalScott Mlyn | CNBC
Shares of Arista Networks plunged 24.2% on Friday after the company gave a disappointing outlook for fourth-quarter revenue a day earlier, citing slowed spending from an unnamed cloud customer.
Many analysts are blaming Facebook, one of the cloud software and networking company's largest customers, for the sudden slowdown in orders. MKM Partners analysts were among those who called out Facebook as the culprit behind Arista's "scary bad guidance."
Arista shares opened down 29%, which is below its previous worst when it fell 23% on Jan. 29, 2016. Earlier in the day, Arista shares hit an intraday all-time low of $173.31.
Representatives from Facebook weren't immediately available for comment.
"The shockingly big reduction is primarily due to Facebook, but also includes weaker performance in the service provider and tier 2 cloud provider verticals," MKM analysts said in a note to clients on Friday.
For the fourth quarter, Arista expects to report revenue between $540 million and $560 million, which is below consensus estimates of $686.2 million. Without naming Facebook, Arista CEO Jayshree Ullal said one of the company's cloud titan customers had decided to delay upgrading its servers and was shifting its new equipment orders to real-time to lower spending.
On the conference call with analysts, Ullal said Microsoft and Facebook will each represent 10% of revenue in 2019. She also said Microsoft wasn't the source of the decline in orders.
VIDEO8:3708:37Arista Networks CEO: Everybody wants to cloud-ify Mad Money with Jim Cramer
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43fc8c839477dc945c0e58ee6631f904 | https://www.cnbc.com/2019/11/01/facebook-is-sued-for-age-gender-bias-in-financial-services-ads.html | Facebook is sued for age, gender bias in financial services ads | Facebook is sued for age, gender bias in financial services ads
Facebook was sued on Thursday in a proposed class action accusing it of discriminating against older and female users by withholding advertising for financial services such as bank accounts, insurance, investments and loans.
According to the complaint filed in San Francisco federal court, Facebook persists in its willingness to let financial services advertisers "target" prospective customers by age and gender, despite a recent overhaul covering other kinds of ads.
It said the Menlo Park, California-based social media company's conduct violates that state's civil rights law, exposing Facebook to billions of dollars in potential damages to users nationwide.
"The Internet is not a place where you can discriminate against people because of their age or gender, particularly in financial services opportunities," Peter Romer-Friedman, a lawyer for the plaintiffs, said in an phone interview. "It would be like General Motors refusing to offer women or older people the same features on a car as men or younger people."
Facebook did not immediately respond to requests for comment.
The complaint was filed seven months after Facebook agreed to overhaul its targeted ad system, including for Instagram and Messenger, to settle lawsuits by civil rights groups that it let employers, landlords and lenders discriminate by age, gender, and zip code when placing job, housing and credit ads.
Sheryl Sandberg, chief operating officer of Facebook Inc., listens during a Senate Intelligence Committee hearing in Washington, D.C., U.S., on Wednesday, Sept. 5, 2018. Andrew Harrer | Bloomberg | Getty Images
Chief Operating Officer Sheryl Sandberg said at the time the changes would help protect Facebook users, and that "getting this right was deeply important to me and all of us at Facebook because inclusivity is a core value for our company."
While Facebook has begun implementing the changes, the complaint said it still allows financial services ads limiting such services to "people ages 24 to 40," "men ages 20 and older," and other comparable groups.
Facebook is the world's second-largest seller of online ads, and on Wednesday said around 2.8 billion people use at least one of its platforms each month.
"We recognize that Facebook has taken significant steps to prevent discrimination in housing and jobs," as well as credit ads, said Romer-Friedman, a lawyer at Outten & Golden. "The company can do a lot more."
Thursday's complaint seeks damages for millions of Facebook users under California's Unruh Civil Rights Act, which allows $4,000 of damages per violation.
It is led by Neutah Opiotennione, a 54-year-old woman from Washington, D.C. who said Facebook has deprived her of financial services ads and information because of her age and gender.
The case is Opiotennione et al v Facebook Inc, U.S. District Court, Northern District of California, No. 19-07185.
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c8c3a8bb09c65cb9a461571d9c4d94af | https://www.cnbc.com/2019/11/01/fosun-tourism-to-buy-intellectual-property-assets-of-thomas-cook.html | Fosun Tourism to buy intellectual property assets of Thomas Cook | Fosun Tourism to buy intellectual property assets of Thomas Cook
Passengers disembark a Thomas Cook aircraft at Manchester Airport on September 23, 2019 in Manchester, United Kingdom.Christopher Furlong | Getty Images
Fosun Tourism Group on Friday said it will acquire the intellectual property assets of Thomas Cook Group Plc for 11 million pounds ($14.25 million).
The assets on sale include trademarks, domain names, software applications and licences of Thomas Cook and other related brands.
Britain's Thomas Cook, the world's oldest travel firm, collapsed in late September succumbing to heavy debt.
Fosun also said it does not plan to buy overseas assets or businesses related to Thomas Cook.
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ab9876993efa66030a84de0760969de3 | https://www.cnbc.com/2019/11/01/gold-markets-us-china-trade-in-focus.html | Gold slips on positive US jobs, China factory data | Gold slips on positive US jobs, China factory data
Canadian maple leafs sit on the faces of one ounce gold coins in London, the United Kingdom, on July 15, 2014.Chris Ratcliffe | Bloomberg | Getty Images
Gold prices eased on Friday as better-than-expected U.S. jobs numbers and strong factory data from China bolstered sentiment for riskier assets.
Spot gold dipped 0.2% to $1,510.82 per ounce. Prices were set for a weekly gain. U.S. gold futures were little changed at $1,513.20.
"For now, gold is under pressure with the positive economic news ... It will be struggling for some direction," said Mitsubishi analyst Jonathan Butler.
"From here, it's difficult to see what the major upside factors would be for gold other than some geopolitical events, with the U.S. Federal Reserve pretty set on keeping rates on hold for now."
U.S. job growth slowed less than expected in October, while hiring in the prior two months was stronger than previously estimated, offering assurance that consumers would continue to prop up the slowing economy for a while.
The Fed cut interest rates for a third time this year, but signalled there would be no further reductions unless the economy takes a turn for the worse.
Lower interest rates generally reduce the opportunity cost of holding non-yielding gold and weigh on the dollar.
"While still above $1,500, it's hard to build a case for a sustained bullish recovery currently as the metal remains sensitive to headlines," MKS PAMP said in a note.
"Resistance levels sit toward $1,520-$1,525, with extension toward hard resistance at $1,535."
Stock markets took comfort from the October U.S. jobs data and numbers showing China's factory activity expanded at its fastest pace in more than two years.
Also lifting sentiment for riskier assets was a statement by U.S. President Donald Trump saying Washington and Beijing would soon announce a new venue for the signing of a "Phase One" trade deal, after protests in Chile resulted in the cancellation of a planned summit there this month.
In terms of the overall outlook for gold, however, the trend is positive with the metal likely consolidating before moving higher, said Edward Moya, a senior market analyst at OANDA, adding there are doubts that the trade war will get completely wrapped up and investors are also skeptical about jumping into the stock market rally.
"There's a strong call for portfolio diversification and people prefer gold over Treasuries."
In other precious metals, silver was down 0.3% at $18.07. Platinum rose 2% to $950.95 per ounce, after hitting its highest level since Sept. 25, at $952.20, en route to a weekly rise of about 3%.
Palladium was 0.8% higher at $1,808.01. The metal was set to mark a four-week gaining streak, having notched up a record high of $1,824.50 an ounce on Wednesday.
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eaa6a1b29340a22eb1a0509b2099b2ad | https://www.investopedia.com/articles/investing/040315/reits-versus-real-estate-mutual-funds.asp | REITs vs. Real Estate Mutual Funds: What's the Difference? | REITs vs. Real Estate Mutual Funds: What's the Difference?
REITs vs. Real Estate Mutual Funds: An Overview
Real estate investment trusts (REITs) and real estate mutual funds both offer diversification and an easy, affordable way for individual investors to invest in various segments of the real estate market. They also represent a more liquid vehicle for investment in this sector than owning or investing in real estate directly.
There exists a wide variety of REITs and real estate sector mutual funds to choose from. Before considering either type of instrument, you need to understand the key differences between the two, as well as their pros and cons.
Key Takeaways Investing in real estate assets can help diversify a portfolio and increase returns. REITs are share-like securities that give investors access to either equity or debt-based real estate portfolios. REITs typically invest directly in properties or mortgages. Real estate mutual funds are managed funds that invest in REITs, real-estate stocks and indices, or both.
REITs
A REIT is a corporation, trust, or association that invests directly in real estate through properties or mortgages. They trade on a stock exchange and are bought and sold like stocks.
The three major types are equity REITs, mortgage REITs, and hybrid REITs. Equity REITs own and invest in properties such as apartments, office buildings, shopping malls, and hotels. Revenues are generated mainly from the rents of properties which they own or have a share in. The majority of REITs are equity. (For more, see: What are Risks of Real Estate Investment Trusts?)
Mortgage REITs invest in residential and commercial mortgages. These REITs loan money for mortgages, or purchase existing mortgages or mortgage-backed securities (MBS). Revenues are generated primarily by the interest earned on mortgage loans.
Hybrid REITs are a combination of equity and mortgage REITs.
REITs pay dividends. They are required by the Internal Revenue Service (IRS) to pay out most of their taxable profits to shareholders via dividends. REIT companies don't pay corporate income tax.
Real Estate Mutual Funds
Mutual funds are professionally managed pooled investments that invest in a variety of vehicles, such as stock and bonds. Investors purchase mutual fund shares, or units, which are bought or redeemed at the fund's current net asset value (NAV). NAVs are calculated once a day and are based on the closing prices of the securities in the fund's portfolio. (For more, see: The Risks of Real Estate Sector Funds.)
Real estate mutual funds typically invest in REIT stocks, real estate related stocks, or a combination of both.
Special Considerations
REITs and real estate mutual funds give individual investors with limited capital access to either diversified or concentrated real estate investments because they have relatively low investment minimums. When it is diversification they provide, the two types of funds help mitigate risk.
Depending on their investment strategy, real estate mutual funds can be a more diversified investment vehicle than are REITs. This can cut down on transaction costs for those looking for greater diversification concentrated in one or a few funds. They also have the benefit of professional portfolio management and research.
Real estate funds provide dividend income and the potential for capital appreciation for medium- to long-term investors. Remember, REITs must distribute at least 90% of taxable income to shareholders each year in the form of dividends.
The value of real estate tends to increase during times of inflation, as property prices and rents go up. Therefore, REITs and real estate mutual funds can serve as a potential hedge against inflation.
Finally, both types of real estate funds provide liquidity in what is typically an illiquid asset class.
Drawbacks
As with any investment, there are risks to investing in both REITs and real estate mutual funds. Returns are not guaranteed.
Also, as with all sector-specific funds, those that focus on real estate can be more volatile than funds with broader investment horizons, such as a fund tracking the S&P 500 index. In short, when the real estate market falters, funds in this sector suffer. Of course, the opposite is true when the real estate market is booming.
Rising interest rates can also affect the returns of real estate funds. For example, REITs rely on debt or borrowed money to acquire properties. When interest rates rise, so does the cost of borrowing, which can cut into profits.
REIT vs. Real Estate Mutual Fund Example
If you want to invest in New York City’s dynamic and notoriously pricey real estate market, for instance, consider the appropriately named Empire State Realty Trust Inc. (ESRT)—a REIT that can claim the iconic Empire State Building as one of its portfolio properties. Its portfolio totals six retail and 14 office properties in Manhattan and the New York City metropolitan area. (For more, see: Investing in New York City REITs.)
T. Rowe Price Real Estate (TRREX) is an example of a (real estate) sector mutual fund with diverse holdings. Boasting some 40 holdings, it invests primarily in REITs as well as publicly-traded real estate-related companies. (For more, see: Owning an Equity REIT vs. a Mortgage REIT: What's the Difference?)
The Bottom Line
REITs and real estate mutual funds have their differences, but they are similar in that they both offer liquidity and an accessible way to get exposure to diversified real estate assets. For retail investors without significant capital, these real estate funds create an avenue for investing in a wide range of properties that might otherwise be out of reach. Long-term investors, in particular, have the potential to reap the rewards of dividend income and capital appreciation down the line. Before investing in either, make sure you understand the differences between the two, as well as the attendant risks and rewards.
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fab1f8d5c202c9cfbf6931344cf8b6ff | https://www.investopedia.com/articles/investing/040414/how-russia-makes-its-money-and-why-it-doesnt-make-more.asp | How Russia Makes Its Money | How Russia Makes Its Money
Russia is more than twice as large as the contiguous 48 U.S. states, with an educated population and far more natural wealth than you’d expect to find in an area even as vast as 6.6 million square miles. Shouldn’t such a nation be the envy of the world, its undisputed superpower? Yet Russia’s gross domestic product (GDP) only comes in at number 11 in the world, according to International Monetary Fund (IMF) figures.
While the United States ranks as the world's largest economy with a nominal GDP of $21.44 trillion in 2019, Russia's nominal GDP comes in at $1.64 trillion. In terms of GDP, Russia trails much smaller countries, such as the United Kingdom, Italy, and France. This is far lower than the country's inputs—such as literacy levels and access to capital—would indicate. How then does Russia make its money, and why doesn’t it make more?
Key Takeaways In terms of gross domestic product (GDP), Russia trails much smaller countries with a nominal GDP of $1.64 trillion in 2019.Russia's economy is dependent on the export of oil and natural gas, both of which are under the control of the Russian government.This lack of economic diversification puts Russia at a disadvantage when demand for its energy products plummet, which then causes the Russian economy to contract.
Dissolution of the Soviet Union
Since the 1991 dissolution of the Soviet Union, the Russian economy has fared better than those of most of the 14 other smaller republics of the former USSR. The Western-friendly Baltic states of Latvia, Estonia, and Lithuania are now each firmly ensconced as full members of the European Union and have fared far better economically. Meanwhile, Russia’s economy—based primarily on extracting resources from the Earth—hasn’t translated into significant general wealth for its 144 million citizens.
Officially, Russia abandoned communism decades ago. But reality matters more than labels. While post-Soviet Russia ostensibly enjoys a market economy, its leaders have deemed its dominant energy sector too crucial to leave to the caprices of independent buyers and sellers. Oil, natural gas, electricity, and more are under de facto control of the federal government.
For instance, the Russian government owns a sliver more than half of Gazprom (LSE: OGZD), the world’s largest natural gas extractor. The publicly traded company is the successor of the Soviet Ministry of Gas Industry. Every sixth cubic foot of natural gas on this planet is processed courtesy of Gazprom, whose chairman happens to be Russia’s former prime minister, Viktor Zubkov.
Russian Government Controls Energy
No matter the source of energy, the Russian government controls it, resulting in untold profits for the nation’s oligarchic class. For example, Inter RAO, the nation’s primary electric utility, is owned by a consortium of state-owned enterprises. The idea of energy extraction and refinement being open to private enterprise, something taken for granted in the United States, is quite literally a foreign concept in Russia.
Russia’s oil production rivals its natural gas production. As of 2019, the country is the third-largest oil producer in the world, behind the United States and Saudi Arabia. In 2018, the nation accounted for 11% of the total world oil production and averaged 11.4 million barrels of crude a day, through several companies.
The largest of these include Rosneft (LSE: ROSN), Lukoil (LSE: LKOD), and Surgutneftegas (LSE: SGGD). While all three trade on the London Stock Exchange (LSE), Rosneft is owned 70% by the Russian government, and Surgutneftegas's ownership structure is all but impenetrable to outsiders. To interpret the sometimes convoluted logic behind how the Russian energy industry and its major players operate, one needs to examine its ultimate principal owners, the Russian government.
Russian Politics and the Economy
The majority party in Russian politics is United Russia, which was founded by President Vladimir Putin and holds most of the seats in both the national and state legislatures. Officially, United Russia seeks to overcome "economic backwardness," according to an official party document, sometimes referred to as "Go Russia." The document describes this backwardness as "an addiction to surviving off exporting raw materials" and "the certainty that all problems must be solved by the state," both listed ambitions seeming to contradict real-world activity.
With a political class sworn to regaining the nation’s former stature (to say nothing of its former territory), it’s not surprising that the Russian government capitalizes on opportunities to invade its weaker neighbors that were once part of the Soviet Union. In 2008, it was Georgia. In 2014, it was a bigger prize: Ukraine.
These invasions came at a heavy economic price for Russia. Following the Ukraine invasion in 2014, the United States and other countries imposed economic sanctions against Russia. The heightened geopolitical tensions dampened investor demand for Russian investments. These factors, along with high inflation and a sharp decline in oil prices in late 2014, caused the Russian economy to contract 3.7% by the end of 2015.
The Bottom Line
A large nation’s economy isn’t exactly adaptable to change when the economy is so homogeneous that two-thirds of its exports are either petroleum or its distillates. For Russia, this became even more apparent in early 2020 during the COVID-19 pandemic. The country experienced yet another drop in demand for its oil and gas exports as a result of the quarantines and the Saudi-Russia oil price war. With economic conditions deteriorating, Russian manufacturing also took a hit, with the sector reporting in April 2020 its sharpest decline in over a decade.
Given what’s essentially a one-note export business that operates at the mercy of global price movements, the paradox is that Russia leaves little opportunity for the populace to operate enterprise-free of government influence. All this in a nation with more raw potential than any other might hope for.
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f4c6daa3394c25a2b9d64ffa08606ab3 | https://www.investopedia.com/articles/investing/040515/what-education-do-you-need-become-billionaire.asp | What Education Do You Need to Become a Billionaire? | What Education Do You Need to Become a Billionaire?
In 2020, there were 2,095 billionaires in the world with a combined net worth of $8 trillion, according to Forbes. You might wonder what kind of education it takes to join the ranks of the world's wealthiest individuals. What do you need to study to become a billionaire? Is billionaire status reserved for those who graduate from elite universities? And just how important is an advanced degree to achieving extreme wealth?
To answer these questions, we take a look at five billionaires and their educational histories.
Key Takeaways Microsoft co-founder Bill Gates went to an exclusive college prep school and then attended Harvard University for two years before dropping out.Carlos Slim Helu, who was the world's richest person from 2010 to 2013, graduated from the National Autonomous University of Mexico with a degree in civil engineering.Spanish fashion executive Amancio Ortega, who has a net worth of $68 billion, grew up poor in a small town and dropped out of school at age 14 to find a job to help his family.Warren Buffett purchased his first securities at age 11, received his undergraduate degree from the University of Nebraska, and then went on to Columbia University where he earned a master’s degree in economics.Billionaire Larry Ellison dropped out of college twice before moving to California where he worked as a programmer and eventually started the company that would become Oracle.
Bill Gates
Bill Gates, the co-founder of Microsoft (MSFT), has a net worth of $115.8 billion. Gates attended an exclusive private college prep school where he, along with other students, had access to a teleprinter and a General Electric computer.
Gates began learning the computer language BASIC. One of his classmates was future Microsoft co-founder Paul Allen. While in high school, Gates wrote his first computer program, an application that allowed people to play tic tac toe against the machine.
Gates was an excellent high school student. After graduation, he attended Harvard University for two years before dropping out. Soon after, he reunited with his high school computer buddy Paul Allen, and they started the company that would become Microsoft.
Carlos Slim Helu
Carlos Slim Helu, a Mexican investor and telecom CEO, has a net worth of $52.8 billion. Slim, who was the richest person in the world from 2010 to 2013, is sometimes called the Warren Buffet of Mexico. Through his company Grupo Carso, he has massive holdings in many industries. He is also the CEO of Latin America’s largest mobile phone carrier.
Slim’s father was a Lebanese immigrant who started with a dry goods store and branched out into real estate. Slim was put to work in the family business at a young age. He learned enough about business from his father that by age 12 he had already purchased shares in a Mexican bank. Slim graduated from the National Autonomous University of Mexico with a degree in civil engineering.
Amancio Ortega
Amancio Ortega, the founder of Zara, has a net worth of $68 billion. Ortega is a Spanish fashion executive and founding chairman of the Inditex fashion group, which includes international fast-fashion giant, Zara. Ortega grew up poor in a small town where his father was a railway worker. Ortega dropped out of school at age 14 to find a job and help his family. He found work with a local shirtmaker and that is where he started his education in fashion.
Warren Buffett
Warren Buffett, businessman and investor, has a net worth of $80.1 billion. Now known as the Oracle of Omaha, Buffett was the son of a congressman and a precocious student. As a child and teen, he engaged in many side jobs and money-making schemes including delivering newspapers, selling magazines door-to-door, and buying and installing pinball machines at local businesses. At age 11, he had already bought his first securities. In high school, he was able to buy a farm.
Buffett enrolled at the University of Pennsylvania at the age of sixteen to study business and finished his degree at the University of Nebraska. Buffett completed his formal education at Columbia University where he earned a master’s degree in economics. He is also fond of noting that he took a Dale Carnegie class in public speaking.
Larry Ellison
Larry Ellison, founder of Oracle (ORCL), has a net worth of $78.9 billion. Ellison is the only billionaire on this list to drop out of not one, but two colleges. He enrolled at the University of Illinois but dropped out after two years. After spending time in California, Ellison returned to the Midwest and completed just one term at the University of Chicago, where he first became interested in computers. Ellison moved to California where he worked as a programmer and eventually started the company that would become Oracle.
The Bottom Line
As of 2017, out of the Forbes list of the 400 richest people, 23 had just a high school diploma. These include Mark Zuckerberg, Bill Gates, and Sean Parker. As Warren Buffett often says, "The best education you can get is investing in yourself. But that doesn't always mean college or university."
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216290a9b9ac6353c53007a64ef661cd | https://www.investopedia.com/articles/investing/040515/what-litecoin-and-how-does-it-work.asp | What Is Litecoin, and How Does It Work? | What Is Litecoin, and How Does It Work?
There are 180 internationally recognized currencies in circulation, ranging from the Samoan tala to the Burmese kyat. Just like with regular currency, there are multiple cryptocurrencies too. Because it was the first, bitcoin gets all the publicity, but it competes against dozens of aspiring alternatives – one of which is litecoin.
Measured by market capitalization (or the amount of currency on the market), litecoin is the third-largest cryptocurrency after bitcoin and XRP. Litecoin, like its contemporaries, functions in one sense as an online payment system. Like PayPal or a bank’s online network, users can use it to transfer currency to one another. But instead of using U.S. dollars, litecoin conducts transactions in units of litecoin. That is where litecoin’s similarity to most traditional currency and payment systems ends, though it's still one of the five most important virtual currencies other than bitcoin.
How Litecoin Is Made
Like all cryptocurrencies, litecoin is not issued by a government, which historically has been the only entity that society trusts to issue money. Instead, being regulated by a Federal Reserve and coming off a press at the Bureau of Engraving and Printing, litecoins are created by the elaborate procedure called mining, which consists of processing a list of litecoin transactions. Unlike traditional currencies, the supply of litecoins is fixed. There will ultimately be only 84 million litecoins in circulation and not one more. Every 2.5 minutes (as opposed to 10 minutes for bitcoin), the litecoin network generates a what is called a block – a ledger entry of recent litecoin transactions throughout the world. And here is where litecoin’s inherent value derives.
The block is verified by mining software and made visible to any “miner” who wants to see it. Once a miner verifies it, the next block enters the chain, which is a record of every litecoin transaction ever made.
Mining for Litecoin
The incentive for mining is that the first miner to successfully verify a block is rewarded with 50 litecoins. The number of litecoins awarded for such a task reduces with time. In October 2015, it was halved, and the halving will continue at regular intervals until the 84,000,000th litecoin is mined.
But could one unscrupulous miner change the block, enabling the same litecoins to be spent twice? No. The scam would be detected immediately by some other miner, anonymous to the first. The only way to truly game the system would be to get a majority of miners to agree to process the false transaction, which is practically impossible.
Mining cryptocurrency at a rate worthwhile to the miners requires ungodly processing power, courtesy of specialized hardware. To mine most cryptocurrencies, the central processing unit in your Dell Inspiron isn’t anywhere near fast enough to complete the task. Which brings us to another point of differentiation for litecoins; they can be mined with ordinary off-the-shelf computers more so than other cryptocurrencies can. Although the greater a machine’s capacity for mining, the better the chance it’ll earn something of value for a miner.
What Is Litecoin Worth?
Any currency – even the U.S. dollar or gold bullion – is only as valuable as society thinks it is. If the Federal Reserve started circulating too many banknotes, the value of the dollar would plummet in short order. This phenomenon transcends currency. Any good or service becomes less valuable the more readily and cheaply available it is. The creators of litecoin understood from the start that it would be difficult for a new currency to develop a reputation in the marketplace. But by restricting the number of litecoins in circulation, the founders could at least allay people’s fears of overproduction.
There are advantages inherent to litecoin over bitcoin. Litecoin can handle more transactions, given the shorter block generation time. Litecoin also has a barely perceptible transaction fee. It costs 1/1000 of a litecoin to process a transaction, regardless of its size. Contrast that with PayPal’s 3% fee.
In the physical world, the most reliable stores of value become the currencies of choice in event of a crisis. In the late 1990s and early 2000s, Zimbabwe became synonymous with hyperinflation. When inflation reached 89.7 sextillion percent (give or take a few points) and rendered the Zimbabwean dollar worthless, that wiped out the fortunes of many people unfortunate enough to have held liquid assets. People had no choice but to use something more stable – primarily the U.S. dollar and South African rand – for daily commerce. Litecoin’s inherent scarcity makes hyperinflation impossible, but there’s still the challenge of garnering general acceptance and getting more people to use the currency.
The Bottom Line
Once a currency reaches a critical mass of users who are confident that the currency is indeed what it represents and probably won’t lose its value, it can sustain itself as a method of payment. Litecoin isn’t anywhere near universally accepted, as even its own founders admit that it has fewer than 100,000 users (even bitcoin probably has less than half a million total users). But as cryptocurrencies become more readily accepted and their values stabilize, one or two of them – possibly including litecoin – will emerge as the standard currencies of the digital realm.
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b01f9a2454d3c1e518dd3dd3600d87fc | https://www.investopedia.com/articles/investing/040716/5-best-dividendpaying-international-equity-etfs-sdiv-lvl.asp | 5 Best Dividend-Paying International Equity ETFs (SDIV, LVL) | 5 Best Dividend-Paying International Equity ETFs (SDIV, LVL)
With interest rates in the U.S. and other primary developed economies still at relatively low levels, many investors looking to diversify their portfolios internationally seek the added benefit of higher dividend yields available abroad. There are a number of exchange-traded funds (ETFs) available in the category of international equity funds that offer dividend yields in excess of 5%.
Investors can choose from broad-exposure international ETFs to more geographically focused funds such as Asia-Pacific or Europe ETFs, and they can choose between funds that include or exclude U.S.-based equities. The following is an overview of five of the highest dividend-yielding international equity ETFs as of June 2020.
Key Takeaways Dividend-paying international stocks can be a solid way to diversify a portfolio while achieving dividend yields in excess of 5%. The iShares International Select Dividend ETF (IDV) is one of the largest ETFs in this category with $4.6 billion in assets under management and a 5.7% dividend yield. On the downside, the return of many of these ETFs has underperformed the U.S. market, as measured by the S&P 500.
Global X SuperDividend ETF
Global X launched the Global X SuperDividend ETF (SDIV) in 2011 to offer investors exposure to the highest-yielding global equities. This widely held ETF, with $574 million in total assets under management (AUM), aims to hold the highest-yield stocks available internationally, without regard to market sector or country.
The SDIV tracks the Solactive Global SuperDividend Index, which is composed of 100 equal-weighted, global high-dividend yield securities, selected based on yield and screened to meet liquidity and financial stability standards. The fund is ordinarily 80% or more invested in the equities contained in the underlying index, or in American Depositary Receipts (ADR) or Global Depositary Receipts (GDR) that represent those equities.
The top three countries represented in the portfolio are the U.S., Australia and the U.K. Financial sector stocks, including real estate, make up the bulk of the portfolio, accounting for almost 55% of the portfolio assets.
The fund's top holdings include Kumba Iron Ore (KIO SJ), B&G Foods (BGS) and Diversified Gas & Oil (DGOC LN). The expense ratio for this ETF is 0.59%. The five-year average annualized return is -8.67%, but it offers a hefty 8.46% dividend yield.
Invesco S&P Global Dividend Opportunities Index ETF
Guggenheim (now owned by Invesco) launched the Invesco S&P Global Dividend Opportunities Index ETF (LVL) in 2007, with the stated investment goal of offering both income and growth potential opportunity by investing in high-growth-potential global equities that have historically offered superior dividend yields.
The fund invests its $30 million in assets to track the S&P Global Dividend Opportunities Index, a yield-weighted index that is made up of the 100 highest dividend-yielding stocks contained in the S&P Global BMI index, which is designed to reflect the overall global stock markets performance, including both developed and emerging market economies.
U.S. equities account for 30.4% of the portfolio, followed by Canada at 15.4%, and Switzerland at 10.8%. Financial stocks dominate, making up 25.4% of portfolio assets. The top three holdings are Orange SA, Total SA, and Eni SpA,
The expense ratio is 0.64%, and the dividend yield is 3.41%. The five-year average annualized return for the fund is 5.87%. Meanwhile, the average annual return for the S&P 500 is 8.7%.
SPDR S&P International Dividend ETF
The SPDR S&P International Dividend ETF (DWX) was launched by State Street Global Advisors in 2008 and has attracted $594.89 million in assets under management (AUM) as of June 2020. This ETF tracks the S&P International Dividend Opportunities Index, an index composed of the top 100 highest dividend-yield stocks of companies headquartered outside the U.S. that meet minimum liquidity and financial stability standards.
Canada and Japan are the most heavily represented countries, making up 18.9% and 11.1% of the portfolio assets, respectively. Financials, utilities, and real estate stocks combine to provide more than half of the fund's holdings.
Top portfolio holdings are Enagas SA, Red Electrica Corp. SA, and Orange SA. The fund's expense ratio is 0.45%. The five-year average return is negative 2%. The dividend yield for the SPDR S&P International Dividend ETF is 4.19%.
iShares Asia/Pacific Dividend ETF
Investors seeking exposure to the important Asia-Pacific region may wish to consider BlackRock's iShares Asia/Pacific Dividend ETF (DVYA), which offers a dividend yield of 6.79%. The fund is relatively new, having been launched in 2012. It has $24.5 million in assets. This ETF tracks the dividend-weighted Dow Jones Asia/Pacific Select Dividend 30 Index, which is composed of just 30 equities that are selected based on high yield, growth potential, consistent performance, and sustainability. The fund is typically 90% or more invested in the securities that make up the index or in other investments with characteristics similar to securities contained in the index.
Australia accounts for 55.2% of the portfolio's assets. Hong Kong, Japan, and Singapore are also all substantially represented in the portfolio's holdings. Consumer discretionary and financials are the two most heavily represented market sectors, each accounting for a bit more than 25% of the total portfolio.
The top three holdings for this ETF are JB Hi-Fi LTD, CSR LTD, and Super Retail Group LTD. The fund's five-year average annualized return is negative 5.62%. The expense ratio is 0.49%.
iShares International Select Dividend ETF
BlackRock also offers the broader-based iShares International Select Dividend ETF (IDV), which it launched in 2007. This ETF has total assets of $3.3 billion, making it one of the 10 most widely held foreign large-cap equity ETFs. This fund, which offers a 6.1% dividend yield, tracks the Dow Jones EPAC Select Dividend Index, composed of 100 high-dividend yield stocks traded primarily on exchanges in non-U.S. developed markets.
The U.K. makes up 23.7% of the portfolio, followed by Australia at 16%, and Italy at 9%. Financial sector stocks garner the largest share of assets, accounting for 38.5% of the total portfolio. The top holdings in the portfolio are British America Tobacco (BATS), Commonwealth Bank of Australia (CBA) and Azimut Holding (AZM).
The expense ratio for the iShares International Select Dividend ETF is 0.49%. The fund's five-year average annualized return is negative 2.52%.
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ba99762bce629fde4fb764512d74bba5 | https://www.investopedia.com/articles/investing/040915/buy-stock-insiders-how-track-insider-buying.asp | Buy Stock With Insiders: How To Track Insider Buying | Buy Stock With Insiders: How To Track Insider Buying
The legendary Fidelity Investments manager Peter Lynch once said, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” Lynch, who grew the Fidelity Magellan Fund from $20 million to $14 billion in 13 years, was a believer in fundamental analysis and understanding a company’s product and practices well before investing in it. And as a group, who understands a company’s product, management, and future prospects better than its own leaders? Investors can capitalize on insider knowledge legally by following public databases that track insider buying.
Indeed, some may say that tracking the buying and selling activities of a company's insiders is an integral part of due diligence when investing in a company. This article will examine who these insiders are, why investors should take pay special attention to their transactions, and how investors can capitalize on insider knowledge legally through public databases that track insider buying. (Read more When Insiders Buy Should Investors Join Them?)
Who Are Insiders?
The U.S. Securities and Exchange Commission (SEC) defines insiders as the "management, officers or any beneficial owners with more than 10% class of a company’s security.” Insiders must abide by certain rules and fill out SEC forms every time they buy or sell company shares. Furthermore, to prevent insider trading, or benefiting illegally from material non-public information that their positions give them access to, the law prevents insiders from deposing of shares within six months of their purchase. This effectively bars insiders from profiting from quick swing trades based on their knowledge (Section 16(b) or the Securities Exchange Act).
What Does it Mean When Insiders Buy or Sell?
As a general rule, insider buying shows management’s confidence in the company, and is considered a bullish sign—in other words a sign that stock prices are likely to go up. Conversely, insider selling is considered bearish—those in the know may be off loading their stocks in an expectation that prices will soon fall. So it pays to keep an eye on the activities of insiders.
Studies have shown that prompt and timely dissemination of insider transactions are profitable for investors, as insiders tend to beat the market. The odds in favor of an insider purchase being followed by further purchases are three times greater than the odds of a purchase followed by a sale.
Insider Buying in the United States
For companies listed on U.S. stock exchanges, the SEC requires that all but the smallest of microcaps that trade on the over-the-counter boards have to report insider transactions within two business days. First, they must file the SEC’s Form-3 at initial ownership, SEC Form-4 whenever any changes take place, and the SEC Form-5 for any changes that were not reported earlier or were eligible for deferment.
A list of Form-4 filings can be found on the SEC’s EDGAR database, a collection of legal filings specific to every company currently publicly listed on any of the U.S stock exchanges. If combing through the EDGAR database is too time consuming, then you’re in luck, because there are many websites that track and publish insider transactions. Below are some sites that contain databases as well as reports on insider transactions.
Forbes has a semi-daily report highlighting some important insider transactions.Finviz features a free and searchable database of insider dealings.GuruFocus also features a free and searchable database of insider filings in the United States and an optional fee-based subscription for insider dealings in the Dutch and Canadian markets.InsiderTrading.org is another free and searchable service.J3SG is a free website (although sign-up is required to access all the features) with real-time updates on insider transactions and a vast and searchable database of insiders as well as institutional ownership.
Canada
In Canada, insider transactions are regulated by provincial regulators and insider reports have to be filed on the System for Electronic Disclosure by Insiders (SEDI) within five calendar days. For ease of navigation, there are sites such as Canadianinsider.com that lists SEDI data for companies traded on the TSX and the TSX Venture.
The Bottom Line
In the United States and Canada, the law requires insiders to quickly disclose purchases and sales of company stock and file them on a public database. As insiders tend to beat the market, investors would do well to track insider buying. Insider buying can be a sign that the stock price will soon rise.
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7af46a99cafaa907a6bb7bb47dfaf222 | https://www.investopedia.com/articles/investing/040915/how-start-hedge-fund-uk.asp | How To Start A Hedge Fund In The UK | How To Start A Hedge Fund In The UK
Establishing a hedge fund in the United Kingdom is a more complex process than in the United States and will take, at minimum, three months. The process is so complex that many new firms hire an outside company to help with establishment and to ensure the fund is fully compliant with all laws and regulations. Below, we discuss the key elements needed to start a hedge fund in the United Kingdom.
Key Takeaways London is home to many hedge funds, although starting up a fund in the U.K. is a bit more complicated than in the U.S.Hedge funds in the U.K. are more highly regulated and transparent, overseen by the Alternative Investment Fund Managers Directive (AIFMD).Founders of a hedge fund must meet strict regulatory requirements, file the necessary documents, and seek approvals for it to operate.
Regulations and Approvals
The first and most fundamental step of starting a hedge fund firm in the UK is learning how to navigate the governing body. Regulation and authorization approval in the UK falls under the Financial Services Authority (FSA) which was renamed the Financial Conduct Authority (FCA) after the global financial crisis. UK hedge fund managers are required under the Financial Services and Markets Act 2000 to gain approval to establish a new fund. Funds must submit applications to the Financial Conduct Authority approval can take up to six months. Part of the approval process requires the investment manager to demonstrate adequate financial resources and appropriate staff, systems, and controls to manage the fund. There are several prerequisites:
Establish financial resource requirements depending on whether the fund falls within the Markets in Financial Instruments Directive (MiFID) of the European Community.Prove investment staff competency by passing an exam in full or part based on experience in management outside the U.K.
Hedge funds can be monitored for up to a year after approval. Included are rules related to conduct of business, financial records and reporting, compliance, and complaints. Fund marketing is governed by the Alternative Investment Fund Managers Directive (AIFMD). To market funds in a European Union (EU) country, investment managers must receive approval from the regulator in its established country.
Key Elements
In addition to navigating the external regulations and authorizations, there are many internal factors that founders must consider when forming a hedge fund. These include deciding on the jurisdiction, structure, oversight and providers, and components for the new hedge fund.
Jurisdiction, or where the fund is based, is important because it establishes the fund’s tax structure. For example many funds are based offshore in places like the Cayman Islands, Bermuda, Luxembourg, or Ireland. Offshore jurisdictions are beneficial to the hedge fund because the investor, not the fund, is required to pay tax on the appreciation of the fund’s portfolio.
Fund structure is chosen based on type of investors and their needs, such as tax status, ability to use leverage, and voting rights. The typical structures are stand alone, master/feeder and umbrella funds, and segregated portfolio companies. In a stand alone structure, there is a single fund in which several investors can purchase shares. At the other extreme is a segregated structure, which is a separate legal entity where each investor has a separate fund account with its own assets and liabilities. Master/feeder or umbrella structures are somewhere in the middle of these two extremes. Firms use this structure when there are different investor requirements, such as tax status or leverage restrictions, where sub or feeder accounts are created based on different needs. Explained simply, feeder accounts feed into the master fund, which then trades on behalf of the feeder funds.
Oversight and providers are the critical personnel that control and run the fund. Although operating a hedge fund can seem overwhelming and many turn to management companies, that is not always necessary. A self-managed fund where the management team are the appointed officers of the fund can save both time and costs. UK law calls for the fund to have at least two independent directors, who for UK tax reasons must be based offshore. However, the Investment Manager Exemption (IME) allows a hedge fund to appoint a UK-based investment manager if they meet certain criteria.To receive the IME, the manager must act independently when providing investment management services and all transactions need to be done in the ordinary course of business. In return, the manager must receive customary fees. Also, the investment manager cannot comprise more than 20 percent of the fund’s assets. Other providers for starting a hedge fund include an administrator, an independent auditor, a custodian and/or prime broker, legal council, and a tax advisor.
Fund components include other aspects a manager needs to establish, such as share classes, fees, and restrictions on withdrawals. These are decisions the management needs to make prior to establishing the fund and can take on many forms. 1) Share classes: Many hedge funds create different share classes, such as management and investment share classes. Usually management shares hold voting rights, while investment shares are nonvoting. Also separate share classes can be established for the officers and employees of the investment manager, to avoid paying fees. There can also be a share class for UK-taxable investors. 2) Fees: Historically hedge fund fees were structured as two and twenty meaning a 2 percent management fee and a 20 percent performance fee of the appreciation or hurdle rate exceed. Now fees come in many forms. 3) Withdrawal restrictions: Lockup or redemption fees are common provisions. Lockup mean assets are unable to be withdrawn from the fund for a specified time period. Redemption fees can be applied if assets are withdrawn.
Other Necessary Components
The last items worth considering pertain to investment qualifications and a track record. The length of track record depends upon potential investors’ conditions for investment as does the manager’s pedigree or experience. At minimum, investors like to see a track record, either at a current or prior firm, with the same strategy. Seed capital is also necessary, including for regulatory requirements. It is important to make sure the set up and operational costs do not negatively impact the track record performance. The right structure could ensure the costs are external to, and do not supplant, performance.
Marketing and Gathering Assets
As stated above, the AIFMD governs hedge fund marketing and soliciting of assets. The AIFMD are explicit rules on how firms can market their funds and solicit assets. UK-based hedge funds who are only going to solicit assets in three ways—1) market in the UK only, 2) market outside the EU, or 3) rely on reverse solicitation where the investor approaches the hedge fund and not the over way around—were able to simply adhere to UK private placement rules and not follow the AIFMD rules through 2018. Since 2018, AIFMD must be followed. For managers who will solicit assets in the EU, these rules need to be complied with to establish a marketing license.
The Bottom Line
Hedge funds in the UK are subjected to more regulatory establishment criteria than hedge funds in the United States. To ensure compliance with stringent rules and regulations, start by contacting the governing bodies. Depending on the complexity of your planned hedge fund firm, you may choose to hire an outside company to help navigate the process. Your understanding of and compliance with all requirements will help provide a strong backbone to the new hedge fund.
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e40b5b29dd2325d31e5cf63b8d71e045 | https://www.investopedia.com/articles/investing/040915/want-work-hedge-fund-these-are-top-entrylevel-jobs.asp | Want to Work at a Hedge Fund? These Are the Top Entry-Level Jobs | Want to Work at a Hedge Fund? These Are the Top Entry-Level Jobs
Entry-level hedge fund jobs are among the best paid in finance with entry-level analysts earning six figures in some cases. For those looking to break into the industry, hedge fund firms hire more than just analysts in entry-level positions. This article discusses functional roles in hedge funds and alternate entry-level positions.
Broad job categories in hedge fund firms include investing, trading, risk management, marketing, accounting, legal and compliance, and general support (for example IT, human resources, and administration). Barring the last two job categories, all of the other functional roles fall in finance and can be used as an entry point to working in a financial role in a hedge fund.
Key Takeaways Working for a hedge fund is the goal of many investment-oriented college students, where they can start earning six figures even in their first year on the job. Hedge funds are complex businesses with several distinct operational segments, from investments and trading to accounting and support. Here we give an overview of some of these segments to see which type of hedge fund job you'll want to aim for.
Investment Professionals
These professionals define the investment strategy by coming up with research-based models and trading strategies, and performing portfolio management tasks. Hedge funds are highly leveraged. This allows money managers, traders, and quants to try a lot of risky trades and strategies.
Entry-level investment professionals start as modelers or researchers with a quant role. Such entry-level hires begin by learning existing trading strategies. Past the entry-level stage, investment professionals begin exploring and developing trading models through research and data mining with the goal of benefitting from profitable arbitrage and trade opportunities. More experience leads to roles in idea generation and may allow the candidate to become a portfolio manager at a senior level.
Traders
Traders execute the defined strategies following the fund's investment plan and the overall direction of investment professionals. Entry-level traders usually execute trades for investment professionals. After gaining some experience, traders can suggest modifications to strategy. Entry-level traders for hedge funds start with trading plain-vanilla equity, bond, or futures and gradually move on to complex trades like option combinations, high-frequency trading, arbitrage trading, or automated model based trading.
Risk Management Professionals
Risk managers act as monitors to set limits and oversee any deviations in trading limits that can lead to risk. Hedge funds are high-risk, high-return investments. It is important to keep risk measures in place that are duly followed by various professionals managing the hedge fund. Risk managers perform two main functions:
They define the boundaries for investment and trade exposure; and They actively monitor the developments to ensure that those boundaries are not breached.
An entry-level position in risk management may be titled risk analyst. They are involved in quantitative calculations (like VaR), DCF analysis, and assessment of risk exposure. After sufficient experience, the role expands further into senior positions, which involve defining the risk limits and framework of trading and investing. Risk managers have to collaborate with multiple participants to seek their buy-in. It includes traders and investment professionals who need to be convinced about the risk limits without posing challenges to meeting the hedge fund investment goals. Acting as a liaison with legal and regulatory staff also forms an integral part of risk management.
Marketing
These employees are responsible for managing investor relations, client services, and fundraising activities. Even well-established fund houses and reputable portfolio managers need effective marketing for their investment ventures to succeed. Most hedge funds target HNWI investors, and the marketing team is dedicated to managing these investor relations and offering client services to ensure adequate fundraising. Entry-level candidates in hedge fund marketing should have good communication and presentation skills and advanced financial knowledge, as they must act as the face of the hedge fund to clients. Initial responsibilities involve simple note-taking during client meetings, conducting client interviews to assess their needs, offering investment solutions, and acting as the point of contact for HNWI clients. Gradually, the role broadens into fundraising and associated functions like syndication.
Accounting
The accounting department owns all the critical accounting-related tasks, which include calculating NAV and maintaining books and records for holdings, investors, and figures. Most of the tasks are aided by dedicated computer programs and accounting software. Monitoring and error-checking is an integral part of this job.
Trade Support
This segment builds all of the trading and analytic systems used by the other parts of the hedge fund. Here, IT professionals will build out the trading systems and software platforms that are needed and customized to each particular trading strategy and even to each individual trader. Support staff members are on-call when systems break or don't behave as expected.
The Bottom Line
Working at a hedge fund can be very lucrative as salaries are high and the associated perks can also be considerable. But to qualify for a job in this competitive industry requires multifaceted skills, knowledge, and the right temperament. Doing the job well is not sufficient; one needs to improve and progress continuously. Life in a hedge fund involves long working hours, intensive travel, consistent pressure to perform and meet the targets, and excellent communication skills. These requirements often lead to high attrition, including switching to a completely different industry after several years.
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b9c3ff22056f7923af6f32b1bb9e9464 | https://www.investopedia.com/articles/investing/041016/will-hedge-funds-be-around-10-years.asp | Will Hedge Funds Be Around in 10 Years? | Will Hedge Funds Be Around in 10 Years?
Hedge funds in the 1990s and 2000s were touted as the darlings of Wall Street, attracting trillions of dollars in assets under management. Then, from 2018 to 2019, evidence mounted that hedge fund managers might be the captains of a sinking ship, one that had already struck an iceberg and couldn't take on much more water.
Fast forward to 2021, and hedge funds weathered the recent volatility of 2020 remarkably well, particularly considering the COVID-19 epidemic. Thus, hedge funds are, once again, making their mark on Wall Street. These ups and downs lead us to ask: will hedge funds still be around in 10 years?
Key Takeaways Once high-flying alternative investments, hedge funds lagged behind much of the market over the past several years.More recently, however, hedge funds have proved resilient throughout the volatility caused by the COVID-19 epidemic and are attracting significant investor attention.Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.
Understanding Hedge Funds
It isn't easy to claim hedge funds are dying out or thriving because hedge funds don't really have a set definition. The Securities and Exchange Commission (SEC) says the term "hedge fund" first popped up in 1949 but that the term "is not statutorily defined." The SEC gives "selected definitions of a hedge fund," but no universally accepted meaning. The International Monetary Fund (IMF) argues hedge fund-style instruments have been around 2,500 years and tries to define them with four attributes: a focus on absolute (rather than relative) returns plus the uses of hedging, arbitrage, and leverage.
This general strategy of hedge funds, so defined, is clearly not dying out. Plenty of successful investment vehicles use hedging, arbitrage, and leverage. Plenty of successful fund managers are compensated based on performance, not on a fixed percentage of assets.
For simplicity and clarity, today's hedge funds can be grouped by a few characteristics: they are privately organized as investment partnerships or offshore companies; they are subject to less regulation; and they build their investor bases with high-net-worth individuals (HNWIs) and institutional investors.
Hedges are not likely to go away, and it seems increasingly likely that the 1980s- and 1990s-style hedge fund management will adapt to survive more volatile times.
How Hedge Funds Have Weathered Recent Volatility
According to Hedgeweek, investor allocations to hedge funds fell for the third consecutive year in 2020. EY reported in its annual "Global Alternative Fund Survey" that in 2018, hedge funds made up 40% of allocations. That figure dropped to 33% in 2019, and to 23% in 2020. Why was there such a steep decline?
For several years, according to EY, other investments have shown better performance than hedge funds, such as private equity (venture capital), real estate and, credit. Nevertheless, although hedge fund strategies have shrunk as a proportion of investor portfolios, they exhibited impressive outperformance during the COVID-19 crisis in 2020. Painting an even more rosy picture for hedge funds, Preqin’s "Future of Alternatives 2025" study predicts that hedge funds will surge over the next few years as actively-managed hedge fund strategies perform well in a volatile environment.
The Effect of the Coronavirus Epidemic
The coronavirus epidemic changed the work practices of fund managers. Portfolio construction, investor engagement, due diligence, and talent acquisition were all curtailed as business waned and more people worked from home or not at all. The result was that alternative investment managers relied on technology, automation, digitalization, and outsourcing to serve clients. According to EY, “the strength in operations during this uncertain period has shined a light on future possibilities via enhanced investment and leveraging of data, technology, and remote working capabilities, resulting in many managers re-imagining the future work environment.
This factor is encouraging the optimistic outlook for alternative investments and hedge funds. Particularly, EY reports that investments in environment, social, and governance almost doubled over the past year. This is a growing area for investment that is gaining visibility partly due to the social problems that have come increasingly to light during the epidemic—for example, inequality and racial bias. However, EY’s survey also found that although diversity appears to be a priority of corporations, less than 25% of hedge fund managers consider improving ethnic and gender diversity one of their top three priorities.
The Next Decade for Hedge Funds
What does the next 10 years look like for hedge funds? The recent technology disruption and COVID-19 epidemic have shown the hedge fund industry to be highly adaptable and resilient. Tom Kehoe, Global Head of Research and Communications for the Alternative Investment Management Association (AIMA), sees two trends emerging regarding hedge funds over the next few years.
The first is that hedge funds will respond to the demand from investors and policymakers to incorporate sustainability, climate change, and social concerns into their investment products. The second trend is that hedge fund firms will increasingly use technology, such as machine learning, big data, and ultra-high frequent trading (HFT). Technologies like these may lower costs because technology is more efficient and less expensive than human employees.
Another possibility is that there may be a loosening of restrictions concerning who is allowed to invest in hedge funds. To date, most funds require large (often six figures or more) initial investments and are only able to accredited investors and HNWIs. However, lower barriers to entry are already on the horizon with publicly traded hedge funds and retail-oriented funds that have far smaller minimums.
In quantitative terms, Preqin predicts that global alternative assets will remain the second-largest alternative asset class after private equity and will reach $4.3 trillion by 2025. A senior research associate at Prequin stated, “Hedge funds proved their risk mitigation strategies through the pandemic-induced market crash this year, reminding investors why hedging is valuable.”
The CFA Society of New York, which cohosted an event with the AIMA in October 2020 called "The Future of Hedge Funds,” concluded the following: "Hedge funds offered a unique and valuable way for investors to access strategies, returns, and alpha that are not typically accessible through more traditional structures, such as long only, and are highly accretive to more traditional portfolios. Though incentives are currently aligned, there is still room for greater alignment between general and limited partners, and the hedge fund industry continues to move in that direction.
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d538c44eec6c684de5e624604f5f8b1e | https://www.investopedia.com/articles/investing/041213/examples-assetliability-management.asp | Examples of Asset/Liability Management | Examples of Asset/Liability Management
Although it has evolved to reflect changing circumstances in the economy and markets, in its simplest form, asset/liability management involves managing assets and cash flows to satisfy obligations. It is a form of risk management in which the investor seeks to mitigate or hedge the risk of failing to meet liability obligations. Success should increase the profitability of the organization, in addition to managing risk.
Some practitioners prefer the phrase "surplus optimization" to explain the need to maximize assets to meet increasingly complex liabilities. Alternatively, the surplus is also known as net worth or the difference between the market value of assets and the present value of liabilities. Asset and liability management is conducted from a long-term perspective that manages risks arising from the accounting of assets vs. liabilities. As such, it can be both strategic and tactical.
A monthly mortgage is a common example of a liability that a consumer pays for from current cash inflows. Each month, the mortgagor must have sufficient assets to pay their mortgage. Institutions have similar challenges but on a much more complex scale. For example, a pension plan must contractually satisfy established benefit payments to retirees while sustaining an asset base through prudent asset allocation and risk monitoring from which to generate future ongoing payments.
The liabilities of institutions are complex and varied. The challenge is to understand their characteristics and structure assets in a strategic and complementary way. This may result in an asset allocation that would appear sub-optimal (if only assets were being considered). Assets and liabilities are usually thought of as intricately intertwined rather than separate concepts. Here are some examples of the asset/liability challenges of institutions and individuals.
Key Takeaways The need for asset/liability management can arise in a variety of situations, scenarios, and industries. Asset/liability management can also be referred to as liability driven investing. In any scenario, asset/liability management involves ensuring that assets are available to appropriately cover liabilities when they are due or expected to be due.
The Banking Industry
As a financial intermediary banks accept deposits for which they are obligated to pay interest (liabilities) and offer loans for which they receive interest (assets). In addition to loans, security portfolios also compose bank assets. Banks must manage interest rate risk, which can lead to a mismatch of assets and liabilities. Volatile interest rates and the abolition of Regulation Q, which capped the rate at which banks could pay depositors, contributed to this problem.
A bank’s net interest margin–the difference between the rate that it pays on deposits and the rate that it receives on its assets (loans and securities)–is a function of interest rate sensitivity and the volume and mix of assets and liabilities. To the extent that a bank borrows in the short term and lends for the long term, there is often a mismatch that the bank must address through the structuring of its assets and liabilities or with the use of derivatives (e.g., swaps, swaptions, options, and futures) to ensure it satisfies all of its liabilities.
Insurance Companies
There are two main types of insurance companies: life and non-life (e.g., property and casualty). Life insurers also offer annuities that may be life or non-life contingent, guaranteed rate accounts (GICs), or stable value funds.
Life insurance tends to be a longer-term liability. A life insurance policy varies by type but the standard is usually based around paying out a lump sum to a beneficiary after the death of an owner. This requires actuarial planning using life expectancy tables and other factors to determine the estimated annual obligations that an insurer will likely face each year.
With annuities, liability requirements entail funding income for the duration of a payout period that begins on a specified date. For GICs and stable value products, they are subject to interest rate risk, which can erode a surplus and cause assets and liabilities to be mismatched. Liabilities of life insurers tend to be longer in duration. Accordingly, longer duration and inflation-protected assets are selected to match those of the liability (longer maturity bonds and real estate, equity, and venture capital), although product lines and their requirements vary.
Non-life insurers must meet liabilities (accident claims) of a much shorter duration due to the typical three to five-year underwriting cycle. The business cycle tends to drive a company’s need for liquidity. Interest rate risk is less of a consideration for a non-life insurer than a life insurer. Liabilities tend to be uncertain concerning both value and timing. The liability structure of a company is a function of its product line and the claims and settlement process, which often are a function of the so-called “long tail” or period between the occurrence and claim reporting and the actual payout to the policyholder. This arises because commercial clients represent a far larger portion of the total property and casualty market than in the life insurance business, which is mainly a business that caters to individuals.
Insurance companies offer a multitude of products that require extensive plans for asset/liability management by the insurer.
The Benefit Plan
A traditional defined benefit plan must satisfy a promise to pay the benefit formula specified in the plan document of the plan sponsor. Accordingly, investment is long-term in nature, with a view to maintaining or growing the asset base and providing retirement payments. In the practice known as liability-driven investing (LDI), managers gauge the liabilities by estimating the duration of benefit payments and their present value.
Funding a benefit plan often involves matching variable rate assets with variable rate liabilities (future retirement payments based upon salary growth projections of active workers) and fixed-rate assets with fixed-rate liabilities (income payments to retirees). As portfolios and liabilities are sensitive to interest rates, strategies such as portfolio immunization and duration matching may be employed to protect portfolios from rate fluctuations.
Foundations and Non-Profits
Institutions that make grants and are funded by gifts and investments are foundations. Endowments are long-term funds owned by non-profit organizations (e.g., universities and hospitals). They tend to be perpetual in design. Their liability is usually an annual spending commitment as a percentage of the market value of assets. The long-term nature of these arrangements often leads to a more aggressive investment allocation meant to outpace inflation, grow the portfolio, and support and sustain a specific spending policy.
Wealth Management
With private wealth, the nature of individuals’ liabilities may be as varied as the individuals themselves. These range from retirement planning and education funding to home purchases and unique circumstances. Taxes and risk preferences will frame the asset allocation and risk management process that determines the appropriate asset allocation to meet these liabilities. Techniques of asset/liability management may be compared to those used on an institutional level, in particular fund strategies used for targeting cash flows after a specified date.
Large Conglomerate, Multi-National Corporations
Finally, corporations can use asset/liability management techniques for all kinds of purposes. Some motivations may include liquidity, foreign exchange, interest rate risks, and commodity risks. An airline for example, might hedge its exposure to fluctuations in fuel prices in order to maintain manageable asset/liability matching. Moreover, multi-national companies might hedge the risks of currency losses through the foreign exchange market in order to ensure they have a better forecast for managing assets vs. payments.
The Bottom Line
Asset/liability management, also known as liability driven investing, can be a complex endeavor. An understanding of the internal and external factors that affect risk management is critical to finding an appropriate solution. Prudent asset allocation accounts not only for the growth of assets but also specifically addresses the nature of an organization’s liabilities.
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4eccd8f29b2a56fe635c9a82a1857482 | https://www.investopedia.com/articles/investing/041213/modern-portfolio-theory-vs-behavioral-finance.asp | Modern Portfolio Theory vs. Behavioral Finance | Modern Portfolio Theory vs. Behavioral Finance
Modern portfolio theory (MPT) and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in the ideal world, and to think of behavioral finance as how financial markets work in the real world. Having a solid understanding of both theory and reality can help you make better investment decisions.
Key Takeaways Evaluating how people should invest (i.e., portfolio choice) has been an important project undertaken by economists and investors alike.Modern portfolio theory is a prescriptive theoretical model that shows what asset class mix would produce the greatest expected return for a given risk level.Behavioral finance instead focuses on correcting for the cognitive and emotional biases that prevent people from acting rationally in the real world.
Modern Portfolio Theory
Modern portfolio theory is the basis for much of the conventional wisdom that underpins investment decision making. Many core points of modern portfolio theory were captured in the 1950s and1960s by the efficient market hypothesis put forth by Eugene Fama of the University of Chicago.
According to Fama’s theory, financial markets are efficient, investors make rational decisions, market participants are sophisticated, informed and act only on available information. Since everyone has the same access to that information, all securities are appropriately priced at any given time. If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price.
Other snippets of conventional wisdom include the theory that the stock market will return an average of 8% per year (which will result in the value of an investment portfolio doubling every nine years), and that the ultimate goal of investing is to beat a static benchmark index. In theory, it all sounds good. The reality can be a bit different.
Modern portfolio theory (MPT) was developed by Harry Markowitz during the same period to identify how a rational actor would construct a diversified portfolio across several asset classes in order to maximize expected return for a given level of risk preference. The resulting theory constructed an "efficient frontier," or the best possible portfolio mix for any risk tolerance. Modern portfolio theory then uses this theoretical limit to identify optimal portfolios through a process of mean-variance optimization (MVO).
MPT's Efficient Frontier.
Enter Behavioral Finance
Despite the nice, neat theories, stocks often trade at unjustified prices, investors make irrational decisions, and you would be hard-pressed to find anyone who owns the much-touted “average” portfolio generating an 8% return every year like clockwork.
So what does all of this mean to you? It means that emotion and psychology play a role when investors make decisions, sometimes causing them to behave in unpredictable or irrational ways. This is not to say that theories have no value, as their concepts do work—sometimes.
Perhaps the best way to consider the differences between theoretical and behavioral finance is to view the theory as a framework from which to develop an understanding of the topics at hand, and to view the behavioral aspects as a reminder that theories don’t always work out as expected. Accordingly, having a good background in both perspectives can help you make better decisions. Comparing and contrasting some of the major topics will help set the stage.
Market Efficiency
The idea that financial markets are efficient is one of the core tenets of modern portfolio theory. This concept, championed in the efficient market hypothesis, suggests that at any given time prices fully reflect all available information on a particular stock and/or market. Since all market participants are privy to the same information, no one will have an advantage in predicting a return on a stock price because no one has access to better information.
In efficient markets, prices become unpredictable, so no investment pattern can be discerned, completely negating any planned approach to investing. On the other hand, studies in behavioral finance, which look into the effects of investor psychology on stock prices, reveal some predictable patterns in the stock market.
Knowledge Distribution
In theory, all information is distributed equally. In reality, if this was true, insider trading would not exist. Surprise bankruptcies would never happen. The Sarbanes-Oxley Act of 2002, which was designed to move the markets to greater levels of efficiency because the access to information for certain parties was not being fairly disseminated, would not have been necessary.
And let’s not forget that personal preference and personal ability also play roles. If you choose not to engage in the type of research conducted by Wall Street stock analysts, perhaps because you have a job or a family and don’t have the time or the skills, your knowledge will certainly be surpassed by others in the marketplace who are paid to spend all day researching securities. Clearly, there is a disconnect between theory and reality.
Rational Investment Decisions
Theoretically, all investors make rational investment decisions. Of course, if everyone was rational there would be no speculation, no bubbles and no irrational exuberance. Similarly, nobody would buy securities when the price was high and then panic and sell when the price drops.
Theory aside, we all know that speculation takes place and that bubbles develop and pop. Furthermore, decades of research from organizations such as Dalbar, with its Quantitative Analysis of Investor Behavior study, show that irrational behavior plays a big role and costs investors dearly.
The Bottom Line
While it is important to study the theories of efficiency and review the empirical studies that lend them credibility, in reality, markets are full of inefficiencies. One reason for the inefficiencies is that every investor has a unique investment style and way of evaluating an investment. One may use technical strategies while others rely on fundamentals, and still others may resort to using a dartboard.
Many other factors influence the price of investments, ranging from emotional attachment, rumors and the price of the security to good old supply and demand. Clearly, not all market participants are sophisticated, informed and act only on available information. But understanding what the experts expect—and how other market participants may act—will help you make good investment decisions for your portfolio and prepare you for the market’s reaction when others make their decisions.
Knowing that markets will fall for unexpected reasons and rise suddenly in response to unusual activity can prepare you to ride out the volatility without making trades you will later regret. Understanding that stock prices can move with “the herd” as investor buying behavior pushes prices to unattainable levels can stop you from buying those overpriced technology shares.
Similarly, you can avoid dumping an oversold but still valuable stock when investors rush for the exits.
Education can be put to work on behalf of your portfolio in a logical way, yet with your eyes wide open to the degree of illogical factors that influence not only investors' actions, but security prices as well. By paying attention, learning the theories, understanding the realities and applying the lessons, you can make the most of the bodies of knowledge that surround both traditional financial theory and behavioral finance.
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9a69702a3ce0bd4d3bf7f1edd7bcd2ff | https://www.investopedia.com/articles/investing/041216/hm-secret-its-success.asp | H&M: The Secret to Its Success | H&M: The Secret to Its Success
Founded in 1947, Swedish clothing retailer H & M Hennes & Mauritz AB (STO: HM-B), commonly known as H&M, has grown into one of the most recognizable brands in the fashion industry. As reported by Bloomberg, H&M has almost 4000 stores worldwide and has plans for 7000-8000 more stores in the future. H&M is quickly approaching the level of proliferation that its biggest rival Inditex (BME: ITX), operator of the Zara brand, currently possesses. (For more, see also: H&M Vs. Zara Vs. Uniqlo: Comparing Business Models and The Industry Handbook: The Retailing Industry.)
The Secret to H&M's Success: Fast Fashion
The secret to the success of H&M, Inditex and Forever 21 can be attributed to their “fast fashion” model. As summarized by Forbes, fast fashion is the idea of moving large volumes of merchandise from the designer table to the showroom floor in the shortest amount of time possible. The retailer can achieve this goal by having higher merchandise turnover and by constantly resupplying the product pipeline with the latest fashion trends. H&M’s model also requires a solid marketing team that can quickly determine what their target demographic desires and implement the necessary changes into the supply chain. Of course, the backbone of fast fashion is its low prices, and fast fashion has also been pejoratively labeled “cheap chic,” because H&M and Zara clothes are notorious for their “disposable” quality and easy to manufacture nature.
H&M's Brand of Fast Fashion
While fast fashion is not isolated to H&M, the Swedish brand has a distinct business model. Unlike Zara, H&M does not manufacture its products in-house. H&M outsources its production to more than 900 independent suppliers across the world, mainly in Europe and Asia, which are overseen by 30 strategically located oversight offices.
To incentivize fair working conditions, H&M introduced a pilot program for its Bangladesh and Cambodian factories in 2013, which involved the company purchasing 100% of the factories’ outputs over a five-year span. H&M hoped that by being the sole customer, it is better able to ensure safe working conditions while increasing productivity much more naturally, as opposed to enforcement through routine compliance inspections.
Secondly, only 80% or so of all store merchandise is stocked year round, while the remaining 20% of H&M products are designed and stocked on the fly in smaller batches, depending on the prevailing trend. To ensure timely delivery and fast lead times, H&M relies on its state-of-the-art IT network, which allows integration between the central national office and the satellite production offices. (See also: Zara's Agile Project Management Advantage.)
Caveat Emptor: Store Openings May Not Translate to Stock Value
It is worth noting that despite H&M's lofty ambitions, its stock price is currently 21% off all-time highs made in February 2015 (364 SEK vs. 288 SEK). So what gives? Does this mean that the Swedish retailer is slowly losing its competitive edge? In research notes published by Deutsche Bank (April 2016) and Morgan Stanley (March 2016), the firms noted H&M’s falling like-for-like (same-store sales, adjusted for standardized for normal course of business, also known as “LFL”) sales growth, which have barely outperformed the real GDP growth rate of H&M’s operating countries, as well as growing cost pressures/ falling margins, and the company’s heterogeneous product mix, which relies primarily on the core H&M brand. Moreover, Morgan Stanley warned of a potential drop in the bottom line profits as the company fully matures, and growth begins to wane. The research firm noted that H&M's profit densities (profit per meter squared) have been steadily decreasing since 2007, in part due to expansion into less developed markets, and it is only a matter of time before H&M's steady annual rate of new store openings can no longer compensate this shortcoming.
The Bottom Line
Since its founding in 1947, H&M has grown to one of the largest fashion retailers in the world. The secret to the Swedish retailer’s success is its application of “fast fashion”, which relies on taking advantage of fashion trends as they appear and getting products onto the shelves from the design room floor as quickly as possible. However, despite its consistent store expansion rate, H&M is in danger of facing slowing growth, which comes with maturity, as evidenced by its falling profit densities and LFLs.
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26efeb06d4c06e51aa95e4655d98873b | https://www.investopedia.com/articles/investing/041315/how-mozilla-firefox-and-google-chrome-make-money.asp | How Mozilla Firefox And Google Chrome Make Money | How Mozilla Firefox And Google Chrome Make Money
Mozilla launched Firefox in November 2004 as an alternative to Microsoft’s Internet Explorer browser.
It briefly surpassed Internet Explorer as the most popular browser in 2009 due to its add-on features and greater security protection.
Since Google Chrome’s release in December 2008, its market share has steadily increased to nearly 70% while Firefox’s market share has dropped to roughly 8 percent.
Why did Google wait so long to create a browser? Executive Chairman Eric Schmidt didn’t want to: he was afraid of the company growing too fast and didn’t want to start a new browser war, according to an article in the Wall Street Journal. However, once convinced Chrome was born and, it is claimed, has become a very profitable part of the company.
Mozilla Firefox
Mozilla releases its annual financial statements each November for the previous year. The company’s latest revenue numbers are from 2018 when the browser brought in nearly $451 million, 95% of which came from royalties.
These royalties refer to the percentage of advertising revenue Mozilla receives whenever someone uses the built-in search engine that the Firefox browser provides.
In addition to search royalties, Mozilla earns money from donations and from sponsored new tab tiles, which can be disabled.
Key Takeaways Mozilla's Firefox and Google Chrome are both extremely popular browsers. Chrome is ahead in market shares and usage over Firefox. The add-on features offered by Google in Chrome are an attraction for users. Chrome tracks user data for its benefit and that information is used to improve its AdSense program.
Firefox and Yahoo
Until 2014, Mozilla and Google had an agreement that made Google the default search engine in Firefox. In November 2014, however, Mozilla announced that the partnership was over and that Yahoo! would be Firefox’s new default search engine for the next five years.
Initial analysis showed that many users manually switched their default search engine back to Google. In 2017, Mozilla ended its Yahoo! deal early and switched back to Google.
Google Chrome
Examining Google Chrome’s revenue is much harder since Google doesn’t list the revenue and expenses for all of its services. This means that while Google claims the browser is “an exceptionally profitable product,” the public isn’t able to verify this information.
Let’s assume, though, that the browser is profitable. How does it make money? The simple answer is the same as Mozilla Firefox. Google receives money from advertisers but, instead of paying out search royalties to other browsers, the money is transferred to the Chrome part of Google.
Chrome makes money by saving Google royalty expenses.
Additional Benefits of Google Chrome
Google has indirect ways of making money. For starters, when people use Google Chrome, they are more likely to use a related service—Gmail, Google Apps, Google Docs, etc.—which, in turn, leads to even more usage as the company’s products are highly integrated with each other. Each time a product is used, page views go up and ad revenue increases.
Secondly, Google’s AdSense program is really interested in your data. Chrome tracks user data and uses it to improve its AdSense program. With more data, each user’s marketing profile can be better understood and ads can be better targeted to potential customers. By promising more effective ads, AdSense is able to charge a higher price for advertising than its competitors.
The Bottom Line
Owning a browser is big money, especially if the browser is as popular as Firefox. Through the years, whenever Mozilla’s contracts to have Google as their default search engine were ending, there were other search engines ready to pay them money for the default slot.
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7a9b275d14b9a516e475a74af9a0c619 | https://www.investopedia.com/articles/investing/041316/retail-vs-tech-how-these-companies-use-working-capital.asp | Retail vs. Tech: How These Companies Use Working Capital | Retail vs. Tech: How These Companies Use Working Capital
When discussing corporate cash flow, the tech and retail industries are often used as opposing examples of how different business types use working capital. In general, retail businesses require much more working capital than tech companies, largely because of their inventory needs. The rate at which each business type earns and then spends money, and how and when it must fund regular expenses, contribute to determining its working capital needs.
What Is Working Capital?
Working capital is simply the amount of cash or cash equivalents a company has on hand for day-to-day expenses. It can be calculated easily by subtracting a company's current liabilities from its current assets. Current assets are anything the company owns that can be used to pay expenses quickly. These include cash and similar accounts, marketable securities, and accounts receivable. Current liabilities include those debts and expenses that the company must fund within the current rolling 12-month period.
Working Capital in Retail
The amount of working capital that each type of business requires is largely dictated by its operating cycle. The operating cycle is expressed as the number of days that elapse between when the company spends money on inventory and when it receives income from the sale of that inventory. That income is then used to purchase more inventory, continuing the cycle. Retail businesses often have long cycles because they must purchase large amounts of inventory well in advance of any sales. This is especially true of brick-and-mortar retail operations because huge amounts of inventory are often necessary just to open a store. Because retail stores rarely sell all their inventory right away, they must maintain higher levels of working capital to ensure that they can meet any short-term expenses without relying on income from sales that may not come until much later.
The need for ample working capital is especially heavy in gift-giving holiday seasons. Retail stores must prepare early for the onslaught of holiday shoppers, which means outlaying huge amounts of capital for inventory in advance. The income from those sales may be months away, so retail businesses must ensure that they have more than enough on hand to cover bills, rent, insurance premiums, loan interest, wages, and other short-term expenses without relying on future income. This means retail businesses actually need even more working capital just before and during peak holiday shopping season than they do the rest of the year.
Working Capital in Tech
The amount of working capital a business needs fluctuates throughout the year, as evidenced in the above example about holiday retail trends. Many tech companies do not rely on physical products to fuel sales, meaning their working capital needs are much lower. However, there is an important distinction between software companies and hardware companies.
A tech company that only sells software through a website has little need for working capital. Since there is no physical product to keep in stock, and software can be downloaded by customers at the click of a button, there is no need to worry about up-front inventory expenses. Software companies can, therefore, typically get by with very low, or even negative, working capital since they have very low upkeep costs and no inventory costs. If the company is entirely online with no brick-and-mortar locations, this is even truer. Once the website is set up and the domain name obtained, websites cost very little to maintain. Even if a small online software company makes no sales for months, it would likely be able to remain operational with minimal working capital. This becomes less true as the size of the business grows, of course, as working capital may be needed to pay salaries and other recurring expenses if sales remain low.
Companies that manufacture and sell hardware, such as computers, phones and their component parts, have a lot more inventory to deal with. They, therefore, have working capital needs that are much the same as a retail business. In addition to finished products for sale, however, these businesses must also stock the raw materials needed in manufacturing, which ties up working capital longer. Any type of manufacturing business typically requires a lot of up-front investments in machinery and equipment, so tech companies that both develop and manufacture hardware products must also maintain high working capital to ensure that loan payments can be kept up even when sales are down.
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0de6712991ae7b079c64e0ff45b4567f | https://www.investopedia.com/articles/investing/041615/pros-cons-bond-funds-vs-bond-etfs.asp | Bond Funds vs. Bond ETFs: What's the Difference? | Bond Funds vs. Bond ETFs: What's the Difference?
Bond Funds vs. Bond ETFs: An Overview
Bond funds and bond ETFs or exchange-traded funds both invest in a basket of bonds or debt instruments. Bond funds or mutual funds contain a pool of capital from investors whereby the fund's manager allocates the capital to various securities. A bond ETF tracks an index of bonds with the goal of matching the returns from the underlying index.
Bond funds and bond ETFs share several characteristics, including diversification via portfolios that hold numerous bonds. Both funds and ETFs have smaller minimum required investments that would be necessary to achieve the same level of diversification by purchasing individual bonds in constructing a portfolio.
Before comparing bond funds and bond ETFs, it is worth taking a few moments to review the reasons why investors buy bonds. Most investors put bonds in a portfolio to generate income. A bond is a debt instrument that typically pays an interest rate, called a coupon rate each year to the bondholder. Although buying and selling bonds to generate a profit from fluctuations in their prices is a viable strategy, most investors invest in them for their interest payments.
Investors also buy bonds for risk-related reasons, as they seek to store their money in an investment that is less volatile than stocks. Volatility is the extent to which a security's price fluctuates over time.
Both bond funds and bond ETFs can pay dividends, which are cash payments from companies for investing in their securities. Both types of funds offer a wide variety of investment choices ranging from high-quality government bonds to low-quality corporate bonds and everything in between.
Both funds and ETFs can also be purchased and sold through a brokerage account in exchange for a small per-trade fee. Despite these similarities, bond funds and bond ETFs have unique, unshared characteristics.
Key Takeaways Bond funds and bond ETFs or exchange-traded funds both invest in a basket of bonds or debt instruments. Bond funds or mutual funds contain a pool of capital from investors through which the fund is actively managed and whereby capital is allocated to various securities. Bond ETFs track an index of bonds designed to match the returns from the underlying index and typically have lower fees than mutual funds.
Bond Funds
Mutual funds have been investing in bonds for many years. Some of the oldest balanced funds, which include allocations to both stock and bonds, date back to the late 1920s.
Accordingly, a large number of bond funds in existence offer a significant variety of investment options. These include both index funds, which seek to replicate various benchmarks and make no effort to outperform those benchmarks, and actively managed funds, which seek to beat their benchmarks.
Actively managed funds also employ credit analysts to conduct research into the credit quality of the bonds the fund purchases to minimize the risk of purchasing bonds that are likely to default. Default occurs when the issuer of the bond is unable to make interest payments or pay back the original amount invested due to financial difficulty. Each bond is assigned a credit quality grade by credit rating agencies that assess the financial viability of the issuer and the likelihood of default.
Bond funds are available in two different structures: open-ended funds and closed-end funds. Open-ended funds can be bought directly from fund providers, which means they do not need to be purchased through a brokerage account. If purchased directly, the brokerage commission fee can be avoided. Similarly, bond funds can be sold back to the fund company that issued the shares, making them highly liquid or easily bought and sold.
In addition, open-ended funds are priced and traded once a day, after the market closes and each fund’s net asset value (NAV) is determined. The trading price is a direct reflection of the NAV, which is based on the value of the bonds in the portfolio.
Open-ended funds do not trade at a premium or a discount, making it easy and predictable to determine precisely how much a fund’s shares will generate if sold. A bond sold at a premium has a higher market price than its original face value amount while a discount is when a bond is trading at a lower price than its face value.
Notably, some bond funds charge an extra fee if they are sold prior to a certain minimum required holding period (often 90 days), as the fund company wishes to minimize the expenses associated with frequent trading.
Bond funds do not reveal their underlying holdings on a daily basis. They generally release holdings on a semi-annual basis, with some funds reporting monthly. The lack of transparency makes it difficult for investors to determine the precise composition of their portfolios at any given time.
Bond ETFs
Bond ETFs are a far newer entrant to the market when compared to mutual funds, with iShares launching the first bond ETF in 2002. Most of these offerings seek to replicate various bond indices, although a growing number of actively managed products are also available.
ETFs often have lower fees than their mutual fund counterparts, potentially making them the more attractive choice to some investors all else being equal.
Bond ETFs operate much like closed-end funds, in that they are purchased through a brokerage account rather than directly from a fund company. Likewise, when an investor wishes to sell, ETFs must be traded on the open market, meaning that a buyer must be found because the fund company will not purchase the shares as they would for open-ended mutual funds.
Like stocks, ETFs trade throughout the day. The prices for shares can fluctuate moment by moment and may vary quite a bit over the course of trading. Extremes in price fluctuation have been seen during market anomalies, such as the so-called Flash Crash of 2010. Shares can also trade at a premium or a discount to the underlying net asset value of the holdings.
While significant deviations in value are relatively infrequent, they are not impossible. Deviations may be of particular concern during crisis periods, for example, if a large number of investors are seeking to sell bonds. In such events, an ETF's price may reflect a discount to NAV because the ETF provider is not certain that existing holdings could be sold at their current stated net asset value.
Bond ETFs do not have a minimum required holding period, meaning that there is no penalty imposed for selling rapidly after making a purchase. They can also be bought on margin and sold short, offering significantly greater flexibility in terms of trading than open-ended mutual funds. Margin involves borrowing money or securities from a broker to invest. Also, unlike mutual funds, bond ETFs reveal their underlying holdings on a daily basis, giving investors complete transparency.
Both bond funds and bond ETFs have similarities, the holdings within the funds and their fees charged to investors can vary.
Bond Fund or Bond ETF?
The decision over whether to purchase a bond fund or a bond ETF usually depends on the investment objective of the investor. If you want active management, bond mutual funds offer more choices. If you plan to buy and sell frequently, bond ETFs are a good choice. For long-term, buy-and-hold investors, bond mutual funds, and bond ETFs can meet your needs, but it's best to do your research as to the holdings in each fund.
If transparency is important, bond ETFs allow you to see the holdings within the fund at any given moment. However, if you're concerned about not being able to sell your ETF investment due to the lack of buyers in the market, a bond fund might be a better choice since you'll be able to sell your holdings back to the fund issuer.
As with most investment decisions, it's important to do your research, speak with your broker or financial advisor.
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d4d1afaa274c378bde94fc816efe4e1e | https://www.investopedia.com/articles/investing/041916/3-strategies-mitigate-currency-risk-eufx.asp | Three Strategies to Mitigate Currency Risk | Three Strategies to Mitigate Currency Risk
Investing in foreign assets has proven the merits of diversification, and most individual investors take advantage of the benefits of international assets. However, unless the foreign securities have been issued in U.S. dollars, the portfolio will experience currency risk. Currency risk is the risk that one currency moves against another currency, negatively affecting an investment's overall return. In other words, the exchange rate between the two currencies can move adversely and erode the returns of a foreign investment. Investors can accept currency risk and hope for the best, or they can employ hedging strategies to mitigate or eliminate the risk.
Key Takeaways Hedging strategies can protect a foreign investment from currency risk for when the funds are converted back into the investor's home currency. Currency ETFs can be used to mitigate a portfolio's exposure to the performance of a currency exchange rate. Forward contracts provide a rate lock so that the international funds can be converted back into the home currency at a later date. Options contracts offer more flexibility than forwards but come with an upfront fee or a premium.
Currency Risk with International Investing
If a U.S. investor purchased an investment in Europe that's denominated in euros, the price swings in the U.S. dollar versus the euro exchange rate (EUR/USD) would affect the investment's overall return. Since the investment was purchased in euros, the investor would be considered "long" the euro (or owner of euros) since the investor would've converted dollars into euros in order to initiate the investment purchase. The initial investment would have been converted at the prevailing EUR/USD exchange rate at the time of the purchase.
When the investor wants to sell the investment and bring the money back to the U.S., the investment's value denominated in euros would need to be converted back into dollars. At the time of the investment sale, the euros would be converted into dollars at the prevailing EUR/USD exchange rate.
The difference between the EUR/USD exchange rate at the time of the initial investment purchase and the rate at the time when the investment was sold would result in a gain or loss. Regardless of the return on the investment, the difference between the two exchange rates would be realized. The risk that the exchange rate could move against the investor while the investment is tied up in euros is called currency exchange risk.
Hedging Currency Risk With Exchange-Traded Funds
There are many exchange-traded funds (ETFs) that focus on providing long (buy) and short (sell) exposures to many currencies. ETFs are funds that hold a basket of securities or investments that can include currency positions that experience gains or losses on moves in the underlying currency's exchange rate.
For example, the ProShares Short Euro Fund (NYSEArca: EUFX) seeks to provide returns that are the inverse of the daily performance of the euro. In other words, when the EUR/USD exchange rate moves, the fund moves in the opposite direction. A fund like this can be used to mitigate a portfolio's exposure to the performance of the euro.
Example of an ETF Hedge
For example, if an investor purchased an asset in Europe for 100,000 euros and at the EUR/USD exchange rate of $1.10, the dollar cost would equal $110,000. If the EUR/USD rate depreciated to $1.05, when the investor converts the euros back into dollars, the dollar equivalent would only be $105,000 (not including any gains or losses on the investment). The EUFX ETF would gain on the move lower in the EUR/USD exchange rate offsetting the loss from the currency conversion associated with the asset purchase and sale.
Benefits and Costs of an ETF Hedge
The ProShares Short Euro Fund would effectively cancel out the currency risk associated with the initial asset. Of course, the investor must make sure to purchase an appropriate amount of the ETF to be certain that the long and short euro exposures match 1-to-1.
ETFs that specialize in long or short currency exposure aim to match the actual performance of the currencies on which they are focused. However, the actual performance often diverges due to the mechanics of the funds. As a result, not all of the currency risk would be eliminated. Also, currency-based ETFs can be expensive and typically charge a 1% fee.
Forward Contracts
Currency forward contracts are another option to mitigate currency risk. A forward contract is an agreement between two parties to buy or sell a currency at a preset exchange rate and a predetermined future date. Forwards can be customized by amount and date as long as the settlement date is a working business day in both countries.
Forward contracts can be used for hedging purposes and enable an investor to lock in a specific currency's exchange rate. Typically, these contracts require a deposit amount with the currency broker.
Example of a Forward Contract
For example, let's assume that one U.S. dollar equaled 112.00 Japanese yen (USD/JPY). A person is invested in Japanese assets, meaning they have exposure to the yen and plan on converting that yen back into U.S. dollars in six months. The investor can enter into a six-month forward contract in which the yen would be converted back into dollars six months from now at a predetermined exchange rate.
The currency broker quotes the investor an exchange rate of 112.00 to buy U.S. dollars and sell Japanese yen in six months. Regardless of how the USD/JPY exchange moves in six months, the investor can convert the yen-denominated assets back into dollars at the preset rate of 112.00.
Six months from now, two scenarios are possible: The exchange rate can be more favorable for the investor, or it can be worse. Suppose that the exchange rate is worse and is trading at 125.00. It now takes more yen to buy 1 dollar. Let's say the investment was worth 10 million yen. The investor would convert 10 million yen at the forward contract rate of 112.00 and receive $89,286 (10,000,000 / 112.00).
However, had the investor not initiated the forward contract, the 10 million yen would have been converted at the prevailing rate of 125.00. As a result, the investor would have only received $80,000 (10,000,000 / 125.00).
Benefits and Costs of Forward Contracts
By locking in the forward contract, the investor saved more than $9,000. However, had the rate become more favorable, such as 105.00, the investor would not have benefited from the favorable exchange rate move. In other words, the investor would have had to convert the 10 million yen at the contract rate of 112.00 even though the prevailing rate was 105.00.
Although forwards provide a rate lock, protecting investors from adverse moves in an exchange rate, that protection comes at a cost since forwards don't allow investors to benefit from a favorable exchange rate move.
Currency Options
Currency options give the investor the right, but not the obligation, to buy or sell a currency at a specific rate (called a strike price) on or before a specific date (called the expiration date). Unlike forward contracts, options don't force the investor to engage in the transaction when the contract's expiration date arrives. However, there's a cost for that flexibility in the form of an upfront fee called a premium.
Example of a Currency Option Hedge
Using our example of the investor buying as Japanese asset, the investor decides to buy an option contract to convert the 10 million yen in six months back into U.S. dollars. The option contract's strike price or exchange rate is 112.00.
In six months, the following scenarios could play out:
Scenario 1
The USD/JPY exchange rate is trading at 120.00, which is above 112.00. The option's strike is more favorable than the current market rate. The investor would exercise the option, and the yen would be converted to dollars at the strike rate of 112.00. The U.S. dollar equivalent would be credited to the investor's account equaling $89,286.00 (10 million yen / 112.00).
Scenario 2
The USD/JPY exchange rate is trading at 108.00, which is below 112.00. The prevailing rate is more favorable than the option's strike. The investor could allow the option to expire worthless and convert the yen to dollars at the prevailing rate of 108.00 and benefit from the exchange rate gain. The U.S. dollar equivalent would be credited to the investor's account equaling $92,593.00 (10 million yen / 108.00).
By buying the option, the investor made an additional $3,307 in scenario #2 since the USD/JPY rate moved favorably. Had the investor bought the forward contract at a rate of 112.00, which was highlighted earlier, the investor would have missed out on a $3,307 gain.
Option Premiums
Unfortunately, the flexibility provided by options can be quite costly. If the investor decides to pay the premium for an option, the exchange rate must move favorably by enough to cover the cost of the premium. Otherwise, the investor would lose money on the conversion.
For example, let's say that the above 112.00 yen option cost $5,000 upfront. The favorable move in the yen rate to 108.00 (in scenario two) would not be enough to cover the cost of the premium. If you recall, the original USD/JPY rate for the 10,000,000 yen investment was 112.00 for a dollar cost of $89,286.00.
As a result of the premium, the investor would need to get back $94,286 from the currency conversion ($89,286 + $5,000 fee). As a result, the yen rate would have to move to 106.06 for the investor to break even and cover the cost of the premium (10,000,000 / 106.06 = $94,286.00).
Although options provide flexibility, the cost of the option premium needs to be considered. Investors need to get two things right when buying an option to hedge an overseas investment. The investor needs to make a good initial investment in which it earns a gain. However, the investor must also be able to forecast the currency exchange rate so that it'll move favorably enough to cover the option premium. Although forwards don't provide the flexibility of walking away like options, they reduce the risk of a currency exchange loss and investors don't have to play the currency forecasting game.
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5c88f3dfebd3d28c219ac274db9621e1 | https://www.investopedia.com/articles/investing/041916/money-market-vs-shortterm-bonds-compare-and-contrast-case-study.asp | Money Market vs. Short-Term Bonds: What's the Difference? | Money Market vs. Short-Term Bonds: What's the Difference?
Money Market vs. Short-Term Bonds: An Overview
On a short-term basis, money market funds and short-term bonds are both excellent savings vehicles. Both are liquid, easily accessible, and relatively safe securities. However, these investments can involve fees, may lose value, and might decrease a person's purchasing power. Although money market funds and short-term bonds have many similarities, they also differ in several ways.
Key Takeaways The money market is part of the fixed-income market that specializes in short-term government debt securities that mature in less than one year.Buying a bond means giving the issuer a loan for a set duration; the issuer pays a predetermined interest rate at set intervals until the bond matures.Money markets are extremely low-risk, with a par value of $1.00 typically. Meanwhile, short-term bonds carry a greater degree of risk depending on the issuer, which may be a company, government, or agency.
Money Market
The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most money market investments often mature in three months or less. Because of their quick maturity dates, these are considered cash investments. Money market securities are issued by governments, financial institutions, and large corporations as promises to repay debts. They are considered extremely safe and conservative, especially during volatile times. Access to the money market is typically obtained through money market mutual funds or a money market bank account. The assets of thousands of investors are pooled to buy money market securities on the investors’ behalf. Shares can be bought or sold as desired, often through check-writing privileges. A minimum balance is typically required, and a limited number of monthly transactions are allowed. The net asset value (NAV) typically stays around $1 per share, so only the yield fluctuates.
Because of the liquidity of the money market, lower returns are realized when compared to other investments. Purchasing power is limited, especially when inflation increases. If an account drops below the minimum balance required, or the number of monthly transactions is exceeded, a penalty may be assessed. With such limited returns, fees can take away much of the profit. Unless an account is opened at a bank or credit union, shares are not guaranteed by the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), or any other agency.
Short-Term Bonds
Bonds have much in common with money market securities. A bond is issued by a government or corporation as a promise to pay back money borrowed to finance specific projects and activities. In such cases, more money is needed than the average bank can provide, which is why organizations turn to the public for assistance. Buying a bond means giving the issuer a loan for a set duration. The issuer pays a predetermined interest rate at set intervals until the bond matures. At maturity, the issuer pays the bond’s face value. A higher interest rate generally means a higher risk of complete repayment with interest. Most bonds can be bought through a full service or discount brokerage. Government agencies sell government bonds online and deposit payments electronically. Some financial institutions also transact government securities with their clients.
Short-term bonds can be relatively low-risk, predictable income. Stronger returns can be realized when compared to money markets. Some bonds even come tax-free. A short-term bond offers a higher potential yield than money market funds. Bonds with quicker maturity rates are also typically less sensitive to increasing or decreasing interest rates than other securities. Buying and holding a bond until it is due means receiving the principal and interest according to the stated rate.
Bonds carry more risk than money market funds. A bond's lender may not be able to make interest or principal payments on time, or the bond may be paid off early with the remaining interest payments lost. If interest rates go down, the bond may be called, paid off, and reissued at a lower rate, resulting in lost income for the bond owner. If interest rates go up, the bond owner could lose money, in the sense of opportunity cost, by having the money tied up in the bond rather than invested elsewhere.
Special Considerations
There are pros and cons to investing in money markets funds and short-term bonds. Money market accounts are excellent for emergency funds since account values typically remain stable or slightly increase in value. Furthermore, money is available when needed, and limited transactions discourage removing funds. Short-term bonds typically yield higher interest rates than money market funds, so the potential to earn more income over time is greater. Overall, short-term bonds appear to be a better investment than money market funds.
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ae6e4c2d9e33a8e9d9600b5c83168ee7 | https://www.investopedia.com/articles/investing/042015/10-most-famous-hedge-fund-managers.asp | 10 Most Famous Hedge Fund Managers | 10 Most Famous Hedge Fund Managers
Hedge fund managers are beset by media scrutiny of their enormous salaries, investor pushback on the ridiculously high fees (typically "two and twenty"), recent poor performances, and governmental attempts at disclosure and regulation. Despite the seemingly insurmountable negative headlines and class warfare their salaries warrant, those hedge fund managers consistently at the top (and there is a discernible hierarchy within the hedge fund industry) are the stars of the finance industry. But not all hedge fund managers are hailed, nor do all survive. Actually, many fail. But the ones that do survive tend to make a big impression. We’ve compiled a list of the ten most famous hedge fund managers, in no particular order.
The Ten
Steve Cohen founded the former SAC Capital, now Point 72 Asset Management. How many investors can have their firm plead guilty and several former employees convicted of insider trading, be investigated personally although not criminally charged by the SEC for insider trading, and still have a net worth of $14 billion in May 2020, according to Forbes? Although banned from managing external assets, Cohen is still managing the assets of his family and employees, which, while substantially less than the billions managed at SAC, are still a significant amount. George Soros started his first fund in 1969 and became the unofficial founding father of hedge funds. Although the firm no longer manages external assets, he continues to be intimately involved in his family fund. He has become the teacher to many and will always be known for his philanthropic endeavors, financial savviness and his most famous short of the British pound, which earned him the moniker “the man who broke the Bank of England”. James Simmons, founder of Renaissance Technologies, is perhaps the most well known mathematician of the group. The flagship Medallion fund is the most elusive and secretive of his funds and it has consistent returns. Simmons, a retiree like Soros, continues to be involved in the firm and benefit from the success. Daniel Loeb, founder of Third Point Capital, should be nicknamed “the activist” for the dogged nature he goes after companies. He is not content with owning or shorting stocks, but wants a chance to influence companies from appointed board positions. Carl Icahn is one of the most influential investment minds in the world. If Loeb is “the activist” than Icahn is the “father of activism.” He has both a powerful presence and the confidence to make large bets based on his conviction. Kenneth Griffin, like another well-known entrepreneur-turned-CEO, Facebook’s Mark Zuckerberg, started his career while attending Harvard. His trading acumen was first tested as a college student, and he continued to hone his skills as CEO of Citadel, the firm he founded in 1990. David Tepper has found a strong liking for distressed companies. His Appaloosa Management seems to know which companies or industries will or will not fail, implementing a more unique hedge fund strategy. In fact, he made the right call during the global financial crisis, betting the US government would support the big banks—a bet that paid off tremendously. John Paulson of Paulson and Co. has made many good calls in his career, but probably the most well known was his bet against the subprime housing market before it imploded. His firm boasts several funds, and his merger arbitrage strategy is sought after. Israel (Izzy) Englander’s Millennium Management, founded in 1989, has two unusual traits. First, the firm does not charge a management fee to its clients, and second, its model is a unique blend of strong risk oversight and over 150 trading teams all answering to Englander. But despite Millennium’s success, Englander might be more famous for the recent purchase of a Manhattan co-op for over $70 million. William Ackman founded Pershing Square Capital in 2004. It was his second attempt at running a hedge fund after his first one failed. He is known for his activism, currently taking a massive short position and battering Herbalife on a constant basis, opposing rival activist Daniel Loeb of Third Point. He has also gone toe-to-toe with Carl Icahn, even suing this “king” and winning.
The Bottom Line
Whether their funds are winning or not, these "hedgies" know how to get their names out there. From super high returns to outrageous personal gains, the moves of these top ten managers always get noticed.
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691d76f56d9d2ed3769ec87f9fc848bf | https://www.investopedia.com/articles/investing/042015/bitcoin-vs-litecoin-whats-difference.asp | Bitcoin vs. Litecoin: What's the Difference? | Bitcoin vs. Litecoin: What's the Difference?
Bitcoin vs. Litecoin: An Overview
Over the past several years, public interest in cryptocurrencies has fluctuated dramatically. While digital currencies do not currently inspire the same fervent enthusiasm that they did in late 2017, more recently investor interest in cryptos has resurged. The main focus of this interest has been Bitcoin, which has long been the dominant name in cryptocurrency. Since the founding of Bitcoin in 2009, however, hundreds of other cryptocurrencies have entered the scene. Although it has proven increasingly difficult for digital coins to stand out given the level of crowding in the field, Litecoin (LTC) is one non-Bitcoin crypto which has managed to stand up to the competition. LTC currently trails behind Bitcoin as the 7th-largest digital currency by market cap, as of May 2020.
Key Takeaways Bitcoin has been the dominant name in cryptocurrencies since 2009, but Litecoin and hundreds of others have joined the fray as well.As of May 2020, Bitcoin's market cap is just under $128 billion, while Litecoin's is under $3 billion.Litecoin can produce a greater number of coins than Bitcoin and its transaction speed is faster, but these factors are largely psychological boons for the investor and don't impact the value or usability of the currency.Bitcoin and Litecoin use fundamentally different cryptographic algorithms: Bitcoin uses the longstanding SHA-256 algorithm, and Litecoin uses a newer algorithm called Scrypt.
Similarities Between Bitcoin and Litecoin
On the surface, Bitcoin and Litecoin have a lot in common. At the most basic level, they are both decentralized cryptocurrencies. Whereas fiat currencies such as the U.S. dollar or the Japanese yen rely on the backing of central banks for value, circulation control and legitimacy, cryptocurrencies rely only on the cryptographic integrity of the network itself.
Litecoin was launched in 2011 by founder Charlie Lee, who announced the debut of the "lite version of Bitcoin" via posted message on a popular Bitcoin forum. From its founding, Litecoin was seen as being created in reaction to Bitcoin. Indeed, Litecoin’s own developers have long stated that their intention is to create the “silver” to Bitcoin’s “gold.” For this reason, Litecoin adopts many of the features of Bitcoin that Lee and other developers felt were working well for the earlier cryptocurrency, and changes some other aspects that the development team felt could be improved.
Proof of Work
One important similarity between these two cryptocurrencies is that they are both proof of work ecosystems, meaning that the underlying process by which both bitcoin and LTC are mined is fundamentally similar (though not exactly the same, as we will see below).
Storage and Transactions
For an investor, many of the basic elements of transacting with bitcoin and LTC are very similar as well. Both of these cryptocurrencies can be bought via exchange or mined using a mining rig. Both require a digital or cold storage "wallet" in order to be safely stored between transactions. Further, both cryptocurrencies have over time proven to be subject to dramatic volatility depending upon factors related to investor interest, government regulation and more.
Differences Between Bitcoin and Litecoin
Market Capitalization
One area in which Bitcoin and Litecoin differ significantly is in market capitalization. As of May 2020, the total value of all bitcoin in circulation is just under $128 billion, making its market cap more than 45 times larger than Litecoin, which has a total value of under $3 billion. Whether Bitcoin's market cap strikes you as either high or low depends largely on a historical perspective. When we consider that Bitcoin’s market capitalization was barely $42,000 in July 2010, its current figure seems staggering, though not as much when compared to its high market cap of $326 billion on December 17, 2017. Nonetheless, though the total number of bitcoins is worth substantially less now than it was two years ago, Bitcoin as a network still dwarfs all other digital currencies. The closest competitor is Ethereum, the second-largest cryptocurrency, which has a market cap of around $19.4 billion. Thus, the fact that Bitcoin enjoys a significantly higher value than Litecoin is in itself not a surprise, given that Bitcoin is so much larger than all other digital currencies in existence at this time.
Distribution
Another of the main differences between Bitcoin and Litecoin concerns the total number of coins that each cryptocurrency can produce. This is where Litecoin distinguishes itself. The Bitcoin network can never exceed 21 million coins, whereas Litecoin can accommodate up to 84 million coins. In theory, this sounds like a significant advantage in favor of Litecoin, but its real-world effects may ultimately prove to be negligible. This is because both Bitcoin and Litecoin are divisible into nearly infinitesimal amounts. In fact, the minimum quantity of transferable Bitcoin is one hundred millionth of a Bitcoin (0.00000001 Bitcoins) known colloquially as one “satoshi.” Users of either currency should, therefore, have no difficulty purchasing low-priced goods or services, regardless of how high the general price of an undivided single Bitcoin or Litecoin may become.
Litecoin’s greater number of maximum coins might offer a psychological advantage over Bitcoin, due to its smaller price as of yet for a single unit.
In November 2013, IBM executive Richard Brown raised the prospect that some users may prefer transacting in whole units rather than in fractions of a unit, a potential advantage for Litecoin. Yet even assuming this is true, the problem may be solved through simple software changes introduced in the digital wallets through which Bitcoin transactions are made. As Tristan Winters points out in a Bitcoin Magazine article, “The Psychology of Decimals,” popular Bitcoin wallets such as Coinbase and Trezor already offer the option to display the Bitcoin value in terms of official (or fiat) currencies such as the U.S. dollar. This can help circumvent the psychological aversion to dealing in fractions.
Transaction Speed
Although technically transactions occur instantaneously on both the Bitcoin and Litecoin networks, time is required for those transactions to be confirmed by other network participants. Litecoin was founded with the goal of prioritizing transaction speed, and that has proven an advantage as it has grown in popularity. According to data from Blockchain.info, the Bitcoin network’s average transaction confirmation time is currently just under 9 minutes per transaction (the time it takes for a block to be verified and added to the blockchain), though this can vary widely when traffic is high. The equivalent figure for Litecoin is roughly 2.5 minutes. In principle, this difference in confirmation time could make Litecoin more attractive for merchants. For example, a merchant selling a product in exchange for Bitcoin would need to wait nearly four times as long to confirm payment as if that same product were sold in exchange for Litecoin. On the other hand, merchants can always opt to accept transactions without waiting for any confirmation at all. The security of such zero-confirmation transactions is the subject of some debate.
Algorithms
By far the most fundamental technical difference between Bitcoin and Litecoin are the different cryptographic algorithms that they employ. Bitcoin makes use of the longstanding SHA-256 algorithm, whereas Litecoin makes use of a comparatively new algorithm known as Scrypt.
The main practical significance of these different algorithms is their impact on the process of “mining” new coins. In both Bitcoin and Litecoin, the process of confirming transactions requires substantial computing power. Some members of the currency network, known as miners, allocate their computing resources toward confirming the transactions of other users. In exchange for doing so, these miners are rewarded by earning units of the currency which they have mined.
SHA-256 is generally considered to be a more complex algorithm than Scrypt, while at the same time allowing a greater degree of parallel processing. Consequently, Bitcoin miners in recent years have utilized increasingly sophisticated methods for mining Bitcoins as efficiently as possible. The most common method for Bitcoin mining consists of the use of Application-Specific Integrated Circuits (ASICs). These are hardware systems that, unlike the simple CPUs and GPUs which came before them, can be tailor-made for mining Bitcoins. The practical consequence of this has been that Bitcoin mining has become increasingly out-of-reach for the everyday user unless that individual joins a mining pool.
Scrypt, by contrast, was designed to be less susceptible to the kinds of custom hardware solutions employed in ASIC-based mining. This has led many commentators to view Scrypt-based cryptocurrencies such as Litecoin as being more accessible for users who also wish to participate in the network as miners. While some companies have brought Scrypt ASICs to the market, Litecoin’s vision of more easily accessible mining is still a reality, as a good portion of Litecoin mining is still done via miners' CPUs or GPUs.
While Bitcoin and Litecoin may be the gold and silver of the cryptocurrency space today, history has shown that the status quo in this dynamic and emerging sector can change in even a few months. It remains to be seen whether the cryptocurrencies with which we have become familiar will retain their stature in the months and years to come.
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8a2a5c25a9bb5295488d3ef011c7ea48 | https://www.investopedia.com/articles/investing/042115/betting-basics-fractional-decimal-american-moneyline-odds.asp | How Do Odds Work in Betting? | How Do Odds Work in Betting?
If you are planning to start betting, be it casino gambling, sports betting, or any other type, it's important to understand the odds. It would be preposterous and absurd to think about placing bets without having a good grip on the main types of betting odds and the ability to read and interpret the various associated formats.
The three main types of betting odds are fractional (British) odds, decimal (European) odds, and American (moneyline) odds. These are simply different ways of presenting the same thing and hold no difference in terms of payouts. This means that a chance (percentage probability) of an event occurring can be converted and presented in any of the aforementioned types of odds.
How Fractional Odds Work
Fractional odds (aka British odds, UK odds, or traditional odds) are popular among British and Irish bookies. These are typically written with a “slash (/)” or a “hyphen (-),” e.g. 6/1 or 6-1 and announced as “six-to-one.” Fractional odds are used by some of the world’s largest bookmakers, making them the most preferred odds across the globe.
A fractional listing of 6/1 (six-to-one) odds would mean that you win $6 against every $1 you wager (in addition to receiving your dollar back, i.e. $1 – the amount you wagered). In other words, this is the ratio of the amount (profit) won to the initial bet, which means that you will receive your stake ($1) in addition to the profit ($6), resulting in a total payout of $7. Therefore, if you stake $10 at 6/1, you get a total payout of $70 ($60 profit + $10 stake).
Therefore, the total (potential) return on a stake can be stated as:
Total Payout = [Stake x (Numerator/Denominator)] + Stakewhere numerator/denominator is the fractional odd, e.g. 28/6.
For instance, one of the major sports betting websites listed the following fractional odds for futures betting on the team to win the 2017-18 NBA Championship. Below is a selection of the three teams that had the lowest odds of winning.
Golden State Warriors: 10/11Houston Rockets: 9/4Cleveland Cavaliers: 7/1
It can quickly be determined that the Golden State Warriors are the favorites while the odds on Houston and Cleveland winning are longer. That is, one wins only $10 against every $11 wagered on Golden State to be the champions. Meanwhile, one wins $9 against each $4 (i.e. 3.25 times) put at stake for Houston to win, which is a bit less probable. For Cleveland, one wins $7 against each $1 bet.
In the above example, if you bet $100 on Golden State to win, you could make a $90.91 profit [$100 x (10/11)], and could get back your initial stake of $100, resulting in a total payout of $190.91. However, if you wager $100 on Houston to win, you could receive a profit of $225 [$100 x (9/4)], in addition to the $100 initial stake leading to a total payout of $325. The potential profit for a Cleveland win would be even higher, as you could make a profit of $700 [$100 x (7/1)]. With the initial stake of $100 being returned, it would make for a total payout of $800.
How Decimal Odds Work
Decimal odds (aka European odds, digital odds, or continental odds) are popular in continental Europe, Australia, New Zealand, and Canada. These are a bit easier to understand and work with. The favorites and underdogs can be spotted instantaneously by looking at the numbers.
The decimal odds number represents the amount one wins for every $1 wagered. For decimal odds, the number represents the total payout, rather than the profit. In other words, your stake is already included in the decimal number (no need to add back your stake), which makes its total payout calculation easier.
The total (potential) return on a stake can be calculated as:
Total Payout = Stake x Decimal Odd Number
For instance, one of the renowned betting websites priced the candidates to win the 2020 U.S. Presidential Election. Here, we list the decimal odds for the candidates and the biggest long shot among the candidates listed by the bookmaker.
Donald Trump: 4.00Joe Biden: 1.3
These numbers merely represent the amount one could win against each $1 put at stake. Therefore, if one bets $100 on Donald Trump to be re-elected as president, this person could make a total payout of $400 ($100 x 4.00). This amount includes the initial stake of $100, giving a net profit of $300.
Similarly, a bettor could make a total payout of $130 ($100 x 1.3) if they successfully bet $100 on Joe Biden. Deducting $100 from this return gives the bettor the net profit earned.
Reviewing the prices that the bookmaker has set for each candidate, it can be determined that according to the bookmaker, the probability of Biden (favorite) winning the election is higher than that for Trump. The higher the total payout (i.e. the higher the decimal odd), the less probable (and riskier) it is for the listed candidate to win.
How American (Moneyline) Odds Work
American odds (aka moneyline odds or US odds) are popular in the United States. The odds for favorites are accompanied by a minus (-) sign, indicating the amount you need to stake to win $100. Meanwhile, the odds for underdogs are accompanied by a positive (+) sign, indicating the amount won for every $100 staked. In both cases, you get your initial wager back, in addition to the amount won. The difference between the odds for the favorite and the underdog widens as the probability of winning for the favorite increases.
Let’s understand this with the help of an example:
One of the popular betting websites priced the NCAA "Sweet 16" men's basketball game between Duke and Syracuse on March 23, 2018, with the following moneyline odds.
Syracuse: +585Duke: -760
The bookmaker has offered odds of +585 for Syracuse, which indicates that the bookmaker has placed a much lower probability (about 15%) on Syracuse winning the game. One needs to risk $100 on Syracuse to make a potential win of $585. If Syracuse can pull off the upset, one gets back their initial stake of $100, in addition to the $585 won, giving a total payout of $685.
If you decide to bet Duke, who is listed as the favorite, which has a higher implied probability of winning the game according to the bookmaker, one would need to bet $760 to win $100. If Duke is victorious, one wins $100 with a total payout of $860 (initial stake $760 + profit won $100).
In this matchup, there is a big difference between the two odds, indicating a much higher probability of Duke winning the game and advancing to the next round of the NCAA Tournament.
Key Takeaways The three main types of betting odds are fractional (British) odds, decimal (European) odds, and American (moneyline) odds. These are simply different ways of presenting the same thing, and hold no difference in terms of payouts.Fractional odds are the ratio of the amount (profit) won to the stake; Decimal odds represent the amount one wins for every $1 wagered; and American odds, depending on the negative or positive sign, either indicate the amount one needs to wager to win $100 or the amount one would win for every $100 staked.
The Bottom Line
If you are planning to enter the betting or the gambling world, it is important to be able to understand and interpret all types of odds well. Once you have mastered the three popular types of odds (fractional, decimal, and American), you can move towards a more detailed read on this topic and find out how the house always wins. Please refer to Understanding the Math Behind Betting Odds & Gambling for the conversion between the different formats of odds, the conversion of odds into implied probabilities, and the differences between the true chances of an outcome as well as the odds on display.
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b484b39138c94e3c4048fd965e26f8cf | https://www.investopedia.com/articles/investing/042115/understanding-world-electricity-trading.asp | Introduction to the World of Electricity Trading | Introduction to the World of Electricity Trading
Trading Electricity
To understand the difference between wholesale energy markets and traditional financial markets, it's important to grasp the nature of trading electricity, compared to financial assets like equities, bonds, and commodities. The most important difference is that electricity is produced and consumed instantly. At the wholesale level, electricity cannot be stored, so demand and supply must constantly be balanced in real-time. This balancing leads to a significantly different market design compared to common capital markets.
It has also restricted access to the wholesale markets because while the markets are open, their intimidating technicalities have kept less-experienced traders away. Regulators encourage traders to join the markets, but potential participants must show financial strength as well as technical knowledge to be granted access.
It's not advisable to tackle these markets without sufficient know-how, and this article is only a start.
Market Organization and Design
Energy markets are also much more fragmented than traditional capital markets. The day-ahead and real-time markets are managed and operated by Independent System Operators (ISO). These non-profit entities are organized on a physical grid arrangement commonly referred to as network topology. There are currently seven ISOs in the United States. Some cover mainly one state, like the New York ISO (NYISO) while others cover several states, such as the Midcontinent ISO (MISO). ISOs act as market operators, performing tasks like power plant dispatch and real-time power balance operations. They also act as exchanges and clearinghouses for trading activities on different electricity markets.
ISOs don't cover the entire U.S. power grid though; some regions like those in the southeastern states are bilateral markets where trades are done directly between generators and load-serving entities. Some settlements are done through bilateral EEI agreements, which are the equivalent of ISDA agreements in power markets. Grid operations in these states are still centralized to a certain extent. Grid reliability and balancing are operated by Regional Transmission Operators (RTO). ISOs are former RTOs that eventually organized into a centralized market in the name of economic efficiency through market forces.
Volatility and Hedging
The lack of storage and other more complex factors lead to a very high volatility of spot prices. To hedge some of these inherent price volatility generators and load-serving entities look to fix the price of electricity for delivery at a later date, usually one day out. This is called the Day-Ahead Market (DAM). This combination of Day-Ahead and Real-Time markets is referred to as a dual settlement market design. The Day-Ahead prices remain volatile due to the dynamic nature of the grid and its components.
Energy prices are influenced by a variety of factors that affect the supply and demand equilibrium. On the demand side, commonly referred to as a load, the main factors are economic activity, weather, and general efficiency of consumption. On the supply side, commonly referred to as generation, fuel prices and availability, construction costs and the fixed costs are the main drivers of the price of energy. There's a number of physical factors between supply and demand that affect the actual clearing price of electricity. Most of these factors are related to the transmission grid, the network of high voltage power lines and substations that ensure the safe and reliable transport of electricity from its generation to its consumption.
The Highway System Analogy
Imagine a highway system. In this analogy, the driver would be the generator, the highway system would be the grid, and whoever the driver is going to see would be the load. The price would be considered as the time it takes you to get to your destination.
Notice that I mentioned the highway system and not simply roads, which is an important nuance. The highway system is the equivalent of high voltage power lines while local streets are analogous to the retail distribution system. The retail distribution system is made up of the poles you see on your street while the grid is made up of big electricity pylons holding high voltage lines. ISOs and the general market are mainly concerned with the grid while retailers or Load Serving Entities (LSE) get the power from substations to your home.
So let’s remember this, cars are power, people are the generators, the destination (a highway exit and not someone else’s home) is the load and price is time. We’ll use this analogy from time to time to explain some more complex concepts but remember that the analogy is imperfect, so treat each reference to the analogy independently.
Locational Marginal Pricing
All ISOs use a form of pricing called locational marginal pricing (LMP). This is one of the most important concepts in electricity markets. The "Locational" refers to the clearing price at a given point on the grid (we’ll get to why prices are different at various locations in a moment). The "Marginal" means that the price is set by the cost of delivering one more unit of power, usually one megawatt.
Therefore, the LMP is the cost of providing one more megawatt of power at a specific location on the grid. The equation for an LMP generally has three components: the energy cost, the congestion cost, and losses. The energy cost is the compensation required for a generator to produce one megawatt at the plant. Losses are the amount of electric energy lost while zipping along the lines.
These first two components are simple enough, but the last one, congestion is trickier. Congestion is caused by the physical limitations of the grid, namely transmission line capacity. Power lines have a maximum level of power they can carry without overheating and failing. Losses are usually considered to be heat losses as some of the power heats the line instead of simply transiting through it.
Returning to our analogy, congestion could be considered to be traffic jams and losses would be the equivalent of the wear and tear on your car. Just like you don’t worry about wear and tear on your car when visiting a friend, losses are fairly stable across the grid and are the smallest component of the LMP. They also mainly depend on the quality of the road you are driving on.
Looking to Minimize Costs
So, given that LSEs are looking to minimize their costs, they rely on the ISO to dispatch the lowest cost generator to supply them with electricity. When a low-cost generator is willing but unable to deliver power to a given point because of congestion on the line, the dispatcher will instead dispatch a different generator elsewhere on the grid, even if the cost is higher. This is similar to having someone else drive to the destination even though they live further away, but because traffic is so bad, the person living closer cannot even get on the highway!
This is the main reason prices differ by location on the grid. At night, when there is a low economic activity, and people are sleeping, there is plenty of room on the lines and therefore very little congestion.
So referring to our analogy, when there are few people on the road at night, there is no traffic, and therefore the price differences are mainly caused by the losses or wear and tear on your car. You may ask: “But not everybody will take the same time to drive from their home to their destinations, and you said price is the same as driving time, how can that be?”
Setting Prices
Remember that prices are set at the margin, so the price is set as the next unit to be produced, or the time it would take for the next person to drive to their destination. You would get paid that “time” regardless of how long it took you to get to your destination. So is living close to your destination the best way to get rich? Well, not exactly. Sticking to the analogy, building close to the destination takes much longer and is much more costly.
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87d87b2907bbddad8f42399b9e6e4d38 | https://www.investopedia.com/articles/investing/042215/how-chinas-gdp-calculated.asp | How China's GDP Is Calculated | How China's GDP Is Calculated
Gross domestic product (GDP) is a widely used metric to measure the health of a nation's economy. Investors use this figure to make decisions about investment in a particular nation, while governments use GDP for drafting policies. Essentially, GDP is the total value of goods and services produced in the nation in a particular year, and while the definition appears simple, calculating GDP is a complex task. (For more, see The Importance of GDP.)
China’s GDP History
The need for a clear description and a reliable measurement of economic activity led the National Bureau of Statistics of China (NBS) to design a system of GDP estimation at both the national and provincial levels in 1985. Although it initially started with production-side estimation, the NBS formally adopted an expenditure estimation approach in 1993.
The quarterly GDP is estimated for the following industries:
Farming, forestry, animal husbandry and fishingManufacturingConstructionWholesale and retail tradeTransportation, storage and postAccommodation and restaurantsFinanceReal estateInformation transmission, software and IT servicesRenting/leasing and business servicesOthers
The annual GDP is estimated for the following industries:
Agriculture, fishing, mining and quarryingManufacturingElectricity, gas and water supply, and waste managementConstructionImport/export, wholesale and retail tradeAccommodation and food servicesTransportation, storage, postal and courier servicesInformation and communicationsFinancing and insuranceReal estate, professional and business servicesPublic administration, social and personal servicesOwnership of premises
Primary Data Sources
There are two primary sources of data for GDP accounting.
National data survey. This statistical data is collected from surveys conducted by the national statistical system, covering industries such as agriculture, forestry, animal husbandry and fishing, industry, construction, wholesale and retail trade, hotel and catering services, real estate etc.Administrative data. This information includes data from the Ministry of Finance, the People's Bank of China, the State Administration of Taxation, the China Insurance Regulatory Commission, the China Securities Regulatory Commission and other state agencies.
Data Collection Method
The NBS owns and delegates data collection through its various departments at both national and state levels.
Firms and industries are required to report data about the production, sales, and financial status by submitting prescribed forms either directly to NBS, or to local statistical agencies, or both. Further verification is done through surveys conducted by the Enterprise Investigation Organization unit of the NBS. The methodology includes NBS calculating the value-added for different enterprises on the data it has collected on its own (or through its departments). Similar values are derived or calculated by local agencies and competent authorities at the state and province levels.
All the data collected through these various routes get verified, sampled, consolidated, and aggregated by the NBS to calculate the GDP figures. (See related: China’s GDP Examined: A Service Sector Surge.)
Basic Calculation
GDP calculations are made using current and constant prices. (Detailed calculations are out of the scope of this article, but readers are encouraged to refer to Section 5: Basic Calculation Methods of China’s gross domestic product estimation.)
Timeline of Annual GDP Calculation
GDP data calculation in China occurs in three phases as follows:
Preliminary Estimation (PE) - Aimed as a quick primer for the current macroeconomic situation, PE is conducted early the following year. For example, for 2019, the PE would occur in the first quarter of 2020. Due to limited data available at that time, PE is based on limited statistics in specific fields as available from different NBS departments.Primary Revision - The primary revision is conducted around the second quarter when more data becomes available from various NBS departments, ministries of states, and various administrative datasets. This enhances the earlier PE report, but still lacks data on final fiscal accounts, and financial accounts of multiple sectors, including those from banks, insurance, railways, civil aviation, and post and telecommunications.Final Revision - The final revision is made in the last quarter, once all the data related to accounting, statistical and administrative sets for annual GDP estimation become available.
To ensure uniform comparability across historical datasets, periodic adjustments to the historically published datasets are also made as needed, including when new data sources are identified, or there is a change in industry classification or in accounting methods.
The Bottom Line
China has remained a closed economy with tight government control. The authenticity of data sources, data collection techniques, calculations, and published figures has been questioned time and again. China has taken a few measures to circumvent the associated problems, which include reforming the survey and aggregation methods, increasing the scope of the survey, and revamping the calculation methods. The change to its method of national accounting from the old System of National Accounting (SNA) 1993 standards to the newer SNA 2008 standards is one such initiative to gain global credibility, which could result in an inflow of investor dollars, and have a uniform accounting system similar to global standards.
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47e23c8490adfe4007b1605fc6e67ef0 | https://www.investopedia.com/articles/investing/042315/how-gold-miners-bull-3x-nugt-etf-works.asp | How the Gold Miners Bull 2X (NUGT) ETF Works | How the Gold Miners Bull 2X (NUGT) ETF Works
Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) is a leveraged exchange traded fund (ETF) that should be used only for short-term trades. In fact, Direxion on its website notes the returns the ETF seeks on its benchmark (the NYSE Arca Gold Miners Index) are for a single day. Direxion also states the ETF should be used only by "investors who understand leverage risk and who actively manage their investments."
Key Takeaways The Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) is a leveraged ETF.The fund seeks returns for short-term trades of a single day and is best suited for active, experienced investors who understand leverage risk and volatility.The fund attempts to achieve daily investment results of 200% of the performance of the NYSE Arca Gold Miners Index.The fund invests in high-risk futures contracts, reverse purchase agreements, options and short positions.
Trading Risks and NUGT
NUGT comes with a relatively hefty 1.17% expense ratio. That’s not the only concern. The fund attempts to track 200% of the performance of the NYSE Arca Gold Miners Index via futures contracts, short positions, reverse purchase agreements, options, swap agreements and similar exotic trading tactics. This equals high risk.
In fact, up until March 31, 2020, fund managers at Direxion sought daily leveraged investment results, before fees and expenses, of 300% of the NYSE Arca Gold Miners Index performance. Because of increased market volatility, Direxion reduced the daily leverage exposure from triple to double. To reflect this shift, the fund changed its name from "Direxion Daily Gold Miners Index Bull 3X Shares" to "Direxion Daily Gold Miners Index Bull 2X Shares."
Deciding Whether to Trade NUGT
Because of the high risk, it’s likely that you’re looking to trade NUGT, not invest. In that case, it’s possible to see substantial returns in a very short time period. The key is to ensure you’re on the right side of the trend, which makes trading easier due to higher odds of appreciation, which leads to the ability to lock in gains.
In deciding whether to trade NUGT, one would need to determine in which direction they believe the NYSE Arca Gold Miners Index will move based on their research of the gold market. In addition, it's important to assess the top holdings of the ETF and determine where those positions are likely to move as well. For example, NUGT's largest holding, at roughly 4% of the portfolio, is the VanEck Vectors Gold Miners ETF (GDX).
Though 4% is small, this gives a slight idea into what the performance of the ETF might be. It is worth analyzing the VanEck Vectors Gold Miners ETF as well: its largest investments are in some of the biggest gold mining companies globally, such as Newmont (NEM) and Barrick Gold (ABX.TO).
Understanding how those companies are performing will provide additional insight. But it is important to stress that a leveraged ETF is meant for short-term gain and operates on a speculative nature by investing in riskier products, such as debt and derivatives, to amplify returns.
NUGT Key Metrics
NUGT seeks daily investment results, before fees and expenses, of 200% of the performance of its benchmark, the NYSE Arca Gold Miners Index. There is no guarantee the fund will meet these stated investment objectives and the fund should not be expected to provide two times the benchmark's cumulative return for periods greater than a day.
Key metrics for NUGT (as of March 31, 2020) include:
1-year daily total return: -66.48%Inception date: Dec. 8, 2010Expense ratio: 1.17%
The Bottom Line
The Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) can be an attractive trade in the short term for investors that are aware of the risk and time frame of trading a leveraged ETF, as well as understanding the gold market. However, it is important to understand the increased risks of investing in a leveraged fund that can amplify returns but also amplify losses.
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d29ee9fe5ca4dda30ea34292643244db | https://www.investopedia.com/articles/investing/042413/financial-statement-extraordinary-vs-nonrecurring-items.asp | Extraordinary Items vs. Nonrecurring Items: What's the difference? | Extraordinary Items vs. Nonrecurring Items: What's the difference?
Extraordinary Items vs. Nonrecurring Items: An Overview
To get ahead as a financial analyst, you must become very skilled at using past information to make reasonably accurate predictions of the future. When it comes to analyzing a company, successful analysts spend considerable time trying to differentiate between accounting items that are likely to recur going forward from those that most likely will not.
A key part of this analysis is to understand items that qualify as extraordinary items or nonrecurring items. A savvy analyst will separate these items from recurring ones and will stand a much better chance at predicting the future of a company than one who simply looks at the bottom-line earnings companies must report in their financial statements.
Key Takeaways Extraordinary items are gains or losses in a company's financial statements that are unlikely to happen again. A nonrecurring item refers to an entry that is infrequent or unusual that appears on a company's financial statements. The difference between extraordinary items and nonrecurring items is often subjective, and therefore extraordinary items are often lumped under nonrecurring items. The International Financial Reporting Standards (IFRS) does not recognize extraordinary items, only nonrecurring items. Generally accepted accounting principles (GAAP) makes more of a distinction between the two but this has become less common as the tax advantages of extraordinary items have disappeared.
Extraordinary Items
Extraordinary items are gains or losses in a company's financial statements that are infrequent and unusual. An item is deemed extraordinary if it is not part of a company’s ordinary, day-to-day operations and it has a material impact on the company. A material impact means that it has a significant effect on a firm’s profitability and should, therefore, be broken out separately.
Detailed explanations of an extraordinary item must be included in the notes to the financial statements in a company's annual reports or financial filings with the Securities and Exchange Commission (SEC). It represents a one-time expense involving an unpredictable event.
International Financial Reporting Standards (IFRS) does not recognize the concept of an extraordinary item, which has led to the practice of classifying extraordinary items as separate from nonrecurring items to become obsolete.
Common extraordinary items include damage from natural disasters, such as earthquakes and hurricanes, damages caused by fires, gains or losses from the early repayment of debt, and write-offs of intangible assets.
Nonrecurring Items
A nonrecurring item refers to an entry that appears on a company's financial statements that is unlikely to happen again and is considered to be infrequent or unusual.
There are many examples of nonrecurring items. These can include litigation charges, charges related to letting workers go, restructuring charges to realign a business or operating unit (including mergers), gains or losses from the sale of assets, write-offs or write-downs related to business operations, and losses related to shutting down a business unit.
Special Considerations
Accountants spend considerable time determining whether an item should be qualified as extraordinary or nonrecurring. Financial Accounting Standards Board (FASB) statement No.145 helps stipulate the accounting charges that can rightfully be considered extraordinary.
It is important to note that International Financial Reporting Standards (IFRS) does not recognize the concept of an extraordinary item. U.S. generally accepted accounting principles (GAAP) makes more of a distinction, such as with the extraordinary item discussion above that covered the unusual and infrequent differences. In this respect, a nonrecurring item might qualify as an unusual or infrequent item, but not both.
Since 2015, however, the difference between extraordinary items and nonrecurring items is not necessary for some countries due to tax reasons. Extraordinary items received beneficial tax treatment in comparison to non-extraordinary items under GAAP. These tax treatments have vanished, for the most part, making the distinction between extraordinary items and non-extraordinary items unnecessary, particularly since defining an extraordinary item was largely a subjective exercise.
Most financial literature tends to lump one-time items together and focus on separating them from those that are likely to recur in the future. In many cases, this is fine because the most important exercise in analyzing a firm’s financial statements is separating recurring from nonrecurring items.
However, there are differences to note. For instance, nonrecurring items are recorded under operating expenses in the net income statement. By contrast, extraordinary items are most commonly listed after the bottom line net income figure. They are also usually provided after taxes and must be explained in the notes to the financial statements.
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a57b0106fbcb277f00322c005dd8b8bb | https://www.investopedia.com/articles/investing/042915/why-facebook-banned-china.asp | Why Facebook Is Banned in China & How to Access It | Why Facebook Is Banned in China & How to Access It
Facebook (FB) has more than 2.5 billion monthly active users worldwide, with primarily no footprint in China. That’s because Facebook is banned in China, along with many other global social media providers. The Chinese government controls internet content and restricts, deletes, or bans content it deems is not in the interest of the state. This has grown to become a long list of companies.
Key Takeaways The 'Great Firewall' in China prevents internet users from viewing or positing socially or politically sensitive content.Facebook and other foreign internet companies are blocked in China, and Facebook's efforts to court China have been rebuffed.Meanwhile, homegrown services such as TikTok, WeChat, Sina Weibo and Tencent QQ flourish under the watchful eye of government censors.
Timeline of Actions
Chinese authorities blocked Facebook—along with Twitter and Google services—in July 2009 following riots in Xinjiang, a special autonomous region in western China. The crackdown was aimed at curtailing communications among independence activists.
China is considered to have one of the most extensive and sophisticated censorship regimes in the world. Dubbed the "Great Firewall," a number of methods are employed to control online expression, including website blocking and keyword filtering, censoring social media, and arresting content posters who broach sensitive or political issues. A host of government agencies wield authority over the internet in China, such as the Central Propaganda Department and the Ministry of Public Security. In 2014, it established the Cyberspace Administration of China as the main body for internet censorship in China.
The Great Firewall prevents users from accessing foreign news sites such as the BBC, The New York Times and the Wall Street Journal, among others. Foreign web services that are blocked include Facebook, Google, Twitter, Instagram, Snapchat, Yahoo, Slack and YouTube.
In 2018, Facebook attempted to set up a $30 million subsidiary in Hangzhou to incubate start-ups and give advice to local businesses. Permission to run the start-up was quickly withdrawn.
Despite not being able to operate in China, Facebook derives significant revenue from the country. In its 2018 annual report, the company said it generated "meaningful revenue from a limited number of resellers representing advertisers based in China." Pivotal Research Group estimated that number to be $5 billion. Meet Social, a Shenzhen-based advertising reseller, said it would place between $1 billion and $2 billion in advertising on Facebook and Instagram in 2019.
Who Is Successful in Chinese Social Media?
While the Great Firewall has kept foreign internet companies at bay, homegrown companies have been allowed to flourish. Some of the larger players include e-commerce retailers Alibaba (BABA) and JD.com (JD), search engine Baidu (BIDU), and micro-blogging service Sina Weibo (WB). Tencent QQ and WeChat are popular messaging apps similar to WhatsApp, while Tudou and Youku are China's version of YouTube.
Some Chinese internet companies have enjoyed considerable success abroad. Beijing-based ByteDance runs the short-form video app TikTok, estimated to have one billion users worldwide.
How to Access Facebook in China
In addition to being banned in China, Facebook is also blocked in North Korea and Iran. The special administrative regions of Macau and and Hong Kong have access under "One Country, Two Systems."
Despite the ban, there are a few ways to access Facebook and other blocked sites in China. Below are three options:
Virtual private networks (VPN) are indispensable to travelers and foreigners living in China. Though VPNs are sometimes blocked and difficult to use, foreigners report they remain available. It is suggested you secure several VPN subscriptions before entering China, and to always assume traffic is being monitored.A proxy website is another option, though these can also be monitored.Tor helps users to surf the internet anonymously. However, hackers in China have found ways to prevent users from accessing the network.
The Future of Facebook in China
The Great Firewall prevents U.S. internet companies from establishing a foothold in China. Mark Zuckerberg, the chief executive officer of Facebook, has made several high-profile visits to China, with little progress. The site has been blocked since 2009, though Facebook still manages to earn some revenue via advertising reseller networks. As long as strict controls remain in place, it appears Facebook and others will remain on the sidelines.
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bc2f78c5eb4b5f2d69418e83e184dcaa | https://www.investopedia.com/articles/investing/043015/fundamentals-how-india-makes-its-money.asp | The Fundamentals of How India Makes Its Money | The Fundamentals of How India Makes Its Money
India, a former British colony that has been independent for over 70 years, is currently one of the fastest-growing economies in the world. However, in 2019, the country lost its place as the world's fastest-growing economy after it grew more slowly than expected in the first half of the year. For the first time in nearly two years, India's growth rate fell behind China's. It is the world’s third-largest economy in purchasing parity terms.
Overall, in 2019, the economy of India grew at a rate of 5%. This growth was primarily due to strong demand for the country's goods and services, in addition to a high level of industrial activity. The country, once a supplier of British tea and cotton, now has a diversified economy with the majority of activity and growth coming from the service industry. India is expected to become a high-middle income country by 2030.
This year, India's economy has been hard hit by the reaction to the Covid-19 pandemic. During 2020 India's GDP for the second quarter came 22.6% below the second quarter of 2019, as COVID-19 motivated restrictions on all non-essential businesses sharply curtailed economic activity.
Key Takeaways India, a former British colony that has been independent for over 70 years, is currently one of the fastest-growing economies in the world. Agriculture, once India’s main source of revenue and income, has since fallen to approximately 15.87% of the country’s GDP, as of 2019. Over the past 60 years, the service industry in India has increased from a fraction of the GDP to approximately 54.4% between 2018 and 2019. In 2019, almost 10 million foreign tourists visited India; the World Travel and Tourism Council calculated that tourism generated 9.2% of India's GDP in 2018.
Historical Development of India's Economy
In 1947, after gaining independence from Britain, India formed a centrally-planned economy (also known as a command economy). With a centrally-planned economy, the government makes the majority of economic decisions regarding the manufacturing and the distribution of products.
The government focused on developing its heavy industry sector, but this emphasis was eventually deemed unsustainable. In 1991, India began to loosen its economic restrictions and an increased level of liberalization led to growth in the country's private sector. Today, India is considered a mixed economy: the private and public-sectors co-exist and the country leverages international trade.
Citizens can choose their own occupations and start their own private enterprises. However, in certain areas of the economy, such as defense, power, banking, and other industries, the government maintains a monopoly. The country’s economy has grown exponentially–from $288 billion in 1992 to $2.9 trillion in 2019.
Agricultural Sector
Agriculture, once India’s main source of revenue and income, has since fallen to approximately 15.96% of the country’s GDP, as of 2019. However, analysts have pointed out that this fall should not be equated with a decrease in production. Rather, it reflects the large increases in India’s industrial and service outputs.
The agricultural industry in India currently faces some problems. First, the industry is not as efficient as it could be: millions of small farmers rely on monsoons for the water necessary for their crop production. Agricultural infrastructure is not well developed, so irrigation is sparse and agricultural product is at risk of spoilage because of a lack of adequate storage facilities and distribution channels.
Despite this, production is increasing. Today, India is a leading producer of lemons, oilseeds, bananas, mangoes and papayas, wheat, rice, sugar cane, many vegetables, tea, cotton, and silkworms (among others).
While forestry is a relatively small contributor to the country's GDP, it is a growing sector and is responsible for producing fuel, wood, gums, hardwood, and furniture. An additional small percentage of India’s economy comes from fishing and aquaculture, with shrimp, sardines, mackerel, and carp being bred and caught.
Industrial Production
Chemicals are big business in India; The petrochemical industry, which first entered the Indian industrial scene in the 1970s, experienced rapid growth in the 1980s and 1990s.
In addition to chemicals, India produces a large supply of the world’s pharmaceuticals as well as billions of dollars worth of cars, motorcycles, tools, tractors, machinery, and forged steel.
India also mines a large number of gems and common minerals including iron ore, bauxite, and gold along with asbestos, uranium, limestone, and marble. In 2019 to 2020, for example, India mined 729 million tons of coal (which, surprisingly, was not enough to meet the country’s coal needs). Oil and gas were extracted at a rate of 34.2 million metric tons and 32.9 billion cubic meters, respectively, in the 2018 to 2019 year.
Information Technology (IT) and Business Services Outsourcing
Over the past 60 years, the service industry in India has increased from a fraction of the GDP to approximately 55.9% between 2019 and 2020. India–with its high population of skilled, English-speaking, and educated people–is a great place for doing business.
Among the leading services industries in the country are telecommunications, IT, and software, and the workers are employed by both domestic and international companies including Intel (INTC), Texas Instruments (TXN), Yahoo (YHOO), Facebook (FB), Google (GOOG), and Microsoft (MSFT).
Business process outsourcing (BPO) is a less significant but more well-known industry in India and is led by companies like American Express (AXP), IBM (IBM), Hewlett-Packard, (HPQ), and Dell. BPO is the fastest-growing segment of the ITES (Information Technology Enabled Services) industry in India thanks to economies of scale, cost advantages, risk mitigation, and competency. BPO in India, which started around the mid-90s, has grown by leaps and bounds.
Retail Services
The retail sector in India is huge. But it's not just apparel, electronics, or traditional consumer retail that is booming; agricultural retail, which is important in an inflation-conscious country like India, is also significant.
However, in recent years, the issue of agricultural wastage has come to the forefront. In 2019, it was estimated that $14 billion of food is wasted in India every year. Reports suggest there is little storage for Indian agricultural products, and experts believe that the solution to the massive waste issue is a combination of government policy, technology, and infrastructure. The Indian government is purported to be exploring a range of options.
Other Services
Other parts of India’s service industry include electricity production and tourism. The country is largely dependent on fossil fuels oil, gas, and coal but it is increasingly adding capacity to produce hydroelectricity, wind, solar, and nuclear power.
In 2018, over 10 million foreign tourists visited India. In 2018, the estimated foreign exchange earnings from tourism in India was $28.585 billion. The World Travel and Tourism Council calculated that tourism generated 10.3% of India's GDP in 2019.
Medical tourism to India is also a growing sector. India's market for medical tourism is expected to touch the $9 billion mark by 2020, according to a report released by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young. Medical tourism is popular in India because of its low-cost healthcare and international standards compliance. Customers come from all over the world for heart, hip, and plastic surgery procedures, and a small number of people take advantage of India’s commercial surrogate facilities.
The Bottom Line
India has become a rising economic power in the 21st century. Between the years 2011 and 2015, more than 90 million people in India rose out of extreme poverty, thanks in part to robust economic growth that has improved the overall standards of living in the country According to the World Bank, growth in India is projected to be 6% this fiscal year; it is expected to rise to 6.9% between 2020 and 2021 and to 7.2% in the following year. Among the major emerging economies, India is one of the fastest-growing. It has also become a focus of investors across the globe.
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5fd9939b607bbc214a8588227c370e17 | https://www.investopedia.com/articles/investing/043015/pros-cons-immigration-reform.asp | The Pros & Cons of Immigration Reform | The Pros & Cons of Immigration Reform
Immigration reform helped ramp up deportations, secured funds for a longer border wall, and suspended the entry of most new immigrants because of COVID-19.
The Trump administration reduced the number of undocumented immigrants in the United States—a group that totaled roughly 10.5 million people in 2017, according to the latest available data from the Pew Research Center. While former President Trump cited an array of reasons for this approach, from human trafficking concerns to abstract population caps—“our country is full,” he announced in April 2019—his argument has always been largely an economic one.
Indeed, former President Trump repeatedly drove home the idea, in both direct and subtle ways, that the job market is essentially a zero-sum game—Honduran and Mexican immigrants who cross onto U.S. soil ultimately take jobs away from U.S. citizens and suppress their pay. “We are proposing an immigration plan that puts the jobs, wages, and safety of American workers first,” Trump said on May 16, 2019, at a White House event announcing a new visa program that would limit Latino recipients.
Key Takeaways Former President Trump limited immigration into the U.S., especially across the southern border. The 2020 presidential election presented a stark contrast in the two parties' positions on immigration to the U.S. In terms of the impact on jobs, undocumented workers often take low-skill jobs in which American citizens have little interest, and they are more willing to work nights and weekends. In the long run, increased immigration has a very small positive impact on the wages of native-born Americans. First-generation immigrants cost the government more per capita, but their children cost less than native-born Americans.
Immigration Reform and the 2020 Election
The thinking of former President Trump and his supporters set up one of the biggest ideological battlefronts of the 2020 presidential election. Senators Elizabeth Warren, Bernie Sanders, Kamala Harris, and Cory Booker all advocated downgrading illegal border crossings to a civil offense. Even President Joe Biden, who served as vice president when close to 3 million undocumented immigrants were deported, was quick to play up their positive contributions to society.
So who’s right and who’s wrong when it comes to undocumented workers and the economy? We’ll look beyond the heated rhetoric and explain what researchers from both sides of the political spectrum have to say.
Impact on the Job Market
Trump’s hard line on undocumented immigrants was wrapped in the assumption that they’ll take jobs from American citizens. On the surface, this seems like a pretty logical conclusion for a cohort that represents nearly 11 million people. But immigration advocates said this argument ignores the dynamic nature of the job market.
First, it’s important to recognize that immigrants aren’t just workers—they’re also consumers who buy goods and services. Some researchers believe mass deportation would therefore shrink overall economic output. An analysis by New American Economy, a bipartisan research and advocacy organization focused on immigration policy, concludes that such a policy would result in a $1.6 trillion reduction in GDP.
What’s more, undocumented workers often take low-skill jobs in which American citizens have little interest, including those in labor-intensive fields such as agriculture and forestry. Another NAE report found that low-skilled immigrants are 18% percent more likely to take jobs that require unusual hours than their U.S.-born counterparts.
And because birthrates are dropping in the U.S.—the average American woman is having 1.7 children, according to The World Bank—some experts say immigrants can help fill a hole in the labor market that will ultimately boost the economy.
“The future growth prospects of the U.S. economy are severely constrained by a lack of working-age population growth,” the non-partisan Committee for Economic Development of The Conference Board (CED) wrote in a 2018 policy brief. “Fewer workers means less output without increases in productivity so large as to be highly unlikely.”
Because roughly half the immigrants from Latin America are between the ages of 18 and 35, the United States doesn’t have to shoulder the cost of their schooling. Bringing in even 100,000 of these immigrants annually would represent an injection of human capital that would otherwise cost us $47 billion in education and childcare costs, says CED.
Will Wages Drop?
One of the claims you’ll often hear amnesty critics say is that allowing more workers to compete for American jobs will suppress wages for existing employees.
The basic rules of supply and demand would seem to support that claim. When the number of workers goes up, the amount companies have to pay presumably goes down. However, a number of studies have shown that the impact on wages among low-skilled workers is relatively modest—most put it at less than 1%. Researchers Gianmarco Ottaviano and Giovanni Peri actually found that in the long run, increased immigration has a very small positive impact, 0.6%, on the wages of native-born Americans.
But even if pay for these jobs were to decrease, that might not be the case in every field. Supporters of immigration reform say that the availability of more workers is a boon for businesses, which benefit from lower production costs.
This theoretically strengthens demand for high-skill jobs that don’t face as much competition from undocumented workers, such as managers and accountants. Therefore, reform could presumably boost wages, at least marginally, for jobs that require a college degree.
According to one analysis, the fiscal impacts of immigrants are generally positive at the federal level when projected over a future time horizon of 75 years.
Effect on the Treasury
One of the most contentious questions is what effect illegal immigration has on government coffers.
A path to citizenship for workers who are already in the country means many of them would contribute federal and state income taxes for the first time. But they would also have access to a range of benefits to which they’re currently locked out—education at public schools, Medicaid, food stamps, and the earned income tax credit.
In 2017, researchers Robert Rector and Jamie Bryan Hall of the right-leaning Heritage Foundation analyzed the Reforming American Immigration for Strong Employment (RAISE) Act, which would limit the number of visas given to low-skilled workers. They suggested that immigrants without a high school degree—the typical level from Latin America is a 10th grade education—receive, on average, $4 in government benefits for every $1 they contribute in taxes.
Rector and Hall conclude that the 4.7 million low-skilled immigrants estimated to enter the United States in the next decade would be a net drag on the Treasury of $1.9 trillion.
But a 2016 report by the National Academies of Sciences, Engineering, and Medicine paints a very different picture. Using data from 1994-2013, the authors agree that first-generation immigrants cost the government more on a per-capita basis than citizens born in the U.S., based on their lower earning power.
However, the NAS found that that their children are actually less of a drag on the federal and local budgets than their peers. That’s because second-generation immigrants exhibited “slightly higher educational achievement, as well as their higher wages and salaries.” As a result, they pay more in taxes.
There’s also some evidence that immigrants help bolster Social Security, where the entrance of Baby Boomers into retirement is putting big pressure on the program. Back in 2013, Chief Actuary Stephen Goss of the Social Security Administration and other researchers estimated that roughly 1.8 million immigrants used a Social Security card that did not match their name to gain employment in 2010. The result: These individuals tend to pay far more into the system than they pull out in benefits. At the time, Goss asserted that undocumented residents kicked $13 billion into Social Security through payroll taxes, but only gained $1 billion in benefit payments.
The Bottom Line
Former president Trump energized his Republican base with his get-tough approach to immigration, arguing that unlawful residents are an unmitigated drain on the American economy. However, those who cross into the U.S. without documentation also lower costs for their employers and represent a sizable consumer group. Indeed, some research indicates they actually create more job opportunities than they take.
While some studies have shown that illegal immigration suppresses wages in low-skill segments of the workforce, the effect over time, if any, appears to be minimal. And while first-generation immigrants may cost the government more than native-born workers because of their lower incomes, many pay far more into Social Security than they receive. They also add younger workers to the nation's aging labor force. Labor mobility has economic effects in a variety of directions.
The caveat in all of these assertions is that it is impossible to know what kind of long-term impact the coronavirus pandemic that began in 2020 will have on the economy, the job market, and immigration.
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9eb92ffe45c08df55d14ca1416e9f92f | https://www.investopedia.com/articles/investing/050115/how-track-upcoming-ipos.asp | How to Track Upcoming Initial Public Offerings (IPOs) | How to Track Upcoming Initial Public Offerings (IPOs)
A private company can raise capital by selling shares publicly to institutional investors and retail investors through a new stock issuance, called an initial public offering (IPO). The advantage of investing in an IPO is that investors get the benefit of picking a potentially underpriced stock early and before brokerages take large stock positions. It's important for IPO investors to track upcoming IPOs in order to capitalize on available opportunities. Below are seven sources for tracking upcoming IPOs.
Key Takeaways A private company can raise capital by selling shares publicly to institutional investors and retail investors through a new stock issuance, called an initial public offering (IPO). Investing in an IPO provides many benefits: commission-free stock positions, picking potentially underpriced companies at the start, and potentially profiting from price jumps on listing day (and in the mid- to long-term). IPO investors can track upcoming IPOs on the websites for exchanges like NASDAQ and NYSE, and these websites: Google News, Yahoo Finance, IPO Monitor, IPO Scoop, Renaissance Capital IPO Center, and Hoovers IPO Calendar.
Exchange Websites
Some of the most reliable sources of information on upcoming IPOs are exchange websites. For example, the New York Stock Exchange (NYSE) and NASDAQ both maintain dedicated sections for IPOs. NASDAQ has a dedicated section called "Upcoming IPO" and NYSE maintains an "IPO Center" section. Sourcing information directly from the exchange websites is prudent because it's official, reliable, and will be the most up-to-date information.
Exchange websites will also provide access to the official IPO prospectuses. The drawback of relying on exchange websites is that you may not get the most recent news because exchanges only update their sites after proper verification. Another limitation of using exchange websites is that they may only provide information about the issues that will be listed on their exchange. Investors must thus check different exchange sites to get a sense of all IPO opportunities.
Google News
Performing a search on Google News with relevant search terms like “IPO” can offer some of the most up-to-date news items, including analyst opinions, market commentary, and other developments for any upcoming IPO offering.
Google News is a single source for all global IPOs, regardless of the exchange or country where an IPO is listed. You can also create customized news alerts for the term “IPO” to get all the updated news delivered directly to your mailbox or RSS feed.
Yahoo Finance
Yahoo's finance portal has a dedicated IPO section with details on the IPO date, symbol, price, and links to IPO profiles and news items. It also offers performance tracking of past IPOs.
IPO Monitor
PO Monitor is a dedicated website that provides IPO-specific news for tracking IPOs. Apart from the usual IPO information, it also provides broader market-level statistics under the section called “Current IPO Market Dashboard.” This section provides information about the current number of IPOs filing, IPO withdrawals, and top performers.
IPO Monitor also offers a subscription-based service that provides subscribers with dedicated research reports on IPOs.
IPO Scoop
The website IPOScoop offers information related to upcoming IPOs. Paid subscribers also get access to SCOOP's ratings for upcoming IPOs.
Renaissance Capital IPO Center
Renaissance maintains a dedicated IPO section that has a weekly calendar for IPO offerings. It also offers other related content such as articles about the largest U.S. IPOs and the largest global IPOs, in addition to dedicated sections like “IPO News” and “IPO Poll."
The Benefits of IPO Investing
Investing in an IPO offering provides many benefits: commission-free stock positions, picking potentially underpriced companies at the start, and potentially profiting from price jumps on listing day (and in the mid- to long-term).
IPO investors can keep track of upcoming IPOs, overall market sentiment, associated news, and expert opinions by using these seven sources.
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f16f9678852c0a1aab411ec3a2b3ee84 | https://www.investopedia.com/articles/investing/050515/why-netflix-content-different-other-countries.asp | Why Netflix Content Is Different Abroad | Why Netflix Content Is Different Abroad
Netflix (NFLX) offers its streaming movie and television service in more than 190 countries. However, the content you watch at home is not always available when travelling between countries. There are several reasons why your favorite show might not be viewable when crossing borders.
Why There Are Different Shows Available in Each Country
Hollywood movie and television studios invest millions into each movie and show they make, and costs can vary widely. While independent studios churn out films for only tens of thousands of dollars, big blockbusters can cost hundreds of millions to produce and market. At the top of the list, with an estimated budget of $400 million, is Avengers: Endgame from Disney (DIS).
With so much money at stake each time a film is created, the studios do their best to strictly enforce copyright and earn as much as possible for their investments.
Studios have always sought to earn big sales at the box office, but the life of a movie after it leaves the theaters has changed dramatically over the last decade. Piracy used to only be a small problem, as it took a lot of work to replicate VHS tapes and re-sell them on the black market. But with the rise of the Internet, digital piracy and the shift from physical tapes and DVDs to online streaming has taken a toll on studio profits.
Studios have adapted by offering movies for sale through outlets including Apple’s (AAPL) iTunes Store and Amazon.com (AMZN). As Netflix has shifted from a DVD by mail service to a streaming service, their budget for digital content has increased and become an important revenue source for the studios. Netflix had $14 billion in licensed content on its balance sheet as 2018, up from $11.8 billion in 2017.
Studios enforce copyright by country, as different markets have different demands for specific content. For example, a movie that was very popular in the United States might be uninteresting in Brazil, and a hit British comedy might not be so funny to American audiences.
Netflix and the studios both understand this, and the studios charge more for Netflix to offer the streaming of specific titles in some countries compared to others. Because the content deals are country-specific, Netflix may choose to pay the studio-demanded price to stream a title in one country, while negotiations in other regions fall flat.
Why Netflix Does Not Work When You Travel
The same rules that govern which countries have access to specific content apply to global travelers. To avoid conflict with their studio partners, Netflix filters what you can see when you travel to another country. You can access that country’s Netflix library, which may differ from what you can watch at home. There are nearly 4,000 movie titles available for viewing in the U.S. But if you travel to Italy for vacation, you would have access to roughly 2,500 titles.
One way around this is to use a virtual private network (VPN). Netflix in its Terms of Use does not specifically prohibit subscribers from using a VPN, proxy or other measures to evade geographic restrictions. However, in 2016, it did say it would take steps ensure that subscribers could only access content for the country where they currently are.
The Bottom Line
Just as Netflix is in the business of streaming video to its users around the world, the studios are in the business of earning profits on their content. With current copyright laws and agreements, Netflix negotiates with each studio to arrange specific agreements to stream titles in each territory.
Netflix now reaches more than 167 million paid subscribes globally, with 100 million of that coming from outside of the U.S. Being able to offer content unfettered by geographic restrictions will play an important part in attracting and retaining new subscribers. To this end, Netflix is ramping up original content production. It had $6 billion in original content assets as of 2018, up from $2.9 billion the year before.
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4c0a82757a08c8306354c8c40b9906f2 | https://www.investopedia.com/articles/investing/050515/why-these-european-countries-dont-use-euro.asp | Why These European Countries Don't Use the Euro | Why These European Countries Don't Use the Euro
The formation of the European Union (EU) paved the way for a unified, multicountry financial system under a single currency—the euro. While most EU member nations agreed to adopt the euro, a few, like the United Kingdom, Denmark, and Sweden (among others), have decided to stick with their own legacy currencies. This article discusses the reasons why some EU nations have shied away from the euro and what advantages this may confer on their economies.
There are currently 27 nations in the European Union and of these, eight countries are not in the eurozone—the unified monetary system using the euro. Two of these countries, the United Kingdom and Denmark, are legally exempt from ever adopting the euro (the UK has voted to leave the EU, see Brexit). All other EU countries must enter the eurozone after meeting certain criteria. Countries, however, do have the right to put off meeting the eurozone criteria and thereby postpone their adoption of the euro.
EU nations are diverse in culture, climate, population, and economy. Nations have different financial needs and challenges to address. The common currency imposes a system of central monetary policy applied uniformly. The problem, however, is what’s good for the economy of one eurozone nation may be terrible for another. Most EU nations that have avoided the eurozone do so to maintain economic independence. Here's a look at the issues that many EU nations want to address independently.
Key Takeaways There are 27 countries in the European Union, but 8 of them are not in the eurozone and therefore don't use the euro. The 9 countries choose to use their own currency as a way to maintain financial independence on certain key issues. Those issues include setting monetary policy, dealing with issues specific to each country, handling national debt, modulating inflation, and choosing to devalue the currency in certain circumstances.
Drafting Monetary Policies
Since the European Central Bank (ECB) sets the economic and monetary policies for all eurozone nations, there is no independence for an individual state to craft policies tailored for its own conditions. The UK, a non-euro county, may have managed to recover from the 2007-2008 financial crisis by quickly cutting domestic interest rates in October of 2008 and initiating a quantitative easing program in March of 2009. In contrast, the European Central Bank waited until 2015 to start its quantitative easing program (creating money to buy government bonds in order to spur the economy).
Handling Country-Specific Issues
Every economy has its own challenges. Greece, for example, has high sensitivity to interest rate changes, as most of its mortgages are on a variable interest rate rather than fixed. However, being bound by European Central Bank regulations, Greece does not have the independence to manage interest rates to most benefit its people and economy. Meanwhile, the UK economy is also very sensitive to interest rate changes. But as a non-eurozone country, it was able to keep interest rates low through its central bank, the Bank of England.
9 The number of EU countries that do not use the euro as their currency; the countries are Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and the United Kingdom.
Lender of Last Resort
A country’s economy is highly sensitive to the Treasury bond yields. Again, non-euro countries have the advantage here. They have their own independent central banks which are able to act as the lender of last resort for the country’s debt. In the case of rising bond yields, these central banks start buying the bonds and in that way increase liquidity in the markets. Eurozone countries have the ECB as their central bank, but the ECB does not buy member-nation specific bonds in such situations. The result is that countries like Italy have faced major challenges due to increased bond yields.
A common currency brings advantages to the eurozone member nations, but it also means that a system of central monetary policy is applied across the board; this unified policy means that an economic structure could be put in place that is great for one country, but not as helpful for another.
Inflation-Controlling Measures
When inflation rises in an economy, an effective response is to increase interest rates. Non-euro countries can do this through the monetary policy of their independent regulators. Eurozone countries don’t always have that option. For example, following the economic crisis, the European Central Bank raised interest rates fearing high inflation in Germany. The move helped Germany, but other eurozone nations like Italy and Portugal suffered under the high-interest rates.
Currency Devaluation
Nations can face economic challenges due to periodic cycles of high inflation, high wages, reduced exports, or reduced industrial production. Such situations can be efficiently handled by devaluing the nation’s currency, which makes exports cheaper and more competitive and encourages foreign investments. Non-euro countries can devalue their respective currencies as needed. However, the eurozone cannot independently change euro valuation—it affects 19 other countries and is controlled by the European Central Bank.
The Bottom Line
Eurozone nations first thrived under the euro. The common currency brought with it the elimination of exchange rate volatility (and associated costs), easy access to a large and monetarily unified European market, and price transparency. However, the financial crisis of 2007-2008 revealed some pitfalls of the euro. Some eurozone economies suffered more than others (examples are Greece, Spain, Italy, and Portugal). Due to the lack of economic independence, these countries could not set monetary policy to best foster their own recoveries. The future of the euro will depend on how EU policies evolve to address the monetary challenges of individual nations under a single monetary policy.
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117eb34818b9e98972f2512f13410da1 | https://www.investopedia.com/articles/investing/050614/there-are-more-ways-invest-land-you-think.asp | How to Invest in Land | How to Invest in Land
It's often been recommended that people should buy land due to its scarcity. With this in mind, investors need to understand the practicality of owning land and of running a land-based business venture. They also need to be aware of the specific types of land-related investment options available through investment products such as exchange traded funds (ETFs) and exchange traded notes (ETNs).
Types of Land Investments
Independently wealthy people can purchase land for personal use, recreation, and yes, investment. Unfortunately, most people do not fall into this category. This begs the question: Are land-ownership opportunities and business ventures capable of generating an acceptable return on investment for small investors, while still affording them the joys and attributes associated with land ownership? To answer this question, you need to be able to evaluate 10 general categories of potential land investments:
Residential development landCommercial development landRow crop landLivestock-raising landTimberlandMineral production landVegetable farmlandVineyardsOrchardsRecreational land
Residential and Commercial Land Investments
Residential and commercial land development offers a feasible entryway into investment because virtually an unlimited number of land development opportunities can be structured to meet an investor’s capital and time constraints. For most small investors, real estate investment trust (REIT) ETFs are an ideal choice because they do not require direct management, they are broadly diversified by property type, they are geographically diversified, they can be purchased or sold on a real-time basis, and they are very inexpensive. Some specialize in a type of real estate, but others, such as the Vanguard REIT ETF (VNQ), provide diversified exposure to industrial, office, retail, healthcare, public storage, and residential property developments.
Unfortunately, these types of investments negate the ability of the landowner to enjoy using the land. Therefore, residential and commercial land developments are not feasible options for people that want to truly experience the feeling of land ownership.
Row Crop Land and Land for Livestock Operations
Land purchased for row-crop farming or for running a livestock operation affords the ability to enjoy land in the homeowning sense, as well as from the standpoint of generating income. However, there are a host of problems for small investors who purchase land in order to operate these types of enterprises. First, the scale required to operate a row-crop operation or livestock operation has to be very large to be financially viable. This, in turn, requires a significant upfront capital outlay far beyond what most people can afford. Moreover, the ongoing fixed costs associated with running these types of farming operations are extremely high.
This, in turn, means that the financial leverage and business risk for such operations are very high as well. As a result, a significant amount of stress is put on the landowner to make these types of business ventures financially successful. In many cases, the stress level far exceeds the benefits that people yearn for as landowners. With this in mind, it is a fair assessment to say that most small investors should avoid pursuing these types of large-scale farming operations, as the risks and hardships of such activity will likely exceed any benefits.
While owning a traditional row-crop or livestock farming operation is probably not feasible for most small investors, many agricultural investment options provide acceptable investment exposure to traditional farming enterprises. For example, some funds provide exposure to soybeans, corn, wheat, cotton, sugar, coffee, soybean oil, live cattle, feeder cattle, cocoa, lean hogs, Kansas City wheat, canola oil, and soybean meal. Therefore, by investing in this product, small investors will have broad investment exposure to traditional farming operations. This, in turn, can be used by the investor to help keep abreast of traditional farming practices, as well as to generate an attractive return on investment over time.
Small investors can also utilize a variety of exchange traded notes (ETNs) to invest in specific types of traditional farming operations. For example, the iPath Bloomberg Agriculture Subindex Total Return ETN (JJATF) provides investment exposure to soft commodities such as corn, wheat, soybeans, sugar, cotton, and coffee, and the iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW) provides investment exposure to cattle and hogs.
In terms of utilizing ETFs and ETNs as land- and agriculture-related investment options, investors need to understand that many of these types of products use derivative instruments such as futures contracts to generate market exposure. As a result, investors need to perform a thorough due diligence on these types of investments to fully understand their potential risks and rewards. Nevertheless, the use of ETFs and ETNs are likely to pose the best opportunity for engaging in traditional large-scale farming operations.
Small Farm Investment Opportunities
For small investors to truly enjoy the more traditional sense of land ownership, perhaps the best options are timber farms, mineral development lands, vegetable gardens, orchards, vineyards, and recreational land. These types of agricultural endeavors are much more attractive to small investors: The scale of the land purchase can be tailored to meet the investor’s capital constraints; operations have the potential to generate an ongoing income stream, and investors can enjoy being on the land while it is being used.
With that said, a host of ETFs and ETNs also are directly tied to these types of farming endeavors. Therefore, small investors may want to consider investing in them, if they decide that running a small-scale farming operation requires too much of their time and resources.
The Invesco MSCI Global Timber ETF (CUT) is designed to track the performance of timber companies around the world and includes holdings in firms that own or lease forested land and harvest the timber for commercial use and sale of wood-based products. In addition, the SPDR S&P Oil & Gas Exploration & Production ETF Fund (XOP) is one of the many investment options that provide exposure to mineral land development.
Issues to Consider
Once the decision has been made to purchase raw land as an investment or for development, investors need to understand many issues about the legalities associated with the use of specific parcels of property. For example, land-use restrictions may curtail the manner in which the land can be used by the owner, land easements may grant access to a portion of the property to an unrelated party, and the conveyance of mineral rights may grant an unrelated party the authorization to extract and sell minerals for financial gain.
In addition, riparian and littoral rights may stipulate the access that the landowner has to adjacent waterways, and the lay of the land may dictate if it lies in a flood plain, which would greatly impact the manner in which the land could be utilized. Fortunately, prospective land buyers can get answers to these questions by reviewing the legal specification for a parcel of land, which is found in a document known as a land deed. This type of document is typically available to the public via the internet, or it can be obtained the old-fashioned way, by visiting the land records and deeds division of the appropriate county clerk’s office.
In addition to legal issues, small investors should consider the land’s access to basic utilities such as electricity or telecommunications. Investors should also review the land’s annual property-tax obligation, assess the potential for trespassing violations, and analyze the remoteness of the land from the landowner, as well as from the nearest community. All of these issues are important, because the lack of utilities may greatly hinder the ability to utilize the land, the land's remoteness may impact the opportunities a landowner has to enjoy the property, and property taxes may impact the land owner’s finances. With these issues in mind, prospective landowners should undertake a comprehensive due-diligence assessment before deciding to purchase land.
General Overview of Land Valuation
Investors considering a raw-land purchase need to realize that they are engaging in a purely speculative investment. This is because undeveloped land does not generate any income, and therefore any return on investment will have to come from the potential capital gain that may be received once the land is sold. With this in mind, the cost of debt for a farm real-estate loan can be used to help conduct a preliminary investment analysis.
From a pure investment standpoint, raw land has a very unattractive return on investment, particularly when one considers the length of time that investors typically must own land to generate a return on investment. Plus, interest rates for farm-land loans may increase in the future, which means that the break-even rate for future land purchases will rise as well.
If the cost of debt for a farm real-estate loan does not dissuade small investors from wanting to purchase land as a speculative investment, and they truly believe they can establish a small farming operation that will meet their capital requirements, income requirements and time constraints, many valuation reports are readily available. These reports can be obtained from the agricultural departments of public state universities to help assess the feasibility of establishing a small-farm business operation. Therefore, small investors that want to establish a timber farm, vegetable farm, vineyard, or orchard should be able to find a comprehensive and timely analysis that explains how to establish these types of operations, the amount of work they will likely entail, the capital outlay required, the length of time necessary to receive a return on investment, and the likely return on investment that the small-farm operation will achieve over time.
Finally, and perhaps most importantly, investors need to understand that investing in land to operate a small-farm business enterprise is likely to be the most difficult and risky type of business venture that can be pursued. This is because, in addition to the risk found in all business endeavors, farming operations take on a host of risks that non-farm businesses do not have to deal with. Examples are the threat of a variety of crop diseases, the potential for pest infestations, an ever-changing weather environment, and unstable market prices. For these reasons, coupled with the fact that operating a small-farm business takes a significant amount of physical strength, stamina, and a very strong work ethic, the vast majority of investors will not likely be able to handle all of the farming demands on a sustainable basis.
The Bottom Line
Buying raw land is a very risky investment because it will not generate any income and may not generate a capital gain when the property is sold. Moreover, utilizing a farm real-estate loan to purchase land is very risky. With these points in mind, it is recommended that most small investors with a yearning to own land or operate a small farm business should utilize the wide variety of ETFs and ETNs which are now made available to small investors that were once only available to hedge funds. By utilizing these types of investment products, investors should be able to fulfill their desire for land-related recreational activities while generating a reasonable return on investment over time.
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f64cdcbb31a04f56cac80d881c8d594d | https://www.investopedia.com/articles/investing/050615/fiscal-vs-monetary-policy-pros-cons.asp | Fiscal Policy vs. Monetary Policy: Pros & Cons | Fiscal Policy vs. Monetary Policy: Pros & Cons
When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy or fiscal policy.
Monetary policy involves the management of the money supply and interest rates by central banks. To stimulate a faltering economy, the central bank will cut interest rates, making it less expensive to borrow while increasing the money supply. If the economy is growing too rapidly, the central bank can implement a tight monetary policy by raising interest rates and removing money from circulation.
Fiscal policy, on the other hand, determines the way in which the central government earns money through taxation and how it spends money. To assist the economy, a government will cut tax rates while increasing its own spending; to cool down an overheating economy, it will raise taxes and cut back on spending. There is much debate as to whether monetary policy or fiscal policy is the better economic tool, and each policy has pros and cons to consider.
Key Takeaways Central banks use monetary policy tools to keep economic growth in check and stimulate economies out of periods of recession.While central banks can be effective, there could be negative long-term consequences that stem from short-term fixes enacted in the present.Fiscal policy are the tools used by governments to change levels of taxation and spending to influence the economy.Fiscal policy can be swayed by politics and placating voters, which can lead to poor decisions that are not informed by data or economic theory.If monetary policy is not coordinated with fiscal policy enacted by governments, it can undermine efforts as well.
An Overview of Monetary Policy
Monetary policy refers to the actions taken by a country's central bank to achieve its macroeconomic policy objectives. Some central banks are tasked with targeting a particular level of inflation. In the United States, the Federal Reserve Bank (the Fed) has been established with a mandate to achieve maximum employment and price stability. This is sometimes referred to as the Fed's "dual mandate." Most countries separate the monetary authority from any outside political influence that could undermine its mandate or cloud its objectivity. As a result, many central banks, including the Federal Reserve, are operated as independent agencies.
When a country's economy is growing at such a fast pace that inflation increases to worrisome levels, the central bank will enact restrictive monetary policy to tighten the money supply, effectively reducing the amount of money in circulation and lowering the rate at which new money enters the system. Raising the prevailing risk-free interest rate will make money more expensive and increase borrowing costs, reducing the demand for cash and loans. The Fed can also increase the level of reserves commercial and retail banks must keep on hand, limiting their ability to generate new loans. Selling government bonds from its balance sheet to the public in the open market also reduces the money in circulation. Economists of the Monetarist school adhere to the virtues of monetary policy.
When a nation's economy slides into a recession, these same policy tools can be operated in reverse, constituting a loose or expansionary monetary policy. In this case, interest rates are lowered, reserve limits loosened, and bonds are purchased in exchange for newly created money. If these traditional measures fall short, central banks can undertake unconventional monetary policies such as quantitative easing (QE).
Monetary Policy Pros and Cons
Pros Interest Rate Targeting Controls Inflation A small amount of inflation is healthy for a growing economy as it encourages investment in the future and allows workers to expect higher wages. Inflation occurs when the general price levels of all goods and services in an economy increases. By raising the target interest rate, investment becomes more expensive and works to slow economic growth a bit. Can Be Implemented Fairly Easily Central banks can act quickly to use monetary policy tools. Often, just signaling their intentions to the market can yield results. Central Banks Are Independent and Politically Neutral Even if monetary policy action is unpopular, it can be undertaken before or during elections without the fear of political repercussions. Weakening the Currency Can Boost Exports Increasing the money supply or lowering interest rates tends to devalue the local currency. A weaker currency on world markets can serve to boost exports as these products are effectively less expensive for foreigners to purchase. The opposite effect would happen for companies that are mainly importers, hurting their bottom line. Cons Effects Have a Time LagEven if implemented quickly, the macro effects of monetary policy generally occur after some time has passed. The effects on an economy may take months or even years to materialize. Some economists believe money is "merely a veil," and while serving to stimulate an economy in the short-run, it has no long-term effects except for raising the general level of prices without boosting real economic output. Technical Limitations Interest rates can only be lowered nominally to 0%, which limits the bank's use of this policy tool when interest rates are already low. Keeping rates very low for prolonged periods of time can lead to a liquidity trap. This tends to make monetary policy tools more effective during economic expansions than recessions. Some European central banks have recently experimented with a negative interest rate policy (NIRP), but the results won't be known for some time to come. Monetary Tools Are General and Affect an Entire Country Monetary policy tools such as interest rate levels have an economy-wide impact and do not account for the fact some areas in the country might not need the stimulus, while states with high unemployment might need the stimulus more. It is also general in the sense that monetary tools can't be directed to solve a specific problem or boost a specific industry or region. The Risk of HyperinflationWhen interest rates are set too low, over-borrowing at artificially cheap rates can occur. This can then cause a speculative bubble, whereby prices increase too quickly and to absurdly high levels. Adding more money to the economy can also run the risk of causing out-of-control inflation due to the premise of supply and demand: if more money is available in circulation, the value of each unit of money will decrease given an unchanged level of demand, making things priced in that money nominally more expensive.
Pros and Cons of Fiscal Policy
Fiscal policy refers to the tax and spending policies of a nation's government. A tight, or restrictive fiscal policy includes raising taxes and cutting back on federal spending. A loose or expansionary fiscal policy is just the opposite and is used to encourage economic growth. Many fiscal policy tools are based on Keynesian economics and hope to boost aggregate demand.
Pros Can Direct Spending To Specific PurposesUnlike monetary policy tools, which are general in nature, a government can direct spending toward specific projects, sectors or regions to stimulate the economy where it is perceived to be needed to most. Can Use Taxation to Discourage Negative ExternalitiesTaxing polluters or those that overuse limited resources can help remove the negative effects they cause while generating government revenue. Short Time LagThe effects of fiscal policy tools can be seen much quicker than the effects of monetary tools. Cons May Be Politically MotivatedRaising taxes can be unpopular and politically dangerous to implement. Tax Incentives May Be Spent on ImportsThe effect of fiscal stimulus is muted when the money put into the economy through tax savings or government spending is spent on imports, sending that money abroad instead of keeping it in the local economy. Can Create Budget DeficitsA government budget deficit is when it spends more money annually than it takes in. If spending is high and taxes are low for too long, such a deficit can continue to widen to dangerous levels.
The Bottom Line
Monetary and fiscal policy tools are used in concert to help keep economic growth stable with low inflation, low unemployment, and stable prices. Unfortunately, there is no silver bullet or generic strategy that can be implemented as both sets of policy tools carry with them their own pros and cons. Used effectively however, the net benefit is positive to society, especially in stimulating demand following a crisis.
(For related reading, see "Monetary Policy vs. Fiscal Policy: What's the Difference?")
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ade41f73d4cfdaaf024d7a4e353e1fdc | https://www.investopedia.com/articles/investing/050715/economics-tesla-batteries.asp | The Economics of Tesla’s Batteries Business | The Economics of Tesla’s Batteries Business
Tesla, Inc. (TSLA) is a U.S. automotive and energy company based in Palo Alto, California. The company manufactures electric cars and solar panels as well as batteries and aeronautics. Tesla's CEO Elon Musk heightened Tesla's visibility in late 2018 with an SEC lawsuit. The lawsuit alleged that Musk made "false and misleading statements" on Twitter about the possibility of taking the company private.
Tesla's share price fell by approximately 10% following the news of the lawsuit. Tesla is also struggling to turn a profit. Through May 2020, it has a five-year annualized average operating margin of -8.39% and a net margin of -11.27%.
In general, Tesla is only considered a slightly risky stock with a three-year annualized beta of 1.29. One of its manufactured products, batteries, deserves some attention. Supplier relationships and how batteries revenue is doing overall can be an important matter for Tesla as well as its shareholders.
Key Takeaways Tesla entered the electric batteries market more prominently in 2015.The 2015 Tesla Energy announcement debuted an electric home battery and an electric grid battery solution.Tesla partners with Panasonic, who works jointly in Tesla’s Gigafactory to help the company produce all of its batteries.
Tesla’s Endeavors
Elon Musk is the founder of Tesla, the world's first independent global electric car company. Musk also built the first viable private spaceflight company, SpaceX, which sends rockets into space to restock the international space station. He is also developing a high-speed underground transportation system linking Los Angeles to San Francisco called the Hyperloop.
When people complained that Tesla's all-electric cars were too expensive for the middle class and that their driving range between charges was too short, Musk promised to work with battery manufacturers to cut costs and improve efficiency. When progress with its battery suppliers was too slow, Tesla took steps to get into the battery business more deeply. Then, in 2015, Elon Musk announced the company was going to start making solar batteries. The 2015 announcement helped to shore up more bargaining power with suppliers, while also introducing Tesla’s own lines of electric, solar batteries.
Understanding Current Batteries
Batteries are solid-state devices that store and release electrical current, powering an array of consumer electronics, cars, home utilities, and other devices. Lithium-ion (LiOn) is the key ingredient in most batteries. LiOn is also the main component of most rechargeable batteries. Rechargeable batteries have become widely used in many applications. Different variations of them can now be found in everything from mobile phones and tablets to laptop computers and electric vehicles.
While microchips and integrated circuits have become exponentially more powerful, smaller and cheaper battery technology has lagged. Improvements in LiOn batteries have been small and incremental.
In a modern smartphone, the computational effort is packed into a tiny portion of the device while the battery takes up most of the available space. The battery is also a large factor in the total cost of the device. For electric vehicles, the problem is compounded. Electric cars are essentially an array of battery packs on wheels. Under the hood, you will find batteries and a battery-charged motor, which alleviates the need for any gas.
Lithium, however, can be an unstable substance. Therefore the batteries must be built carefully so that they avoid damage during a typical car accident. Even small amounts of exposure to air or water can make lithium burst into flames. Ensuring that each battery is properly sealed and secured is an added cost.
Tesla’s Car Batteries
Beginning solar battery manufacturing in 2015 helped bring Tesla more powerfully into the electric battery business. This also gave it a little more leverage in the production of its own car batteries.
As of 2020, Tesla partners with Panasonic for its car battery building. Panasonic also supports the efforts of all battery manufacturing in Tesla’s Gigafactory. The partnership gives Panasonic a significant portion of space in the Gigafactory, which makes transporting Panasonic’s contributions simplified for the overall manufacturing process.
Tesla is looking to reduce some of its dependence on Panasonic. Its growing foothold in the batteries business has helped it to increasingly improve the cost structure for its cars while also maintaining a pretty big lead ahead of its competitors.
The Tesla Energy Batteries Announcement
Elon Musk’s May 2015 announcement was much anticipated. In May 2015, Musk announced Tesla Energy, expanding the company’s capabilities into a new reporting segment, now called Energy Generation and Storage. Its two inaugural products were a home battery and a grid battery.
The new batteries build out the concept of electric storage. To support Tesla Energy Generation and Storage, the company has built an enormous battery factory (appropriately named a Gigafactory) in the Nevada desert. Its vision suggests as many as 10 Gigafactories around the world.
6% In 2019, Energy Generation and Storage brought in $1.5 billion, accounting for 6% of Tesla’s revenue. Automotive revenue brought in $20.8 billion, accounting for 85%.
Tesla's Powerwall
The Powerwall is the home battery. The first-generation Powerwall was launched in 2015. An updated Powerwall 2.0 was announced in October 2016 with twice the storage capacity of the original. In 2020, two Powerwall batteries with supporting hardware cost $14,100. Installation can also cost anywhere from $2,000 to $8,000, according to EnergySage, a platform that researches and compares solar installation prices and companies.
To install the Powerwall as part of a solar-plus-storage system requires an energy system like solar. An average of 5 kilowatts (kW) solar energy system costs between $8,500 to $16,000 depending on the location and the equipment.
Although it might be costlier than other options in the initial stages, installing a solar-plus-storage system can be a worthwhile investment. The Powerwall can be used as a backup generator. Tesla owners can also use Powerwall for the home as well as charging their electric vehicles.
Tesla's Powerpack
The Powerpack is a grid battery. This battery is intended to provide electric energy for much more than just a single home. One of the greatest advantages is the ability to potentially take an entire interconnected ecosystem entirely off the grid. The Powerpack is also known for its extraordinary backup capabilities.
The complexities of the Powerpack limit its use on a large scale. Some of its users include the following:
A luxury lodge in South AfricaA resort in FijiApplication by Southern California EdisonThe Hawaiian island of Kaua’iOthers
Competition in Electric Batteries
Tesla relies heavily on Panasonic for all of its battery manufacturing and especially for its car batteries. Other electric car manufacturers are also making inroads.
In-home and grid batteries, Tesla is not the only manufacturer. In home-powered solar batteries, Tesla competes with LG, Orison, Sonnen, SimpliPhi Power, and Sunverge. In electric grid energy, the contenders include Strata Solar, AES, and NextEra.
Electric car batteries and solar-powered battery charging are technologies that are evolving. For car buyers, a Tesla car still ranks at the luxury sportscar level when it comes to price, but these prices are falling. For home and grid energy, the goal is to reduce costs through stored energy. Home and grid costs can be significantly reduced when stored energy is used but manufacturing and installation costs still make the implementation cost high which requires longevity for an actual return on the investment.
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c1fb39b0934e93bfd7232d18e9d481c5 | https://www.investopedia.com/articles/investing/050815/fundamentals-how-brazil-makes-its-money.asp | Fundamentals Of How Brazil Makes Its Money | Fundamentals Of How Brazil Makes Its Money
If you were to ask a Brazilian how it is they make money, they will likely begin by telling you about the wage they earn for working a certain number of hours at their job. They may even go on to tell you about the business, or the piece of land, or even the government bonds they own, all of which pay a certain amount of money in the form of profit, rent, and interest respectively. Looking at all these Brazilians in aggregate we can see how it is that Brazil makes its money since Brazil’s income is just the sum total of all its individual citizens’ incomes.
At this aggregate level we find that Brazil has a lot going for it in that it is endowed with both an abundance of natural resources and people, but just as individuals may be endowed with certain natural talents, it is ultimately how these talents are managed and developed that determine income. Examining the fundamentals of how Brazil earns its income we find that while having an abundance of resources, including people, the country needs to begin to refocus its management and development strategies.
Brazil’s Income vs. the Brazilian’s Income
We may be tempted to think that Brazil must be doing relatively well with its management and development strategies, considering that its total income (i.e. GDP) was the seventh largest in the world in 2013 at $2.246 trillion. That’s a lot of money, making Brazil a major player in the global economy.
Yet, considering Brazil’s total population (approximately 200.4 million in 2013), the average Brazilian income (i.e. GDP per capita) is relatively small at only about $11,208 in 2013. This ranks it 63rd globally, according to the most recent data from the World Bank.
Although Brazil’s income is relatively large, the relative smallness of its individual citizens’ income suggests that productivity improvements could be made. Before considering some of these improvements let’s first take a look at what it is that Brazilians do to make money. (For more, see: Investing In Brazil 101.)
Brazil’s Income Decomposed
Decomposing Brazil’s income, we find that it is derived from the following three sectors: agriculture, industry, and services. According to 2014 estimates, 5.8% of Brazil’s income came from agriculture, 23.8% from industry, and 70.4% from services.
A further decomposition shows that the agriculture sector is comprised of coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus, and beef; the industry sector is comprised of textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, and other machinery and equipment; and finally, the service sector is comprised of hospitality, finance, IT BPO, retail sales, and personal services.
The work done in these sectors determines the supply of goods and services to both domestic and foreign consumers. In turn, the spending from these consumers results in income for Brazil’s workers. Yet, it is primarily domestic consumption that is responsible for supplying Brazil’s workforce with income as the country’s total exports comprised only 12.6% of GDP in 2013. We now examine the fundamentals of this consumer demand in recent years.
The Boom: Increases in Foreign and Domestic Demand
The recent explosion in Chinese growth fueled a global commodity boom from 2003 to 2011. As China is Brazil’s leading foreign consumer, this boom had significant benefits to Brazil’s exports, the value of which increased by approximately 250% over the same period.
Brazil’s economic climate during this time also helped attract large capital flows, leading to an enormous expansion of consumer credit. Domestic consumption rose significantly as household debt increased from 20% of personal income to 43% between 2005 and 2012.
Government spending also helped fuel consumption growth. Spending from the government, largely fueled by higher taxes and increased debt, increased between 2002 and 2013 from 15.7% of GDP to 18.9%.
Thus, much of the strong economic growth witnessed by Brazil in the first decade of the 21st century was primarily due to external factors and not to the country’s prudent management and development strategies. As we shall see, these external factors soon dried up, revealing the real intrinsic weakness of Brazil’s economy. (For more, see: Economic Indicator Sources for Brazil.)
The Downturn: Lower Demand
Currently, all Latin American economies are experiencing a decline in growth due to the end of the global commodity boom cycle, slower growth in China, and a decrease in capital flows to emerging economies. Brazil is no exception. What is obvious now is that the country cannot simply wait things out in hopes that these external factors will reignite.
For one, the higher prices fueled by the commodity boom are an exception to their long term historical trend. In real terms, there has been a definite downward trend of commodity prices since 1913. The recent fall in commodity prices between 2011 and 2014 has actually brought them back in line with this long term trend and are thus unlikely to return to the high levels characteristic of the period between 2003 to 2011 in the near future.
Further, government spending appears somewhat handicapped as Brazil’s fiscal accounts have significantly worsened. In fact, one rating agency recently downgraded Brazil’s sovereign credit rating from stable to negative while keeping the country at the second-lowest investment grade rating of BBB. This downgrade comes despite the government’s recent actions to cut spending and raise taxes.
These austere measures take their toll on the individual consumer’s disposable income, of which a large proportion is already used to service consumer debt. Consumers will not be taking on more debt any time soon and thus the debt-fueled consumption of recent years has come to an end.
All of these factors are contributing to serious difficulties for Brazil’s economy and are highlighting the weaknesses that may have been hidden during the country’s strong growth during the first decade of this century. The only way to improve is to refocus on prudent management and development strategies.
Moving Forward: Improvements for Income Growth
As evidenced by Brazil’s relatively low GDP per capita noted above, the country needs to focus its energy on increasing productivity, which will in turn increase its international competitiveness. In fact, a recent competitiveness study ranked Brazil 15th among 16 peer nations, and the country has been at the bottom of these rankings for the past three years.
There are several development improvements Brazil could undertake to increase its competiveness. According to McKinsey & Company, these improvements include increasing investment, promoting closer integration with major markets, upgrading infrastructure that will connect Brazil to the rest of the world, lowering regulatory costs, improving public sector efficiency, and improving education and training.
The Bottom Line
Brazil has a lot going for it as it has an abundance of natural resources and people. Yet, as recent events have shown, having an abundance of these things does not necessarily mean strong incomes for citizens. These resources must be appropriately managed and developed. Brazil has some of the fundamental components of what it takes to make money, but if it wants to truly improve the lives of its citizens then it will need to develop greater productivity and increase its international competitiveness.
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9e83ce0fd8280bce4b09e869a00691d9 | https://www.investopedia.com/articles/investing/051215/how-invest-huawei.asp | Can You Invest in China's Huawei? | Can You Invest in China's Huawei?
Ren Zhengfei, a former officer of the People's Liberation Army, founded Huawei (pronounced Wah-Way) in 1987. Since then, the Shenzhen, China-based company has become one of the world's largest smartphone makers next to Apple (AAPL) and Samsung. The company also makes other consumer electronics and builds communication equipment and infrastructure. It has become a multinational giant with more than $126 billion in revenues in 2019.
On Nov. 12, 2020, former President Donald Trump signed an executive order forbidding U.S. investors from investing in companies that he designated "Communist Chinese military companies." The ban takes effect at 9:30 a.m. on Jan. 11, 2021 and currently includes 31 companies listed here.
Despite impressive growth, Huawei remains a private entity fully owned by company employees. That means the company is not traded on any public market and that people other than current employees cannot invest in it. Despite the inability to invest in Huawei, investors may still want to keep an eye on one of the world's largest smartphone producers.
Where Does Huawei Do Business?
Beyond making smartphones, Huawei builds telecommunications networks and services and provides solutions to enterprise customers. As of 2019, Huawei had more than 190,000 employees in more than 170 countries. It conducts the majority of its business in China and EMEA (Europe, the Middle East, Africa, and the Asia-Pacific region).
Key Takeaways Huawei is a multinational company that makes consumer electronics and communication equipment.Despite impressive growth, the company is 100% owned by employees and has never had a public offering.Huawei has been the subject of much controversy as U.S. officials suspect that the Chinese government is actively involved in the business.With the exception of the America's, Huawei continues to see rapid sales growth across all regions.There are no signs that the company plans an initial public offering or to list shares in the U.S.
While it's helpful to know where Huawei does business, it's far more telling to know where it doesn't. Global skepticism about Huawei has grown in recent years, following a 2012 congressional report that highlighted the security risks of using the company's equipment.
In addition, while the company claims that it is 100% owned by employees, U.S. officials are skeptical that the Chinese government and the Communist Party might be calling the shots at Huawei. A Chinese law requiring Chinese companies to assist in national intelligence networks passed in 2017 added to those concerns.
Many companies have already ceased using Huawei products. In Jan. 2018, large U.S. mobile companies like AT&T and Verizon stopped using Huawei's products in their networks; in August, Australia decided not to use the company's technology as it builds out its country-wide 5G mobile networks; and in November, New Zealand prevented Spark, one of the country's biggest telecom companies, from using Huawei products in its 5G network. Despite these governmental roadblocks, Huawei can still conduct business with private companies in each of these countries.
In December 2018, Canadian officials arrested Meng Wanzhou, the chief financial officer of Huawei and the daughter of the company's founder, on the request of the U.S. government. On Jan. 28, 2019, the U.S. government officially filed a formal request for her extradition, alleging that she violated U.S. sanctions against Iran. The U.S. also banned Huawei from doing business with U.S. companies due to the sanctions violations.
In June 2019, Trump lifted the restrictions on Huawei as part of ongoing U.S.-China trade war negotiations. Nevertheless, Huawei announced plans to cut 600 jobs in Santa Clara, Calif. and, by Dec. 2019, had made the decision to move the center to Canada.
How Does Huawei Make Money?
Huawei operates in the carrier, enterprise, and consumer segments of the market. Because the company is not public, it is not traded on any stock market and is not required to submit filings to the Securities Exchange Commission (SEC). The company still reports its numbers on a regular basis, however.
In its 2018 annual report, the company said that total revenue was $107 billion, up 19.5% from a year earlier. Profits jumped 25%. The company said it sold more than 200 million smartphones in 2018, which represents an impressive increase from the 3 million sold in 2010.
Huawei reported that business in China—by far its largest market—rose 19% in 2018. Business in the Asia Pacific region grew 15%, it rose 24.2% in EMEA, while its business in the Americas—the smallest market—fell 7% and showed a decline for a second consecutive year.
Why Can't You Invest in Huawei?
Huawei is privately held by the company's China-based employees only, but anyone working for the company outside of China cannot buy into the company. The company's shareholders admit, however, that they don’t understand the company's structure, are not provided updated information on their holdings, and have no voting power. Thirty-three union members elect nine candidates to attend the annual shareholder meeting. Shareholders receive dividend payments, and they have the potential to earn bonuses based on performance. Their salaries also are reviewed on an annual basis.
In 2014, upper management at Huawei was asked if it would consider a stock market listing, but the idea was rejected. Huawei's debut on the public market can't be completely ruled out in the future, though, especially if the company is in need of additional capital in the future. It’s not likely that Huawei could list in the United States, partly because of its poor relationship with the country and the company's growing reputation for using technology to spy on users.
As far as investing in Huawei goes, right now there's only one potential solution—but it’s far-fetched. In order to received dividends, you would have to become an employee of the company in Shenzhen, China, and you would have to make management believe you aren't a spy. Good luck.
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4b120f4b95a8f04d2fce9d60b8e9c75f | https://www.investopedia.com/articles/investing/051215/marijuana-stock-valuation.asp | Marijuana Stock Valuation | Marijuana Stock Valuation
A total of 35 states and the District of Columbia have laws broadly legalizing marijuana in some form as of November 2020. This relatively new legalization allows dozens of new companies that specialize in the plant to emerge. Some of those companies have gone public and offer a new investment niche—pot stocks. But how do you know if you are getting a good deal? How are these stocks even valued? If you want to get in on (nearly) the ground floor of marijuana stocks, keep reading. But remember, as with all new industries and new stocks, investing is risky and one act of legislation could render the companies worthless.
What Are Marijuana Stocks?
Most of the products we know and love are owned by publicly-traded companies. The soft drink industry has Coke (KO) and Pepsi (PEP), beer has Anheuser-Busch (BUD) and Molson Coors (TAP), and tobacco has Phillips Morris (PM) and the like. Now that it's legal in many places around the country, marijuana also has companies that specialize in the product. When those companies issue stock, they are considered marijuana stocks.
Growers are just one sub-sector of this industry. These companies specialize in growing marijuana plants. Once harvested, they sell their plants to distributors who are then responsible for everything else down the line. However, they aren't the only companies that specialize in weed stocks. There are also pharmaceutical companies like Vancouver-based Abattis Bioceuticals and London-based GW Pharmaceuticals (GWPH).
In fact, dozens of publicly traded companies have their roots in the marijuana industry. The problem, however, is that very few of these companies have high valuations.
How Are Pot Stocks Valued?
In order to better understand the valuation of pot stocks, we need to know a little bit about how all stocks are valued. When a company plans to go public with their stock, they hire an underwriter—usually huge investment banks like Goldman Sachs—that analyzes the company to determine its worth. From that point, the underwriter works with the company's executives to determine a stock price.
Let’s suppose XYZ Company is determined to be worth $100 million. They want to raise some money, so they go public and plan to sell shares, raising $40 million. Working with the underwriter, they decide to sell four million shares at a starting price of $10 per share. Based on the company’s worth, the number of shares, and the portion of the company that will be made available, they reach a stock valuation of $10 per share. Now keep in mind that as soon as the company goes public, that price starts to move—some based largely on speculation—and the valuation changes.
The problem we run into with marijuana stocks is that very few cannabis companies are worth $100 million. In fact, there aren't many that are worth even close to that. For instance, Abattis Bioceuticals has a market capitalization of just $1.19 million. This leaves the problem that most marijuana stocks are traded as over-the-counter (OTC) and they're barely regulated.
Problematic Pot Stock Valuations
Buying a stock with a decent valuation means a couple of different things. First, you need a company with a long history. These companies have had time to grow and perfect their business models. The marijuana industry is simply too young to allow for that. The other way to buy stock with a decent valuation is to go with a company that has specializations outside of the marijuana market, as with GW Pharmaceuticals They rely heavily on marijuana—and incorporating the THC into various other pharmaceuticals—but it is not their only area of expertise.
What we are left with are penny stocks. These are stocks that trade at less than $1 per share—some even less than 1 penny per share. This leaves the investment niche open to fraud.
There are a few key problems with penny stocks. First, they aren't listed on any major stock exchange, which leads to very little oversight. But that in and of itself isn’t the problem. The bigger issue is that in order to get to the penny stock level, the company either starts out at a higher valuation and its stocks steadily decline in value until they are stuck at a valuation of less than $1 per share, or the company has a market cap that is too low for the number of shares available. Either way, it is considered to be at risk of dying off, possibly soon.
Where Is This Heading?
According to most theorists, the legalization of marijuana is just beginning. As the years roll on, it is a largely held belief that more states will relax their laws and allow recreational use of the drug. This means that the companies already in the game will be able to sell to a larger market. It also means that there will be more competition, which is a good thing.
While countries like Canada and Uruguay have fully legalized marijuana, individual states are moving slowly toward that direction. As of November 2020, 35 states and the District of Columbia legalized weed to some degree. But don't expect much movement from the federal government just yet, where it remains a controlled substance.
The Bottom Line
Marijuana stocks can be quite lucrative for the savvy investor. But you have to be able to weed out poor performers from the companies that will still be around and flourish when the laws are relaxed. You may want to look over the Viridian Cannabis Industry Report and Stock Index as a good starting point.
For those who hope to capitalize on the marijuana industry and reduce their risk, there are dozens of industries whose reach extends beyond pot but are still related to the plant. Agriculture companies, tobacco companies, and pharmaceutical companies all stand to gain if marijuana becomes legal in all 50 states.
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43a7e933226fe6034d348b3c7a23f243 | https://www.investopedia.com/articles/investing/051315/present-value-different-bond-types-using-excel.asp | How to Calculate PV of a Different Bond Type With Excel | How to Calculate PV of a Different Bond Type With Excel
A bond is a type of loan contract between an issuer (the seller of the bond) and a holder (the purchaser of a bond). The issuer is essentially borrowing or incurring a debt that is to be repaid at "par value" entirely at maturity (i.e., when the contract ends). In the meantime, the holder of this debt receives interest payments (coupons) based on cash flow determined by an annuity formula. From the issuer's point of view, these cash payments are part of the cost of borrowing, while from the holder's point of view, it's a benefit that comes with purchasing a bond.
The present value (PV) of a bond represents the sum of all the future cash flow from that contract until it matures with full repayment of the par value. To determine this—in other words, the value of a bond today—for a fixed principal (par value) to be repaid in the future at any predetermined time—we can use a Microsoft Excel spreadsheet.
Bond Value = ∑ p = 1 n PVI n + PVP where: n = Number of future interest payments PVI n = Present value of future interest payments PVP = Par value of principal \begin{aligned} &\text{Bond Value} = \sum_{ p = 1 } ^ {n} \text{PVI}_n + \text{PVP} \\ &\textbf{where:} \\ &n = \text{Number of future interest payments} \\ &\text{PVI}_n = \text{Present value of future interest payments} \\ &\text{PVP} = \text{Par value of principal} \\ \end{aligned} Bond Value=p=1∑nPVIn+PVPwhere:n=Number of future interest paymentsPVIn=Present value of future interest paymentsPVP=Par value of principal
Specific Calculations
We will discuss the calculation of the present value of a bond for the following:
A) Zero Coupon Bonds
B) Bonds with annual annuities
C) Bonds with bi-annual annuities
D) Bonds with continuous compounding
E) Bonds with dirty pricing
Generally, we need to know the amount of interest expected to be generated each year, the time horizon (how long until the bond matures), and the interest rate. The amount needed or desired at the end of the holding period is not necessary (we assume it to be the bond's face value).
A. Zero Coupon Bonds
Let's say we have a zero coupon bond (a bond which does not deliver any coupon payment during the life of the bond but sells at a discount from the par value) maturing in 20 years with a face value of $1,000. In this case, the bond's value has decreased after it was issued, leaving it to be bought today at a market discount rate of 5%. Here is an easy step to find the value of such a bond:
Here, "rate" corresponds to the interest rate that will be applied to the face value of the bond.
"Nper" is the number of periods the bond is compounded. Since our bond is maturing in 20 years, we have 20 periods.
"Pmt" is the amount of the coupon that will be paid for each period. Here we have 0.
"Fv" represents the face value of the bond to be repaid in its entirety at the maturity date.
The bond has a present value of $376.89.
B. Bonds with Annuities
Company 1 issues a bond with a principal of $1,000, an interest rate of 2.5% annually with maturity in 20 years and a discount rate of 4%.
The bond provides coupons annually and pays a coupon amount of 0.025 x 1000= $25.
Notice here that "Pmt" = $25 in the Function Arguments Box.
The present value of such a bond results in an outflow from the purchaser of the bond of -$796.14. Therefore, such a bond costs $796.14.
C. Bonds with Bi-annual Annuities
Company 1 issues a bond with a principal of $1,000, an interest rate of 2.5% annually with maturity in 20 years and a discount rate of 4%.
The bond provides coupons annually and pays a coupon amount of 0.025 x 1000 ÷ 2= $25 ÷ 2 = $12.50.
The semiannual coupon rate is 1.25% (= 2.5% ÷ 2).
Notice here in the Function Arguments Box that "Pmt" = $12.50 and "nper" = 40 as there are 40 periods of 6 months within 20 years. The present value of such a bond results in an outflow from the purchaser of the bond of -$794.83. Therefore, such a bond costs $794.83.
D. Bonds with Continuous Compounding
Example 5: Bonds with continuous compounding
Continuous compounding refers to interest being compounded constantly. As we saw above, we can have compounding that is based on an annual, bi-annual basis or any discrete number of periods we would like. However, continuous compounding has an infinite number of compounding periods. The cash flow is discounted by the exponential factor.
E. Dirty Pricing
The clean price of a bond does not include the accrued interest to maturity of the coupon payments. This is the price of a newly issued bond in the primary market. When a bond changes hands in the secondary market, its value should reflect the interest accrued previously since the last coupon payment. This is referred to as the dirty price of the bond.
Dirty Price of the Bond = Accrued Interest + Clean Price. The net present value of the cash flows of a bond added to the accrued interest provides the value of the Dirty Price. The Accrued Interest = ( Coupon Rate x elapsed days since last paid coupon ) ÷ Coupon Day Period.
For example:
Company 1 issues a bond with a principal of $1,000, paying interest at a rate of 5% annually with a maturity date in 20 years and a discount rate of 4%. The coupon is paid semi-annually: Jan 1 and July 1. The bond is sold for $100 on April 30, 2011. Since the last coupon was issued, there have been 119 days of accrued interest. Thus the accrued interest = 5 x (119 ÷ (365 ÷ 2) ) = 3.2603.
The Bottom Line
Excel provides a very useful formula to price bonds. The PV function is flexible enough to provide the price of bonds without annuities or with different types of annuities, such as annual or bi-annual.
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993f00f90cbf340f8d2a36332231effd | https://www.investopedia.com/articles/investing/051316/book-value-share-banks-it-good-measure-jpm-bac.asp | Book Value per Share for Banks: Is It a Good Measure? | Book Value per Share for Banks: Is It a Good Measure?
Bank stocks are notorious for trading at prices below book value per share, even when a bank's revenue and earnings are on the rise. As banks grow larger and expand into nontraditional financial activities, especially trading, their risk profiles become multidimensional and more difficult to construct, increasing business and investment uncertainties.
This is presumably the main reason why bank stocks tend to be conservatively valued by investors who must be concerned about a bank's hidden risk exposures. Trading for their own accounts as dealers in various financial derivatives markets exposes banks to potentially large-scale losses, something investors have decided to take into full consideration when valuing bank stocks.
Key Takeaways The book value per share is a company's book value for every common share outstanding. The book value is the difference between total assets and liabilities.Bank stocks tend to trade at prices below their book value per share as the prices take into consideration the increased risks from a bank's trading activities.The price to book (P/B) ratio is used to compare a company's market cap to its book value. This provides a comparison of share price to assets and liabilities rather than earnings, which can fluctuate more often, particularly through trading activities.An above-one P/B ratio means the stock is being valued at a premium in the market to equity book value, whereas a below-one P/B ratio means the stock is being valued at a discount to equity book value.Companies that have large trading activities usually have P/B ratios below one, because the ratio takes into consideration the inherent risks of trading.
Book Value per Share
Book value per share is a good measure to value bank stocks. The price-to-book (P/B) ratio is applied with a bank's stock price compared to equity book value per share, meaning that the ratio looks at a company's market cap in comparison to its book value.
The alternative of comparing a stock's price to earnings, or price-to-earnings (P/E) ratio, may produce unreliable valuation results, as bank earnings can easily swing back and forth in large variations from one quarter to the next due to unpredictable, complex banking operations.
Using book value per share, the valuation is referenced to equity that has less ongoing volatility than quarterly earnings in terms of percentage changes because equity has a much larger base, providing a more stable valuation measurement.
Banks With Discount P/B Ratio
The P/B ratio can be above or below one, depending on whether a stock is trading at a price more than or less than equity book value per share. An above-one P/B ratio means the stock is being valued at a premium in the market to equity book value, whereas a below-one P/B ratio means the stock is being valued at a discount to equity book value. For instance, Capital One Financial (COF) and Citigroup (C) had P/B ratios of 0.92 and 0.91, respectively, as of Q3 2018.
Proprietary trading in banks can lead to substantial profits, but trading, particularly derivatives, comes with significant amounts of risk, often through leverage, that must be taken into consideration when evaluating a bank.
Many banks rely on trading operations to boost core financial performance, with their annual dealer trading account profits all in the billions. However, trading activities present inherent risk exposures and could quickly turn to the downside.
Wells Fargo & Co. (WFC) in 2018 saw its stock trading at a premium due to its equity book value per share, with a P/B ratio of 1.42 in Q3 2018. One reason for this was that Wells Fargo was relatively less focused on trading activities than its peers, potentially reducing its risk exposures.
Valuation Risks
While trading mostly derivatives can generate some of the biggest profits for banks, it also exposes them to potentially catastrophic risks. A bank's investments in trading account assets can reach hundreds of billions of dollars, taking a large chunk out of its total assets.
For the fiscal quarter ending Sept. 30, 2018, Bank of America (BAC) saw its equity trading revenue up 2.5% to $1 billion, while its fixed-income trading fell by 5% to $2.06 billion over the same period. Moreover, trading investments are only part of a bank's total risk exposures when banks can leverage their derivatives trading to almost unimaginable amounts and keep them off the balance sheets.
For example, at the end of 2017, Bank of America had total derivatives risk exposure of more than $30 trillion, and Citigroup had more than $47 trillion. These stratospheric numbers in potential trading losses dwarf their total market caps at the time of $282 billion and $173 billion for the two banks, respectively.
Faced with such a magnitude of risk uncertainty, investors are best served to discount any earnings coming out of a bank's derivatives trading. Despite being partly responsible for the extent of the 2008 market crash, banking regulation has been minimized over the past few years, leading banks to take on increasing risks, expand their trading books, and leverage their derivatives positions.
The Bottom Line
Banks and other financial companies may have attractive price-to-book ratios, putting them on the radar for some value investors. However, upon closer inspection, one should pay attention to the enormous amount of derivatives exposure that these banks carry. Of course, many of these derivatives positions offset each other, but a careful analysis should be undertaken nonetheless.
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796e065b82e741cdddddb4624c693088 | https://www.investopedia.com/articles/investing/051515/impact-exchange-rates-japans-economy.asp | The Impact of Exchange Rates on Japan's Economy | The Impact of Exchange Rates on Japan's Economy
There have been violent swings between the Japanese yen and its exchange rate with other currencies in the past 30 years. In the early 1980s, the yen typically traded somewhere in a band between 200 and 270 per dollar. But in September 1985, the world's major Western economies gathered in New York and decided to devalue the dollar, an agreement that became known as the Plaza Accord. The Plaza Accord set off a strengthening trend in the yen for the next decade that ended with the exchange rates reaching close to 80 yen to the dollar. That's an astonishing 184% appreciation in the yen's value.
Key Takeaways The Japanese yen has see-sawed in the last 35 years, particularly in the first decade after the 1985 Plaza Accord, in which a deal was made to devalue the U.S. dollar, therefore strengthening the yen.The Plaza Accord led to a period of exchange rate volatility that has contributed to Japan's manufacturing industry shifting from a focus on domestic production and exports to large scale overseas production.This shift has hit Japanese employment and consumption, even impacting companies outside manufacturing or those that are entirely domestically-based.The companies have enjoyed greater stability by becoming less vulnerable to the downsides of exchange rate movements, but the strength of the overall domestic economy going forward is more tumultuous.
Japan's Bubble and Economic Stagnation
While the yen's strength benefited Japanese tourists and companies conducting M&A in the United States, it was disadvantageous for Japanese exporters who wanted to sell their goods to American consumers. In fact, this sharp rise in the yen is one of the key factors leading to the building and then bursting of Japan's bubble economy in the late 1980s, a period that was followed by over two decades of economic stagnation and price deflation.
Image by Sabrina Jiang © Investopedia 2021
Since 1995, the Japanese yen has seen a number of violent swings. While none of them were as extensive as the first 10 years following the Plaza Accord, they have wreaked havoc on the mindset of Japanese businessmen and politicians and changed the underlying structure of the country's economy. The yen began another round of strengthening in the middle of 2007 that saw it smash through the 80 yen/dollar level in late 2011. This trend only began to reverse (and sharply so) with the election of a new government (lead by Mr. Abe) and the appointment of a new central bank governor (Mr. Kuroda), both of whom promised massive quantitative easing. So how big an impact does the exchange rate have on Japan's economy, and what changes has this volatility brought about?
Real Impacts Versus Translation Effects
To determine the effect of exchange rates on Japan's economy, it helps to use a basic example. Let's assume we have an exchange rate of 120 yen/dollar and two Japanese automobile manufacturers selling cars in the United States. Company A builds its cars in Japan, then exports them to the United States, and Company B has built a factory in the United States so that the cars it sells there are also manufactured there. Now let's further assume that it costs Company A 1.2 million yen to make a standard car in Japan (about $10,000 at the assumed exchange rate of 120 yen/dollar), and it costs Company B $10,000 to make a similar model in the United States. Then, the costs per vehicle are approximately the same. Because both cars are similar in make and quality, let's finally assume that they both sell for $15,000. That means both companies will make a $5,000 profit on a vehicle, which will become 600,000 yen when repatriated back to Japan.
Scenario Where the Exchange Rate Is Yen/Dollar
Image by Sabrina Jiang © Investopedia 2021
Now, let's look at a scenario where the yen strengthens to 100 yen/dollar. Because it still costs Company A 1.2 million yen to produce a car in Japan, and because the yen has strengthened, the car now costs $12,000 in dollar terms (1.2 million yen divided by 100 yen/dollar). But Company B still produces at $10,000 per car because it manufactures locally and is not impacted by the exchange rate. If the cars still sell at $15,000, Company A will now make a profit of $3,000 per car ($15,000 - $12,000), which will be worth 300,000 yen at 100 yen/dollar. But Company B will still make a profit of $5,000 per car ($15,000 - $10,000), which will be worth 500,000 yen. Both will make less money in yen terms, but the decline for Company A will be much more severe. Of course, the reverse will be true when the exchange rate trend reverses.
Scenario Where the Exchange Rate Is 100 Yen/Dollar
Image by Sabrina Jiang © Investopedia 2021
If the yen weakened to 140 yen/dollar, for example, Company A will make 900,000 per car, while Company B will make only 700,000 yen per car. Both will be better off in yen terms, but Company A will be more so.
Scenario Where the Exchange Rate is 140 Yen/Dollar
Image by Sabrina Jiang © Investopedia 2021
These scenarios show the substantial impact exchange rates have on Company A. Because Company A has a mismatch between its currency at production and its currency at sale, profits will be affected in both currencies. But Company B only faces a translation effect because its profitability in dollar terms is unaffected - only when it reports earnings in yen or tries to repatriate cash to Japan will anyone notice a difference.
The Hollowing Out of Japan
The sharp appreciation of the yen during the 10 years after the Plaza Accord, and the exchange rate volatility that followed forced many Japanese manufacturers to reconsider their export model of building in Japan and selling abroad. This had an impact on profitability. Japan had rapidly gone from a position as a low-cost producer to one where labor was relatively expensive. Even without the impact of the effects discussed above, it had simply become cheaper to produce goods overseas.
In addition, it had also become politically challenging to export products to the United States where there was local competition. Americans witnesses companies such as Sony (SNE), Panasonic, and Sharp devour their television manufacturing industry, and they were reluctant to let the same thing happen to other strategic industries such as automobiles. Hence, a period of political tension surrounding trade emerged, where new barriers to Japanese exports arose, such as voluntary quotas on automobiles and limits on exports to the United States for sale.
Japanese companies now had two good reasons to build factories overseas. It would it lead to more stable profitability in the face of an unstable exchange rate, and relieve the increasing cost of labor. Toyota is a classic example.
The slide below is from Toyota's FY2019 annual results presentation. It details the split between (a) how many cars the company produces in Japan and overseas, and (b) how much revenue it generates in Japan and overseas. First, the data show that the vast majority of the company's revenues now come from outside of Japan. But we also note that the majority of cars it builds are manufactured overseas. While the company may still be a net exporter, and while the evolution may have happened over an extended period, the graduation to a focus on overseas production is clear.
Source: Toyota, 2019
Not all manufacturers in Japan are large exporters, and not all exporters in Japan have been as aggressive as Toyota and the auto industry in moving production overseas. However, it has been a trend for most of the last three decades. The chart below combines data from two government agencies to illustrate this point. It looks at the revenues from overseas subsidiaries of Japanese manufacturers and divides it by total revenues of those same companies for the years 1997 to 2014.
Overseas Subsidiaries Revenue As A % Of Total
Image by Sabrina Jiang © Investopedia 2021
The graph shows that shortly after the end of the first great Japanese yen appreciation, the ratio of overseas subsidiary sales went from 8% to nearly 30% by the end of 2014. In other words, more and more Japanese manufacturers were seeing the merit of expanding their businesses overseas and making products where they sold them.
The problem with this model, however, was that it hollowed out the Japanese economy. As factories moved abroad, fewer jobs were available domestically in Japan, which placed downward pressure on wages and damaged the domestic economy. Even non-manufacturers felt the impact as consumers reined in spending.
It's Even About Nuclear Power
The exchange rate factors heavily into discussions on energy security because the country is devoid of natural resources such as oil. Anything that the country cannot produce through renewable sources such as hydro, solar, and nuclear energy must be imported. Because most of these imported fossil fuels are priced in dollars (and extremely volatile themselves), the yen/dollar exchange rate can make a huge difference.
Even after the triple disaster of the massive earthquake, tsunami and nuclear meltdown that occurred in March 2011, the country's government and manufacturers were keen to have the nuclear reactors back in operation. While the government's quantitative easing program has been successful at weakening the yen since 2012, the flip side is that imports cost more as a result of that weakening. If the price of oil were to rise while the yen remains weak, that would again hurt the production costs of domestic manufacturers (and households, car drivers, and therefore, consumption).
The Bottom Line
The strengthening of the yen against the dollar after the Plaza Accord and the exchange rate volatility that followed has encouraged a rebalancing of Japan's manufacturing industry from one focused on domestic production and export to one where production has shifted overseas on a large scale. This has had consequences for domestic employment and consumption, and even non-manufacturers and solely domestic companies are exposed. While the companies themselves have become more stable because they are less exposed to the negative effects of exchange rate movements, the future stability of the domestic economy is less certain.
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3ac1ac92faf2980a3a1af4b271b9d221 | https://www.investopedia.com/articles/investing/051515/pros-cons-owning-rental-property.asp | Rental Properties: Pros and Cons | Rental Properties: Pros and Cons
Owning a rental property can be financially rewarding. If you're exploring this type of real estate as an investment, be aware of the risks and responsibilities.
Rental Properties: An Overview
The idea of buying a home or apartment to rent out for profit may sound alluring. But buying a rental property for income and long-term capital appreciation can have its ups and downs. For example, the housing market can fluctuate depending on location, supply and demand, and the economy.
Financially speaking, in order for the rental property to be really profitable, the return you reap should be greater than what you could earn in conservative investments, such as bonds and dividend-paying blue-chip stocks, because of the real risks involved. And on the human side, not everyone has the ability to manage property and tenants.
Key Takeaways Rental properties can be financially rewarding and have numerous tax benefits, including the ability to deduct insurance, the interest on your mortgage, and maintenance costs.The drawbacks of having rental properties include a lack of liquidity, the cost of upkeep, and the potential for difficult tenants and for the neighborhood's appeal to decline.It's key for investors in any type of real estate to stay on top of interest rates and consult a tax professional, particularly with the recent changes to the tax code.
Pros of Rental Properties
There are several benefits to owning a rental property. They include:
Tax Benefits
The Internal Revenue Service allows you to deduct many expenses connected with rental property in the categories of:
Ordinary and necessary expensesImprovementsDepreciation
This means that you can deduct your insurance, interest on your mortgage, maintenance costs, and physical wear-and-tear on your property.
Depreciation may produce a nominal loss, which in turn you may deduct against other income. In other words, you may achieve net positive cash flow from the rental income minus expenses and still have a net loss for tax purposes. But be aware that depreciation also reduces the cost basis of a property for calculating capital gains when you sell your property.
In addition, the 2017 Tax Cuts and Jobs Act offers a number of tax benefits for landlords. If you own a flow-through entity (also known as a pass-through business) and operate it as a sole proprietorship, limited liability company, partnership, or S corporation, you now may deduct an amount equal to 20% of your net rental income—as long as your total taxable annual income from all sources after deductions is less than $157,500 for singles or $315,000 for married couples who file jointly.
Being a landlord is not everyone's cup of tea. Before jumping in, make sure you're willing to deal with everything from late or unpaid rent to tenants who damage your property.
Seasonal Rentals
If you rent your property seasonally, you may use it yourself for 14 days per year—or 10% of the number of days that you rent to others at a fair market price—and still be able to deduct your expenses.
1031 Exchange
In a 1031 exchange, you can sell a rental property and invest in another of “like kind” without paying capital gains taxes.
Renting Extra Space
You can also treat a room or area of your home—such as a garage, basement, or accessory dwelling unit—like a rental, writing off a percentage of the mortgage interest and other expenses against its income, although you should be aware of the potential pitfalls of renting out extra space, including local zoning rules.
1:48 The Pros And Cons Of Owning Rental Property
Cons of Rental Properties
There are also drawbacks to owning a rental property. They include:
Lack of Liquidity
Real estate is not a liquid asset. Even in the hottest market, it can easily take several months to complete a sale. And if your timing is driven by an emergency or other unexpected event, your need to sell fast might not garner the best price.
Rising Taxes and Insurance Premiums
The interest and principal of your mortgage may be fixed, but there is no guarantee that taxes will not rise faster than you can increase rents. Insurance premiums may also spike, as they have in the wake of natural disasters.
Difficult Tenants
Despite your due diligence in vetting prospective renters, you could wind up with tenants who are not ideal. For example, they could be needy or demanding, pay late, forget to turn off the water, and so on. Or they could be destructive, in which case the depreciation allowance in the tax code may be sorely inadequate. You can, however, always add a rider to the standard lease form that spells out rules about occupancy, pets, smoking, tenant insurance, and the like. A security deposit can also be helpful here.
Neighborhood Decline
In an ideal scenario, your investment property will flourish amid other well-maintained dwellings and local amenities will improve. As a result, your cash flow will increase steadily and your costs remain stable. However, neighborhoods can change and your investment could depreciate over time. You should pay attention to the local politics where you invest, just as you would where you live. With some due diligence, you can minimize this exposure.
Unfavorable Changes to Tax Code
The tax code is not immune to change. It could change in ways that would either reduce or eliminate some or all of the tax benefits for homeownership and flow-through businesses.
Landlord Role
Being a landlord is not for everyone. You may feel shy about increasing rents or be protective of the way others treat your property, which can lead to conflicts. You may even become friends with your tenants or they already may be family or friends. If you cannot be firm about rent increases or property care, for example, you could wind up collecting rent that is well below market price, or with a property that is undervalued.
Upkeep
In maintaining a property, minor and major repairs arise. Some property owners can save money by doing the work themselves. However, most lack the time, tools, or skills for home repair. Expect to shell out periodic contractor fees.
Special Considerations
Whether you are buying a primary home or a rental property, it is important to consider what's happening with mortgage interest rates. Low fixed-rate mortgage debt is generally a good hedge against inflation. If you are a landlord, periodic rent increases are one way of offsetting inflationary rises in property upkeep expenses.
Interest rates in June 2020 are hovering near an all-time low of 3.13%, with the impact of the COVID-19 pandemic taking its toll. Rates are expected to continue to decline through the summer. This compares with mortgage rates in the 4% to 4.5% range between 2017 and 2019. Mortgage rates have averaged around 8% over the last 50 years. While these rates represent an opportunity, it is also important to remember that mortgage rates are typically higher for investment properties than for traditional homes.
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87236e432e66d9542b99945e9c124756 | https://www.investopedia.com/articles/investing/051915/how-short-us-bond-market.asp | How To Short The U.S. Bond Market | How To Short The U.S. Bond Market
The U.S. bond market has enjoyed a strong bull run over the past few years as the Federal Reserve has lowered interest rates to historic low levels. The price of bonds, which react inversely to changes in interest rates, have recently come under pressure as market participants anticipate that the central bank will soon indicate they will begin to raise the target rate.
Traditionally considered lower-risk investments than stocks, bond prices may fall dramatically depending on how much and how quickly interest rates rise. As a result, savvy investors might consider selling short the U.S. bond market and profit from an anticipated bear market. A short position in bonds also has the potential to generate high returns during inflationary periods. How does an individual gain short exposure to bonds within their regular brokerage account?
Key Takeaways Going short the bond market means that an investor or trader suspects that bond prices will fall, and wishes to take advantage of that bearish sentiment - for instance, if interest rates are expected to rise. Derivatives contracts on bonds, such as futures and options, provide one way to short the bond market, or to hedge an existing long position from a downturn. Inverse bond ETFs and mutual funds are another way to diversify a short bond position and benefit from professional portfolio management.
Going Short
Going 'short' indicates that an investor believes that prices will drop and therefore will profit if they can buy back their position at a lower price. Going 'long' would indicate the opposite and that an investor believes prices will rise and so buys that asset. Many individual investors do not have the ability to go short an actual bond. To do so would require locating an existing holder of that bond and then borrowing it from them in order to sell it in the market. The borrowing involved may include the use of leverage, and if the price of the bond increases instead of falling, the investor has the potential for large losses.
Fortunately, there are a number of ways that the average investor can gain short exposure to the bond market without having to sell short any actual bonds.
Hedging Strategies
Before answering the question of how to profit from a drop in bond prices, it is useful to address how to hedge existing bond positions against price drops for those who do not want to or are restricted from taking short positions. For such owners of bond portfolios, duration management may be appropriate. Longer maturity bonds are more sensitive to interest rate changes, and by selling those bonds from within the portfolio to buy short-term bonds, the impact of such a rate increase will be less severe.
Some bond portfolios need to hold long-duration bonds due to their mandate. These investors can use derivatives to hedge their positions without selling any bonds.
Say an investor has a diversified bond portfolio worth $1,000,000 with a duration of seven years and is restricted from selling them in order to buy shorter-term bonds. An appropriate futures contract exists on a broad index that closely resembles the investor's portfolio, which has a duration of five and a half years and is trading in the market at $130,000 per contract. The investor wants to reduce his duration to zero for the time being in anticipation of a sharp rise in interest rates. They would sell [(0 - 7)/5.5 x 1,000,000/130,000)] = 9.79 ≈ 10 futures contracts (fractional amounts must be rounded to the nearest whole number of contracts to trade). If interest rates were to rise 170 basis points (1.7%) without the hedge the investor would lose ($1,000,000 x 7 x .017) = $119,000. With the hedge, his bond position would still fall by that amount, but the short futures position would gain (10 x $130,000 x 5.5 x .017) = $121,550. In this case, the investor actually gains $2,550, a negligible (0.25%) result due to the rounding error in the number of contracts.
Options contracts can also be used in lieu of futures. Buying a put on the bond market gives the investor the right to sell bonds at a specified price at some point in the future no matter where the market is at that time. As prices fall, this right becomes more valuable and the price of the put option increases. If the prices of bonds rise instead, the option will become less valuable and may eventually expire worthless. A protective put will effectively create a lower bound below which price the investor cannot lose any more money even if the market continues to drop. An option strategy has the benefit of protecting the downside while allowing the investor to participate in any upside appreciation, whereas a futures hedge will not. Buying a put option, however, can be expensive as the investor must pay the option's premium in order to obtain it.
Shorting Strategies
Derivatives can also be used to gain pure short exposure to bond markets. Selling futures contracts, buying put options, or selling call options 'naked' (when the investor does not already own the underlying bonds) are all ways to do so. These naked derivative positions, however, can be very risky and require leverage. Many individual investors, while able to use derivative instruments to hedge existing positions, are unable to trade them naked.
Instead, the easiest way for an individual investor to short bonds is by using an inverse, or short ETF. These securities trade on stock markets and can be bought and sold throughout the trading day in any typical brokerage account. Being inverse, these ETFs earn a positive return for every negative return of the underlying; their price moves in the opposite direction of the underlying. By owning the short ETF, the investor is actually long those shares while having short exposure to the bond market, therefore eliminating restrictions on short selling or margin.
Some short ETFs are also leveraged, or geared. This means that they will return a multiple in the opposite direction of that of the underlying. For example, a 2x inverse ETF would return +2% for every -1% returned by the underlying.
There are a variety of short bond ETFs to choose from. The following table is just a sample of the most popular such ETFs.
Inverse Bond ETFs Symbol Name Description TBF Short 20+ Year Treasury Seeks daily investment results which correspond to the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Index. TMV Daily 20 Year Plus Treasury Bear 3x Shares Seeks daily investment results of 300% of the inverse of the price performance of the NYSE 20 Year Plus Treasury Bond Index. PST UltraShort Barclays 7-10 Year Treasury Seeks daily investment results, which correspond to twice (200%) the inverse of the daily performance of the Barclays Capital 7-10 Year U.S. Treasury Index. DTYS US Treasury 10-Year Bear ETN Designed to increase in response to a decrease in 10-year Treasury note yields. The Index targets a fixed level of sensitivity to changes in the yield of the current "cheapest-to-deliver" note underlying the relevant 10-year Treasury futures contract at a given point in time. SJB ProShares Short High Yield Seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the Markit iBoxx $ Liquid High Yield Index. DTUS US Treasury 2-Year Bear ETN Designed to decrease in response to an increase in the 2-year Treasury note yields. IGS Short Investment Grade Corporate Seeks daily investment results that correspond to the inverse (-1x) of the daily performance of the Markit iBoxx $ Liquid Investment Grade Index. Inverse Bond ETFs
In addition to ETFs, there are a number of mutual funds that specialize in short bond positions.
The Bottom Line
Interest rates cannot remain close to zero forever. The specter of rising interest rates or inflation is a negative signal to bond markets and can result in falling prices. Investors can employ strategies to hedge their exposure through duration management or through the use of derivative securities.
Those seeking to gain actual short exposure and profit from declining bond prices can use naked derivative strategies or purchase inverse bond ETFs, which are the most accessible option for individual investors. Short ETFs can be purchased inside a typical brokerage account and will rise in price as bond prices fall.
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ae8c11a0954308f8fef459a4381282dc | https://www.investopedia.com/articles/investing/051915/top-nonsoda-companies-owned-cocacola.asp | 5 Non-Soda Companies Owned by Coca-Cola | 5 Non-Soda Companies Owned by Coca-Cola
The Coca-Cola Company (KO) is a very popular investment for beginning investors because of the familiarity of its namesake product. The soda is a part of American history and has been an industry leader for 133 years. Created by a pharmacist in 1886 in Atlanta, Georgia, Coca-Cola quickly became a popular beverage across the country. Since it was founded in 1892, The Coca-Cola Company has expanded far beyond its signature carbonated beverage. It is the world's largest, nonalcoholic beverage company and producer of concentrates, syrups, and related products.
In recent decades, the company has turned to acquisitions for growth and diversification, becoming a nonalcoholic beverage conglomerate that now owns, licenses, and markets more than 500 different brands of beverages. Many of the company's non-soda beverage brands have been key drivers of its growth, and several exceed $1 billion in their respective annual revenues.
Key Takeaways Since its founding in 1892, The Coca-Cola Company has expanded far beyond its signature carbonated beverage, the Coca-Cola soda.The Coca-Cola Company is the world's largest, nonalcoholic beverage company and producer of concentrates, syrups, and related products.Costa Coffee was The Coca-Cola Company's most prominent recent acquisition, but the company is always looking to expand its offerings through new subsidiaries and brands.
James Quincey is the chairman and chief executive officer (CEO) of The Coca-Cola Company. In 2019, the company posted a net revenue of $37.3 billion, an increase of 9% from 2018. In 2019, earnings per share (EPS) grew by 38% to $2.07.
Since its founding, The Coca-Cola Company has consistently sought to explore new markets. Continuing this trend, at the beginning of 2019 the company completed an acquisition of Costa Coffee, beginning a new line of coffee-based beverages.
Dasani
Dasani, a brand of bottled water, was launched by The Coca-Cola Company is 1999. Dasani is the top-selling still bottled water brand in the U.S. the highest selling bottled water in the U.S. In 2019, Dasani generated $1.05 billion in sales. Bottled water products have seen consistent increases in popularity among consumers across the U.S., indicating that Dasani and other related brands have room for growth. The market for sparkling water products has grown considerably in recent years. The company introduced Dasani Sparkling in 2013 in order to take advantage of shifting consumer trends.
The Minute Maid Company
The Minute Maid Company is a very important brand for The Coca-Cola Company. It was the first acquisition made by The Coca-Cola Company when it was purchased in 1960. Minute Maid was the first company to market orange juice concentrate. In 2001, the Minute Maid division of Coca-Cola launched the Simply Orange brand. The Simply Orange Company makes a number of not-from-concentrate orange juices and other juice drinks that are sold refrigerated. In 2002, Minute Maid bought the naming rights to re-brand the Houston Astros ballpark, which is currently called Minute Maid Park.
Energy Brands
Also known as Glacéau, Energy Brands has been one of Coca-Cola's most successful subsidiaries. The company was acquired by Coca-Cola in 2007 for approximately $4.1 billion.
Two of the largest and most successful product lines under the umbrella of the Energy Brands are VitaminWater and SmartWater. Both of these product lines have marketed themselves as healthier alternatives to traditional soda products in order to appeal to an increasingly health-conscious consumer base.
Costa Coffee
Costa Coffee is a British coffeehouse chain that was founded in 1971. Before it was sold to The Coca-Cola Company in January 2019 for $4.9 billion, the company was owned by Whitbread. By acquiring Costa, The Coca-Cola Company has the potential to make tremendous gains in the growing coffee industry, particularly in international markets where the brand already enjoys a strong position.
Fuze Beverage
Founded in Northern California in 2000, Fuze Beverage has grown into a nationwide brand that sells teas and non-carbonated fruit juice drinks. When The Coca-Cola Company purchased Fuze in 2007, it was seen as an important move in the direction of more health-conscious beverage products. Consumers looking to avoid high fructose corn syrup and other additives in traditional soda products may be more attracted to Fuze products.
The Coca-Cola Company's Acquisition Strategy
Costa Coffee was The Coca-Cola Company's most prominent recent acquisition, but the company is always looking to expand its offerings through new subsidiaries and brands. With more than 500 brands, it currently has a stake in markets around the world. For several decades, The Coca-Cola Company has adopted an aggressive acquisition strategy in order to maintain its position at the top of the nonalcoholic beverage space. It's likely that this will only continue into the future.
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b353ab000808d6c1328b641f45a60350 | https://www.investopedia.com/articles/investing/052014/how-googles-selfdriving-car-will-change-everything.asp | How Google's Self-Driving Car Will Change Everything | How Google's Self-Driving Car Will Change Everything
Imagine getting into your car, typing—or, better yet speaking—a location into your vehicle’s interface, then letting it drive you to your destination while you read a book, surf the web, or nap. Self-driving vehicles—the stuff of science fiction since the first roads were paved—are coming, and they’re going to radically change what it’s like to get from point A to point B.
In 2009, Google started the self-driving car project with the goal of driving autonomously over ten uninterrupted 100-mile routes. In 2016, Waymo, an autonomous driving technology company, became a subsidiary of Alphabet, and Google's self-driving project became Waymo.
Since then, Waymo has invited the public to join the first public trial of autonomous vehicles operated by the Waymo Driver and introduced its first fully autonomous vehicles operated by the Waymo Driver on public roads without anyone in the driver’s seat.
Key Takeaways The hype around driverless cars has grown rapidly over the past several years, with many big technology companies getting behind the concept. Google launched its Waymo division to develop and market consumer-ready driverless vehicles around the globe. The company, along with several others in the tech and auto industries, is betting that driverless cars will soon change the way we get around in a major way. Among the revolutionary changes will be safer roads, fewer fossil fuels, and lower transportation costs.
Basic Technology Already In Use
“The building blocks of driverless cars are on the road now,” explained Russ Rader, senior vice president of communications at the Insurance Institute for Highway Safety. He pointed to the front-crash prevention systems that for several years have been able to warn drivers of an impending obstacle and apply the brakes if they don’t react fast enough.
These systems were quickly followed by technology that allows cars to self-park by sizing up a free spot and automatically steering into it, with the driver only controlling the accelerator and brake pedals. Mercedes-Benz took autonomous driving even further when they introduced Drive Pilot, which allows the driver to hand over direct control of steering and speed in certain circumstances, while still supervising the overall operation of the car.
In 2018, Waymo announced that they would be making self-driving cars available by 2020. However, despite some extraordinary advancements, in the year 2020, self-driving cars are still out of reach, except in some trial programs. The current technology on the market is limited to cars that will automatically brake for you if they anticipate a collision, cars that help keep you in your lane, and cars that can mostly handle highway driving.
The idea behind self-driving cars is fairly simple: build a car with cameras that can track all the objects around it. The car should react if it’s about to steer into one. And once in-car computers know all driving rules, they should be able to navigate to their destination. In the end, you might say that the execution of these ideas has been more complicated than was anticipated.
Waymo's cars, the leader in self-driving technology, use high-resolution cameras and lidar (light detection and ranging, which is a way of estimating the distance to another object by bouncing light and sound off things). This technology helps the self-driving car identify where other cars, cyclists, pedestrians, and obstacles are and where they’re moving.
A Drastic Change
With the adoption of any new revolutionary technology, it is predicted there will be problems for businesses that don’t adjust fast enough to future developments in self-driving car technology. Futurists estimate that hundreds of billions of dollars (if not trillions) will be lost by automakers, suppliers, dealers, insurers, parking companies, and many other car-related enterprises. And think of the lost revenue for governments via licensing fees, taxes and tolls, and by personal injury lawyers and health insurers.
Who needs a car made with heavier-gauge steel and eight airbags (not to mention a body shop) if accidents are so rare? Who needs a parking spot close to work if your car can drive you there, park itself miles away, only to pick you up later? Who needs to buy a flight from Boston to Cleveland when you can leave in the evening, sleep much of the way, and arrive in the morning?
Indeed, one of Google’s goals is to facilitate car-sharing. That means fewer cars on the road. Fewer cars, period. Who needs to own a car when you can just order a shared one and it’ll drive up minutes later, ready to take you wherever you want?
“This [has the potential to] dramatically reduce the number of cars on the street, 80% of which have people driving alone in them, and also a household's cost of transportation, which is 18% of their income—around $9,000 a year—for an asset that they use only 5% of the time,” said Robin Chase, the founder and CEO of Buzzcar, a peer-to-peer car-sharing service, and co-founder and former CEO of Zipcar.
In 2030, self-driving cars are expected to create $87 billion worth of opportunities for automakers and technology developers, said a report by Boston-based Lux Research. Software developers stand to win big.
A Manufacturing Revolution
If you’re an automaker, such as Ford Motor Co. (F), General Motors Co. (GM), Chrysler Group LLC, Toyota Motor Corp. or Honda Motor Co., Ltd. (HMC), which account for almost 70% of the U.S. market, you could see an initial surge in the $600 billion in annual new and used car sales globally. But as soon as the technology takes hold, sales could fall off significantly as sharing popularizes.
Cars will always need steel, glass, an interior, a drivetrain, and some form of human interface (even if that interface is little more than a wireless connection to your smartphone). But much of everything else could change. As an example, take front-facing seats; they could become an option, not a requirement. Automakers that see the changes coming—such as how the big profits are secured downstream by car servicers, insurers, and more—are focusing on services as much as on what and how they manufacture.
Infrastructure Transformation
With fewer cars around, parking lots and spaces that cover roughly one-third of the land area of many U.S. cities can be repurposed. That could mean temporary downward pressure on real estate values as supply increases. It could also mean greener urban areas and revitalized suburbs if longer commutes become more palatable. And if fewer cars are on the road, federal, state, and local government agencies may be able to reallocate a good portion of the roughly $180 billion spent annually on highways and roads.
Changing Oil Demand
If you’re in the business of finding, extracting, refining, and marketing hydrocarbons, such as Exxon Mobil (EOX), Chevron (CVX), or BP (BP), you could see your business fluctuate as use changes.
“These vehicles should practice very efficient eco-driving practices, which is typically about 20% better than the average driver,” said Chase. “On the other hand, if these cars are owned by individuals, I see a huge rise in the number of trips, and vehicle miles traveled. People will send out their car to run errands they would never do if they had to be in the car and waste their own time. If the autonomous cars are shared vehicles and people pay for each trip, I think this will reduce demand, and thus (vehicle miles traveled).”
Safety Dividend
Autonomous vehicles are also expected to be safer. “These cars won't get drunk or high, drive too fast, or take unnecessary risks—things people do all the time,” Chase said.
“Over 90% of accidents today are caused by driver error,” said Professor Robert W. Peterson of the Center for Insurance Law and Regulation at Santa Clara University School of Law. “There is every reason to believe that self-driving cars will reduce the frequency and severity of accidents, so insurance costs should fall, perhaps dramatically.”
“Cars can still get flooded, damaged, or stolen,” notes Michael Barry, vice president of media relations at the Insurance Information Institute. “But this technology will have a dramatic impact on underwriting. A lot of traditional underwriting criteria will be upended.”
Barry said it’s too early to quantify exactly how self-driving vehicles will affect rates, but added that injured parties in a crash involving a self-driving car may choose to sue the vehicle’s manufacturer or the software company that designed the autonomous capability.
Initially, insurers such as State Farm Insurance, Allstate Corp. (ALL), Liberty Mutual Group, Berkshire Hathaway Inc.’s (BRK-A) GEICO, Citigroup Inc.’s (C) Travelers Group could see a huge benefit from lower accident liabilities. But they may wind up losing a big portion of the $200 billion in personal auto premiums they write every year as fewer cars take to the road.
Some experts have even speculated that mandatory insurance for cars could be dropped. And as long as we’re talking about financial services, what about the multitude of banks and creditors that lend buyers money in about 85% of car purchases if sales volume falls?
According to a University of Texas report, if only 10% of the cars on U.S. roads were autonomous, almost $30 billion of savings could be realized via less wasted time and fuel, as well as fewer injuries and deaths. At 90%, the benefit rises to almost $120 billion a year.
Closer to Home
Self-driving cars could have a substantial impact on the taxi and limousine industries and could potentially create new ones. Chase noted that they could be used to share specific trips, as a kind of pay-as-you-go small-scale public transportation—for example, taking a disparate bunch of Manhattanites to the same beach in the Hamptons in one trip.
One study found that a fleet of 9,000 driverless taxis could serve all of Manhattan at about $0.50 per mile (compared to about $5 per mile now). At the time the study was published, there were licenses for over 13,000 taxis in New York City.
Self-driving cars may also challenge train lines. “A self-driving car offers much of the convenience of rail service with the added convenience that the service is portal-to-portal rather than station-to-station,” Peterson said.
“On the other hand, a fleet of self-driving cars available at the station may make rail service more palatable. “The technology has already been adopted in closed systems, such as campuses, air-terminals, and mining,” he noted. “Rio Tinto Group (RIO), a large mining company, uses enormous self-driving trucks in its mining operations. European countries are experimenting with the platooning of trucks. Among other things, this saves about 18% in fuel.”
Risks and Hurdles
There are regulatory and legislative obstacles to the widespread use of self-driving cars and substantial concerns about privacy. (Who will have access to any driving information these vehicles store?) There’s also the question of security, as hackers could theoretically take control of these vehicles, and are not known for their restraint or civic-mindedness.
The Future of Waymo
In March 2020, Waymo Via, the trucking division of Waymo, was launched. According to Google, since 2017 Waymo Driver had been learning to drive large Class 8 trucks in the same way that it had learned how to drive passenger vehicles. Waymo is currently testing its fleet of trucks in California, Arizona, New Mexico, and Texas, and has launched a pilot program for local delivery in the Phoenix, Arizona area.
Waymo has partnerships with multiple vehicle manufacturers to integrate its technology. In October 2020, Waymo and Daimler Trucks partnered to create an autonomous version of the Freightliner Cascadia truck. This is Waymo's first foray into the freight industry. Daimler's trucks will be equipped with autonomous technology that allows them to drive without a human but only in pre-defined areas.
Google’s Self-Driving Car FAQs
Is Google Making a Car?
Google has made it clear that it has no plans to build cars itself. Waymo is a self-driving technology company; it does not intend to manufacture and sell its own line of vehicles.
What Year Will There Be Self-Driving Cars?
Early estimates about self-driving cars being the norm by 2020 have turned into having a few research vehicles on the road by 2020. Even if the technology is not developing as fast as expected, computer-processing capabilities and sophisticated artificial intelligence systems are becoming more advanced and more affordable every year. It's not clear when all the pieces will truly fall into place to allow for driverless technologies to safely navigate public roads among traditional cars. While experts agree that there will be a time in the future when this is true, they disagree on the timeline.
How Much Does the Google Car Cost?
Google does not manufacture or sell its own cars. However, you can purchase a semi-autonomous Honda Civic that comes with advanced driver assistance systems (ADAS) that control the steering, lane changing, acceleration, and braking while the car is cruising on the highway. You can also purchase a Tesla Motors vehicle that comes equipped with its semi-autonomous Autopilot feature.
The Bottom Line
However it plays out, these vehicles are coming—and fast. Their full adoption will take decades, but their convenience, cost, safety, and other factors will make them ubiquitous and indispensable. Such as with any technological revolution, the companies that plan ahead, adjust the fastest, and imagine the biggest will survive and thrive. And companies invested in old technology and practices will need to evolve or risk dying.
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c0867dfeedd830610a858e0e07bcbace | https://www.investopedia.com/articles/investing/052014/why-bitcoins-value-so-volatile.asp | Why Bitcoin Has a Volatile Value | Why Bitcoin Has a Volatile Value
Price fluctuations in the bitcoin spot rate on cryptocurrency exchanges are driven by many factors. Volatility is measured in traditional markets by the Volatility Index, also known as the CBOE Volatility Index (VIX). More recently, a volatility index for bitcoin has also become available. Known as the Bitcoin Volatility Index, it aims to track the volatility of the world's leading digital currency by market cap over various periods of time.
Bitcoin's value has been historically quite volatile. In a three-month span from October of 2017 to January of 2018, for instance, the volatility of the price of bitcoin reached to nearly 8%. This is more than twice the volatility of bitcoin in the 30-day period ending January 15, 2020. But why is bitcoin so volatile? Here are just a few of the many factors behind bitcoin's volatility.
Bad News Hurts Adoption Rate
News events that scare bitcoin users include geopolitical events and statements by governments that bitcoin is likely to be regulated. Bitcoin's early adopters included several bad actors, producing headline news stories that produced fear in investors.
Headline-making bitcoin news over the decade or so of the cryptocurrency's existence includes the bankruptcy of Mt. Gox in early 2014 and, more recently, that of the South Korean exchange Yapian Youbit. Other news stories which shocked investors include the high-profile use of bitcoin in drug transactions via Silk Road that ended with the FBI shutdown of the marketplace in October 2013.
All these incidents and the public panic that ensued drove the value of bitcoins versus fiat currencies down rapidly. However, bitcoin-friendly investors viewed those events as evidence that the market was maturing, driving the value of bitcoins versus the dollar markedly back up in the short period immediately following the news events.
Bitcoin's Perceived Value Sways
One reason why bitcoin may fluctuate against fiat currencies is the perceived store of value versus the fiat currency. Bitcoin has properties that make it similar to gold. It is governed by a design decision by the developers of the core technology to limit its production to a fixed quantity of 21 million BTC.
Since that differs markedly from fiat currency, which is dynamically managed by governments who want to maintain low inflation, high employment, and satisfactory growth through investment in capital resources, as economies built with fiat currencies show signs of strength or weakness, investors may allocate more or less of their assets into bitcoin.
Uncertainty of Future Bitcoin's Value
Bitcoin volatility is also driven in large part by varying perceptions of the intrinsic value of the cryptocurrency as a store of value and method of value transfer. A store of value is the function by which an asset can be useful in the future with some predictability. A store of value can be saved and exchanged for some good or service in the future.
A method of value transfer is any object or concept used to transmit property in the form of assets from one party to another. Bitcoin’s volatility at the present makes it a somewhat unclear store of value, but it promises nearly frictionless value transfer. As a result, we see that bitcoin's value can swing based on news events much as we observe with fiat currencies.
Large Currency Holder Risks
Bitcoin volatility is also to an extent driven by holders of large proportions of the total outstanding float of the currency. For bitcoin investors with current holdings above around $10M, it is not clear how they would liquidate a position that large into a fiat position without severely moving the market. Indeed, it may not be clear how they would liquidate a position of that size in a short period of time at all, as most cryptocurrency exchanges impose 24-hour withdrawal limits far below that threshold.
Bitcoin has not reached the mass market adoption rates that would be necessary to provide option value to large holders of the currency.
Security Breaches Cause Volatility
Bitcoin can also become volatile when the bitcoin community exposes security vulnerabilities in an effort to produce massive open source responses in the form of security fixes. This approach to security is paradoxically one that produces great outcomes, with many valuable open source software initiatives to its credit, including Linux. Bitcoin developers must reveal security concerns to the public in order to produce robust solutions.
It was a hack that drove the Yapian Youbit to bankruptcy, while many other cryptocurrencies have also made headlines for being hacked or having stashes of cryptocurrencies stolen. As an early example, in April 2014, the OpenSSL vulnerabilities attacked by the Heartbleed bug and reported by Google security's, Neel Mehta, drove Bitcoin prices down by 10% in a month.
Bitcoin and open source software development are built upon the same fundamental premise that a copy of the source code is available to users to examine. This concept makes it the responsibility of the community to voice concerns about the software design, just as it is the responsibility of the community to come to consensus about modifications to that underlying source code as well. Because of the open conversation and debate regarding the Bitcoin network, security breaches tend to be highly publicized.
High-Profile Losses Raise Fear
It is worth noting that the aforementioned thefts and the ensuing news about the losses had a double effect on volatility. They reduced the overall float of bitcoin, producing a potential lift on the value of the remaining bitcoin due to increased scarcity. However, overriding this lift was the negative effect of the news cycle that followed.
Notably, other bitcoin gateways looked to the massive failure at Mt. Gox as a positive for the long term prospects of bitcoin, further complicating the already complex story behind the currency’s volatility. As early adopting firms were eliminated from the market due to poor management and dysfunctional processes, later entrants learn from their errors and build stronger processes into their own operations, strengthening the infrastructure of the cryptocurrency overall.
High-Inflation Nations and Bitcoins
Bitcoin’s use case as a currency for developing countries that are currently experiencing high inflation is valuable when considering the volatility of bitcoin in these economies versus the volatility of bitcoin in USD. Bitcoin is much more volatile versus USD than the high-inflation Argentine peso versus the USD.
That being said, the near frictionless transfer of bitcoins across borders makes it a potentially highly attractive borrowing instrument for Argentineans, as the high inflation rate for peso-denominated loans potentially justifies taking on some intermediate currency volatility risk in a bitcoin-denominated loan funded outside Argentina.
Similarly, funders outside Argentina can earn a higher return under this scheme than they can by using other debt instruments, denominated in their home currency, potentially offsetting some of the risks of exposure to the high inflation Argentine market.
Tax Treatment Lifts Volatility
According to the Internal Revenue Service (IRS), bitcoin is actually considered an asset for tax purposes. This has had a mixed impact on bitcoin's volatility. On the upside, any statement recognizing the currency has a positive effect on the market valuation of the currency.
Conversely, the decision by the IRS to call it property had at least two negative effects. The first was the added complexity for users who want to use it as a form of payment. Under the new tax law, users would have to record the market value of the currency at the time of every transaction, no matter how small. This need for record keeping can understandably slow adoption as it seems to be too much trouble for what it is worth for many users.
Secondly, the decision to call the currency a form of property for tax purposes may be a signal to some market participants that the IRS is preparing to enforce stronger regulations later. Very strong regulation of the currency could cause the adoption rate of the currency to slow to the point where it is not able to achieve the mass adoption that is critical for its overall utility in society. Recent moves by the IRS are not clear as to their signaling motives and therefore have mixed signals to the market for bitcoin.
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d049509bae52de72349741968e4fbecb | https://www.investopedia.com/articles/investing/052015/top-5-skills-every-actuary-needs.asp | The Top 5 Skills Every Actuary Needs | The Top 5 Skills Every Actuary Needs
An actuary specializes in evaluating the financial implications of risk and uncertainty, devising solutions to reduce the likelihood of undesirable events and decrease the negative consequences of such events when they occur.
Becoming an actuary is another option. According to the Bureau of Labor Statistics, the profession boasted a median wage of $102,880 in the U.S. in 2018 and a job growth outlook of 22% between 2016 and 2026. Below is an outline of the majors that an actuary typically studies as well as the top five skills needed to be successful in this profession.
What Actuaries Study
To become an actuary, you will need, at minimum, a bachelor’s degree. The most direct route is to major in actuarial science, a course of study that consists of math, statistics, and industry-related topics. However, other quantitative majors can produce well-qualified candidates as well. These majors typically include computer science, economics, mathematics, physics, and statistics, among others.
Essentially, any major that includes substantial coursework in mathematics, statistics, business, management, accounting, economics, finance, and computer programming should be sufficient preparation for an actuarial career. However, an education that also includes the humanities, especially English, would be highly beneficial. Actuaries should also know about topics such as law and government and must be able to communicate effectively in writing and speech.
$102,880 The median wage of an actuary in 2018.
Top Five Skills of an Actuary
Actuaries need a wide range of skills to be successful. Five of the most important are listed below.
1. Analytical Problem Solving Skills
Actuaries need to be analytical problem solvers as their tasks include examining complex data and identifying patterns and trends to determine which factors are responsible for specific outcomes. After evaluating and weighing the significance of these factors, actuaries look for ways to minimize the likelihood of undesirable outcomes or the cost of the realization of an undesirable outcome.
2. Math and Numeracy Skills
Actuaries deal with numbers, so being able to do basic arithmetic quickly and correctly is a definite requirement. However, the math associated with actuarial science can be more complicated. Knowledge of calculus, statistics, and probability are also essential since actuaries quantify risk and determine the probable likelihood of certain events.
3. Computer Skills
Computers and a variety of statistical modeling software are the tools of the actuary trade. Actuaries frequently use models and tables to evaluate large amounts of data. Not only are basic computer skills and a knowledge of Microsoft Office absolutely essential, but being able to program in a statistical programming language is also a necessity.
4. Knowledge of Business and Finance
Businesses, financial institutions, and insurance companies often employ actuaries. As such, they are responsible for evaluating insurance or pension plans, advising businesses on how to limit exposure to financial risk, and providing banks with expert opinions on maximizing returns for a variety of investment products. This requires a sound understanding of business and financial concepts.
5. Communication and Interpersonal Skills
Actuaries often collaborate with various personnel, including programmers, accountants, and senior management, which makes it imperative that they can communicate and work effectively with others. Strong oral communication skills enable actuaries to explain complex technical and statistical details to a diverse audience, while solid writing skills ensure that findings and solutions are easily understood in memos and written reports.
Actuaries also often lead teams on a variety of projects and thus must be able to handle an assortment of personalities.
The Bottom Line
From the above list, it appears that you need to be good at just about everything to be an actuary. A number of these skills can be learned through on-the-job training or an internship. Given that the number of actuary positions is projected to increase at an above-average rate over the next years, having the right attitude and an aptitude for the skills mentioned above may be just enough to land you that rewarding job.
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b6767bdf01551343aeab8f230aca0374 | https://www.investopedia.com/articles/investing/052115/how-why-google-glass-failed.asp | How and Why Google Glass Failed | How and Why Google Glass Failed
How and Why Did Google Glass Fail?
Amidst the lightning rollout of fashionable, utilitarian merchandise, we think some products emerge out of the ether into our hands in the blink of an eye. This is no deception—it’s a kind of magic. Experimentation is required for any successful product deployment. All the same, evolution is often out of reach or hidden behind the scenes.
Since 2010, Google (GOOG) X, a fairly secretive initiative founded by Sebastian Thrun, has attempted to improve life and commodities by a factor of 10, rather than ten percent, through efforts called moonshots. Project Glass was assembled by virtue of these ambitions.
Viewed as a vehicle for future technology, the MIT Technology Review comments that “Glass is already miles from where it was in 2011.” In fact, the invention, which was merely a shot in the dark, has taken on an afterlife of its own.
Key Takeaways Google Glass, wearable "smart glasses," is a Google "moonshot" technology.The product garnered considerable criticism, with concerns about its price, safety, and privacy.Glass seemed to lack the "cool" factor often associated with successful technology product rollouts.
Google became caught up in the storm of its own making when it marketed Glass. The company wanted to capitalize on the hype, hope, and potential of the product instead of selling the reality. Rather than promoting the product as a prototype technology from the future as initially intended, the hype-building marketing campaign and high sticker price of Glass gave it the allure of a super-premium product.
Understanding How and Why Google Glass Failed
The Dream
Google Glass wasn’t coming to save the world, just help it. In fact, the central dispute among members of Google X was whether Glass should be used as a fashionable device all the time or only for specific utilitarian functions.
Drawing inspiration from John F. Kennedy’s understanding that bigger challenges create more passion, specifically in regards to the space race, Google development ultimately strove to integrate feedback into its system.
To do this, Google co-founder Sergey Brin, who also oversees Google X, suggested Glass be treated as a finished product, despite everyone in the lab knowing it was “a prototype, with major kinks to be worked out.” Brin wanted to release Glass to the public and have consumers provide feedback that Google X could then use to improve the design.
The Glass prototype was released early as a result, with the intention of being more forward-looking than expressly convenient. Tim Brown, CEO and president of IDEO, feels the effort was not in vain, stating, “There has never in the history of new technology been an example where the first version out of the gate has been the right version.”
Ultimately, although consumers want wearable technology, the functionality needs to be palatable. As Slate notes, “Glass’ problem is that the technology today simply doesn’t offer anything that average people really want, let alone need, in their everyday lives.” Glass is an interesting idea: it is nice to look at, but not through.
The Reality
Google originally advertised Glass in terms of experience augmentation. The 2012 demo reel featured skydiving, biking, as well as wall scaling. Eventually, the videos showed user-friendly information instantaneously appearing on-screen during everyday activities. Google’s aspirations were lofty: the technology required lengthy battery life, improved image-recognition capabilities, and a lot of data.
Rather than augment reality, Glass simply supplemented it. The three to five-hour battery life enabled users to check messages, view photos, and search the Internet. Glass was competing with other devices that boasted superior cameras, larger capacity, and faster processors.
With Glass’s questionable value came many questions. Would users be comfortable wearing a camera around their faces every day? As the MIT Technology Review points out, “no one could understand why you’d want to have that thing on your face, in the way of normal social interaction.”
Others were less comfortable being on the other side of the Glass. Some bars and restaurants barred wearers entry; several simply banned the device altogether. The device’s outrageous valuation and creepy hazards even led to the creation of a brand-new pejorative.
Furthermore, the device retailed for $1,500 and didn’t do any single action especially well, which is why those who could afford Glass were content with cutting-edge smartphones. In pricing Glass high and limiting access to a specific community of Glass Explorers, Google simply emphasized division between the haves and have-nots.
People spend egregious sums on luxury items, but they find value with identity. Google Glass seems to be lacking in the department. Superficially, yet crucially, the device isn’t cool.
Google then tried to associate the product with fashion designers. Glass was featured during Fashion Week and in relevant advertisements. In other words, the company tried to buy coolness.
However, the coolness associated with an invention assumes the element of faith—the brand is trustworthy. The Harvard Business Review puts it best: “Cool is not an equation. It’s mysterious, ineffable. An art, not a science.” Art isn’t easy in technology.
Glass is not meant for mass consumption—not at this moment. Google is both behind the times and ahead of them. Nevertheless, Project Glass may be a moonshot worth taking, if Google can stick the landing.
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c64d1b9dd80ea97ad7e29771ef15268d | https://www.investopedia.com/articles/investing/052413/what-type-trader-are-you.asp | What Type of Trader Are You? | What Type of Trader Are You?
You know that the stock market provides an opportunity to make money, but you aren’t quite sure how investors know when to buy and sell. Or maybe you’ve heard terms like “noise trader” or “arbitrage trader,” and you want to know more about them. Either way, an overview of some of the most common types of trading strategies will provide insight into the trading terminology and strategies used by different investors attempting to build wealth in the markets.
Understanding these strategies can help you find one that best matches your personality.
Key Takeaways Types of traders include the fundamental trader, noise trader, and market timer.Each type of trader appeals to investors differently and are based on varying strategies.Understanding your own style of trading can help make better investing decisions.
Fundamental Trader
Fundamental trading is a method by which a trader focuses on company-specific events to determine which stock to buy and when to buy it. To put this in perspective, consider a hypothetical trip to a shopping mall. In the mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not.
While trading on fundamentals can be viewed from both short-term and long-term perspectives, fundamental analysis is often more closely associated with the buy-and-hold strategy of investing than it is with short-term trading. With that noted, the definition of “short term” is an important consideration.
Some trading strategies are based on split-second decisions and others that are based on trends or factors that play out over the course of a day, the fundamentals may not change for months or even years. At the shorter end of the spectrum, for example, the release of a firm’s quarterly financial statements can provide insight into whether or not the firm is improving its financial health or position in the marketplace. Changes (or lack of changes) can serve as signals to trade. Of course, a press release announcing bad news could change the fundamentals in an instant.
Fundamental trading has a real appeal to many investors because it is based on logic and facts. Of course, unearthing and interpreting those facts is a time consuming, research-intensive effort. Another challenge comes in the form of the financial markets themselves, which do not always behave in logical ways (especially in the short term) despite reams of data suggesting that they should.
Noise Trader
Noise trading refers to a style of investing in which decisions to buy and sell are made without the use of fundamental data specific to the company that issued the securities that are being bought or sold. Noise traders generally make short-term trades to profit from various economic trends.
While technical analysis of statistics generated by market activity, such as past prices and volume, provides some insight into patterns that can suggest future market activity and direction, noise traders often have poor timing and over-react to both good and bad news.
Even though that description may not sound very flattering, in reality, most people are considered to be noise traders, as very few make investment decisions solely using fundamental analysis. To put this style in perspective, let’s revisit our earlier analogy about a trip to the mall. Unlike the fundamental analyst, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, the technical analyst's decision would be based on the patterns or activity of people going into each store.
Technical analysis, like other strategies that involve data analysis, can be time-consuming and may require quick reactions to take advantage of perceived opportunities.
Sentiment Trader
Sentiment traders seek to identify and participate in trends. They do not attempt to outguess the market by finding great securities. Instead, they attempt to identify securities that are moving with the momentum of the market.
Sentiment traders combine aspects of both fundamental and technical analysis in an effort to identify and participate in market movements. There are a variety of sentiment trading approaches, including swing traders that seek to catch momentous price movements while avoiding idle times and contrarian traders that try to use indicators of excessive positive or negative sentiment as indications of a potential reversal in sentiment.
Trading costs, market volatility, and difficulty in accurately predicting market sentiment are some of the key challenges facing sentiment traders. While professional traders have more experience, leverage, information, and lower commissions, their trading strategies are restricted by the specific securities they are trading. For this reason, large financial institutions and professional traders may choose to trade currencies or other financial instruments rather than stocks.
Success as a sentiment trader often requires early mornings studying trends and identifying potential securities for purchase or sale. Analysis of this nature can be time-consuming, and trading strategies may require quick timing.
Market Timer
Market timers try to guess which direction (up or down) security will move to profit from that movement. They generally look to technical indicators or economic data to predict the direction of the movement. Some investors, especially academics, do not believe that it is possible to predict the direction of market movements accurately. Others, particularly those engaged in short-term trading, take the exact opposite stance.
The long-term track record of market timers suggests that achieving success is a challenge. Most investors will find that they are not able to dedicate enough time to this endeavor to achieve a reliable level of success. For these investors, long-term strategies are often more satisfying and lucrative.
Of course, day traders would argue that market timing could be a profitable strategy, such as when trading technology shares in a bull market. Investors who purchased and flipped real estate during a market boom would also argue that market timing could be profitable. Just keep in mind that it’s not always easy to tell when to get out of the market, as investors that got burned in the tech-wreck crash and real estate bust can attest. While short-term profits are certainly possible, over the long term, there is little evidence to suggest that this strategy has merit.
You could be more than one type of trader or none of these, depending on your personality.
Arbitrage Trader
Arbitrage traders simultaneously purchase and sell assets in an effort to profit from price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies—it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time. This type of trading is often associated with hedge funds, and it can be a fairly easy way to make money when it works.
For example, if a security trades on multiple exchanges and is less expensive on one exchange, it can be bought on the first exchange at the lower price and sold on the other exchange at the higher price.
It sounds simple enough, but given the advancement in technology, it has become extremely difficult to profit from mispricing in the market. Many traders have computerized trading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly, and the opportunity is often eliminated in a matter of seconds.
The Bottom Line
So maybe none of these trading strategies seem to be a good fit for your personality? There are a host of other strategies to consider, and with just a little research, you may be able to find a strategy that is a perfect fit for you. Or perhaps, proximity to your investment goals rather than company-specific factors or market indicators is the primary factor driving your buy/sell decisions. That’s okay.
Some people engage in trading to try and achieve their financial goals. Others just buy, hold, and wait for time to pass and asset values to rise. Either way, knowing your personal style and strategy will help give you the peace of mind and fortitude to remain comfortable with your chosen path when market volatility or hot trends make headlines and cause investors to question their investment decisions.
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96731890d388ee0632f344b81fbe6169 | https://www.investopedia.com/articles/investing/052815/financial-news-comparison-bloomberg-vs-reuters.asp | Bloomberg vs. Reuters: What’s the Difference? | Bloomberg vs. Reuters: What’s the Difference?
Bloomberg vs. Reuters: An Overview
The onset of the digital revolution cultivated new ways to access information, leading to cutting edge information platforms in Bloomberg and Reuters. Both Bloomberg L.P. and Reuters are now seen by many as the fastest and most credible digital information sources in the financial industry, providing data and financial news to hundreds of thousands of investors and traders globally.
These two companies are best known as rivaling the traditional outlets such as The Wall Street Journal, The New York Times, and The Financial Times for financial news. But their core services offer users much more than news. Core users of these two companies look to their offerings to find the most up-to-the-minute information available on trading metrics throughout the trading day.
To many investors, financial tools provided by Bloomberg and Reuters have been indispensable in helping them post rich returns and prosper during the bull market of the last decade. In fact, Bloomberg's meteoric growth in revenue and profit has made founder and majority owner Michael Bloomberg a billionaire, enabling him to finance his quest to become the next U.S. president.
Both companies are known for their robust multimedia platforms, with key offerings being the Bloomberg Terminal and the Refinitiv Eikon, formerly known as the Thomson Reuters Eikon, as explained below.
Key Takeaways Bloomberg and Reuters operate in a unique digital sourcing niche. These two platforms rival the traditional news outlets through their extension of in-depth, real-time market data. Bloomberg and Reuters are primarily suited to institutional professionals. Competition for the Bloomberg Terminal versus the Refinitiv Eikon (formerly the Thomson Reuters Eikon) is fierce as each develops new features tailored for institutional professionals. Depending on individual needs and budgets, FactSet, S&P Capital IQ, Morningstar, and YCharts are viable alternatives to Bloomberg Terminal and Refinitiv Eikon subscriptions.
Bloomberg LP
Founder Bloomberg established the company bearing his name in 1981. Before his political career a three-term mayor of New York City, Bloomberg was a well-known name on Wall Street. After being laid off from the investment bank he had worked at for 20 years, Bloomberg launched his business information platform. Bloomberg LP provided quick, high-quality business information to Wall Street. In the early 1980s, the company sold its first financial information system to Merrill Lynch, now a part of Bank of America Corp. (BAC). Merrill Lynch owned a stake in Bloomberg for years, which it later sold.
Today, Bloomberg LP is not only known for the Bloomberg Terminal, but it has become a global multimedia entity as well. The financial news and media company includes Bloomberg News, weekly magazine Bloomberg Businessweek, as well as radio and television broadcasts. Bloomberg employs more than 2,700 news professionals in 120 countries, and offers clients access to research from more than 1,500 sources. Even with a vast array of products and services, the Bloomberg Terminal continues to be Bloomberg LP’s core revenue-generating product.
Bloomberg Terminal
The Bloomberg Terminal is an integral tool within the finance industry that is used to access, compile and analyze financial information. Over the years, the Bloomberg terminal has transformed into a system that is accessible anywhere.
Many companies rely on the terminal to assess individual securities, market movements, and monitor news simultaneously. An extension, Bloomberg Tradebook, allows formal trade execution through its messaging service. Traders, portfolio managers, and risk management analysts, among other financial professionals, rely on the program for daily market analysis and trading decisions. Currently, there are over 325,000 Bloomberg Terminal subscriptions worldwide.
Thomson Reuters
Created from the Thomson Corporation's 2008 acquisition of Reuters, Thomson Reuters is a multinational media and financial information resource. Thomson Reuters prides itself on delivering leading intelligence on various sectors, from finance, tax, and accounting to legal and intellectual property.
Refinitiv Eikon
In 2011, Thomson Reuters moved beyond the realm of financial news with the release of a more affordable option to the Bloomberg Terminal: the Thomson Reuters Eikon, now known as the Refinitiv Eikon. Like the Bloomberg Terminal, Eikon is a software system used to monitor and analyze financial information. Eikon provides financial professionals with access to market data, analytics, and messaging tools. Information can also be exported to Microsoft Excel for continued data analysis.
Furthermore, Eikon can use all tweets on a given subject to identify positive or negative indicators. Unstructured data from social media sources have been vital in identifying trends over the past decade, but few platforms, other than Eikon, have been able to collect and analyze this data.
In 2018, Thomson Reuters and The Blackstone Group, a leading asset management company, created a firm called Refinitiv that is 55% owned by Blackstone. Refinitiv is a financial information provider serving more than 40,000 institutions in about 190 countries, and has a 30-year agreement to use Reuters data. Refinitiv is also now the entity managing the Eikon.
Key Differences—Comparing Market Metrics
Eikon and Bloomberg Terminal are the two most used business information platforms in the world. The Bloomberg Terminal has a 33.4% market share, while Eikon has a 23.1%, according to the latest available data. The remaining market share is primarily comprised of FactSet, S&P Capital IQ, and Morningstar Direct.
Bloomberg Terminal has about 325,000 users while Eikon has about 190,000.
For individuals who work at large financial institutions, the cost of either program is high, but necessary to compete. However, the costs can be staggering for non-profit higher education institutions and government agencies, and also for small businesses. Bloomberg Terminal is the most expensive among financial data providers, at $24,000 per year, according to the latest detailed analysis of Bloomberg and its rivals by Wall Street Prep. For customers with two or more subscriptions, Bloomberg charges $20,000 per year. By comparison, a fully loaded version of Eikon costs $22,000, and a discounted version costs $3,600, according to Wall Street Prep.
Bloomberg Professional Services does not publish a price for a Bloomberg Terminal subscription, and Refinitiv does not publish a price for Eikon.
While Bloomberg Terminal and Thomson Reuters Eikon are far and away the two most popular platforms in this space, there are several less expensive substitutes. FactSet, S&P Capital IQ, Morningstar Inc., and YCharts are all viable alternatives. The choice depends on one’s needs and budget.
After Bloomberg and Eikon, FactSet and Capital IQ also are popular financial data platforms for professionals. For smaller more personal use, YCharts offers a lite and professional version. These subscriptions are geared toward individual investors and the YCharts professional service is better suited for small businesses.
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ee6bece202fd50567215d66fb18ec8b4 | https://www.investopedia.com/articles/investing/052815/when-why-should-company-use-lifo.asp | When Should a Company Use Last in, First Out (LIFO)? | When Should a Company Use Last in, First Out (LIFO)?
Last in, first out (LIFO) is a method used to account for how inventory has been sold that records the most recently produced items as sold first. This method is banned under the International Financial Reporting Standards (IFRS), the accounting rules followed in the European Union (EU), Japan, Russia, Canada, India, and many other countries. The U.S. is the only country that allows last in, first out (LIFO) because it adheres to Generally Accepted Accounting Principles (GAAP).
There are two alternatives to last in, first out (LIFO) for inventory costing: first in, first out (FIFO) and the average cost method. In first in, first out (FIFO), the oldest inventory items are recorded as sold first. The average cost method takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the cost of goods sold (COGS) and ending inventory.
Key Takeaway Last in, first out (LIFO) is a method used to account for how inventory has been sold that records the most recently produced items as sold first.The U.S. is the only country that allows LIFO because it adheres to Generally Accepted Accounting Principles (GAAP), rather than the International Financial Reporting Standards (IFRS), the accounting rules followed in the European Union (EU), Japan, Russia, Canada, India, and many other countries.Virtually any industry that faces rising costs can benefit from using LIFO cost accounting.
When prices are rising, it can be advantageous for companies to use LIFO because they can take advantage of lower taxes. Many companies that have large inventories use LIFO, such as retailers or automobile dealerships.
How Last in, First out (LIFO) Works
Under LIFO, a business records its newest products and inventory as the first items sold. The opposite method is FIFO, where the oldest inventory is recorded as the first sold. While the business may not be literally selling the newest or oldest inventory, it uses this assumption for cost accounting purposes. If the cost of buying inventory were the same every year, it would make no difference whether a business used the LIFO or the FIFO methods. But costs do change because, for many products, the price rises every year.
Companies That Benefit From LIFO Cost Accounting
Businesses that sell products that rise in price every year benefit from using LIFO. When prices are rising, a business that uses LIFO can better match their revenues to their latest costs. A business can also save on taxes that would have been accrued under other forms of cost accounting, and they can undertake fewer inventory write-downs.
Virtually any industry that faces rising costs can benefit from using LIFO cost accounting. For example, many supermarkets and pharmacies use LIFO cost accounting because almost every good they stock experiences inflation. Many convenience stores—especially those that carry fuel and tobacco—elect to use LIFO because the costs of these products have risen substantially over time.
Criticism of LIFO
Opponents of LIFO say that it distorts inventory figures on the balance sheet in times of high inflation. They also point out that LIFO gives its users an unfair tax break because it can lower net income, and subsequently, lower the taxes a firm faces.
Example of LIFO
Suppose there's a company called One Cup, Inc. that buys coffee mugs from wholesalers and sells them on the Internet. One Cup's cost of goods sold (COGS) differs when it uses LIFO versus when it uses FIFO. In the first scenario, the price of wholesale mugs is rising from 2016 to 2019. In the second scenario, prices are falling between the years 2016 and 2019.
Rising Prices
Year Number of Mugs Purchased from Wholesaler Cost per Mug Total Cost 2016 100 $1.00 $100 2017 100 $1.05 $105 2018 100 $1.10 $110 2019 100 $1.15 $115
Falling Prices
Year Purchased Number of Mugs Purchased from Wholesaler Cost per Mug Total 2016 100 $1.00 $100 2017 100 $0.95 $95 2018 100 $0.90 $90 2019 100 $0.85 $85
In 2020, One Cup sells 250 mugs on the Internet. Under LIFO, COGS is equal to: the total cost of the 100 mugs purchased from the wholesaler in 2019, plus the cost of 100 mugs purchased in 2018, plus the cost of 50 of the 100 mugs purchased in 2017.
Under FIFO, COGS is equal to: the total cost of 100 mugs purchased in 2016, plus the cost of 100 mugs purchased in 2017, plus the cost of 50 of the 100 mugs purchased in 2018.
The third table demonstrates how COGS under LIFO and FIFO changes according to whether wholesale mug prices are rising or falling.
COGS During Rising Prices and Falling Prices Depending on Accounting Method
RISING PRICES FALLING PRICES FIFO $260 $240 LIFO $277.5 $222.5
During times of inflation, COGS is higher under LIFO than under FIFO. This is because the most recently purchased items are sold first: 100 units from 2019, 100 units from 2018, and 50 units from 2017.
Under FIFO, the oldest items are sold first: 100 units from 2016, 100 units from 2017, and 50 units from 2018. These prices are combined to make the 250-unit order. During times of falling prices, the opposite is true: the COGS is lower under LIFO and higher under FIFO.
Therefore, in times of inflation, the COGS under LIFO better represents the real-world cost of replacing the inventory. This is in accordance with what is referred to as the matching principle of accrual accounting.
LIFO Lowers Tax Bills During Inflation
The higher COGS under LIFO decreases net profits and thus creates a lower tax bill for One Cup. This is why LIFO is controversial; opponents argue that during times of inflation, LIFO grants an unfair tax holiday for companies. In response, proponents claim that any tax savings experienced by the firm are reinvested and are of no real consequence to the economy. Furthermore, proponents argue that a firm's tax bill when operating under FIFO is unfair (as a result of inflation).
Fewer Inventory Write-Downs Under LIFO
A final reason that companies elect to use LIFO is that there are fewer inventory write-downs under LIFO during times of inflation. An inventory write-down occurs when the inventory is deemed to have decreased in price below its carrying value. Under GAAP, inventory carrying amounts are recorded on the balance sheet at either the historical cost or the market cost, whichever is lower.
The market cost is constrained between an upper and lower bound: the net realizable value (the selling price less reasonable costs of completion and disposals) and the net realizable value minus normal profit margins. In inflationary conditions, the carrying amount of the inventories on a balance sheet already reflects the oldest costs of carrying and are the most conservative inventory values. Therefore, under LIFO, write-downs of inventory are usually unnecessary and rarely undertaken.
Moreover, because write-downs can reduce profitability (by increasing the costs of goods sold) and assets (by decreasing inventory), solvency, profitability, and liquidity ratios can all be negatively impacted. GAAP prohibits reversals of write-downs. As a result, firms that are subject to GAAP must ensure that all write-downs are absolutely necessary because they can have permanent consequences.
LIFO Reduces Taxes and Helps Match Revenue With Cost
During times of rising prices, companies may find it beneficial to use LIFO cost accounting over FIFO. Under LIFO, firms can save on taxes as well as better match their revenue to their latest costs when prices are rising.
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67430935596120638bbb43deff3a4307 | https://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp | Inflation's Impact on Stock Returns | Inflation's Impact on Stock Returns
Investors, the Federal Reserve, and businesses continuously monitor and worry about the level of inflation. Inflation—the rise in the price of goods and services—reduces the purchasing power each unit of currency can buy. Rising inflation has an insidious effect: input prices are higher, consumers can purchase fewer goods, revenues, and profits decline, and the economy slows for a time until a measure of economic equilibrium is reached.
Key Takeaways Rising inflation has an insidious effect: input prices are higher, consumers can purchase fewer goods, revenues, and profits decline, and the economy slows for a time until a measure of economic equilibrium is reached. Value stocks perform better in high inflation periods and growth stocks perform better during low inflation. When inflation is on the upswing, income-oriented or high-dividend-paying stock prices generally decline. Stocks overall do seem to be more volatile during highly inflationary periods.
Inflation and the Value of $1
The chart below gives a sense of how dramatically inflation can reduce purchasing power:
This negative impact of rising inflation keeps the Fed diligent and focused on detecting early warning signs to anticipate any unexpected rise in inflation. The sudden increase in inflation is generally considered the most painful, as it takes companies several quarters to be able to pass along higher input costs to consumers. Likewise, consumers feel the unexpected “pinch” when goods and services cost more. However, businesses and consumers eventually become acclimated to the new pricing environment. These consumers become less likely to hold cash because the value over time decreases with inflation.
High inflation can be good, as it can stimulate some job growth. But high inflation can also impact corporate profits through higher input costs. This causes corporations to worry about the future and stop hiring, reducing the standard of living of individuals, especially those on fixed incomes.
For investors, all this can be confusing, since inflation appears to impact the economy and stock prices, but not at the same rate. Because there is no one good answer, individual investors must sift through the confusion to make wise decisions on how to invest in periods of inflation. Different groups of stocks seem to perform better during periods of high inflation.
Inflation and Stock Market Returns
Examining historical returns data during periods of high and low inflation can provide some clarity for investors. Numerous studies have looked at the impact of inflation on stock returns. Unfortunately, these studies have produced conflicting results when several factors are taken into account, namely geography and time period. Most studies conclude that expected inflation can either positively or negatively impact stocks, depending on the investor's ability to hedge and the government’s monetary policy.
Unexpected inflation showed more conclusive findings, most notably being a strong positive correlation to stock returns during economic contractions, demonstrating that the timing of the economic cycle is particularly important for investors gauging the impact on stock returns. This correlation is also thought to stem from the fact that unexpected inflation contains new information about future prices. Similarly, greater volatility of stock movements was correlated with higher inflation rates.
The data has proven this in emerging countries, where the volatility of stocks is greater than in developed markets. Since the 1930s, the research suggests that almost every country suffered its worst real returns during high inflation periods. Real returns are actual returns minus inflation. When examining S&P 500 returns by decade and adjusting for inflation, the results show the highest real returns occur when inflation is 2% to 3%. Inflation greater than or less than this range tends to signal a U.S. macroeconomic environment with larger issues that have varying impacts on stocks. Perhaps more important than the actual returns are the volatility of returns inflation causes and knowing how to invest in that environment.
Growth vs. Value Stock Performance and Inflation
Stocks are often broken down into subcategories of value and growth. Value stocks have strong current cash flows that will slow over time, while growth stocks have little or no cash flow today, but are expected to gradually increase over time.
Therefore, when valuing stocks using the discounted cash flow method, in times of rising interest rates, growth stocks are negatively impacted far more than value stocks. Since interest rates are usually increased to combat high inflation, the corollary is that in times of high inflation, growth stocks will be more negatively impacted. This suggests a positive correlation between inflation and the return on value stocks and a negative one for growth stocks.
Interestingly, the rate of change in inflation does not impact the returns of value versus growth stocks as much as the absolute level. The thought is that investors may overshoot their future growth expectations and upwardly misprice growth stocks. In other words, investors fail to recognize when growth stocks become value stocks, and the downward impact on growth stocks is harsh.
Income-Generating Stocks and Inflation
When inflation increases, purchasing power declines, and each dollar can buy fewer goods and services. For investors interested in income-generating stocks, or stocks that pay dividends, the impact of high inflation makes these stocks less attractive than during low inflation, since dividends tend to not keep up with inflation levels. In addition to lowering purchasing power, the taxation on dividends causes a double-negative effect. Despite not keeping up with inflation and taxation levels, dividend-yielding stocks do provide a partial hedge against inflation.
Similar to the way interest rates impact the price of bonds—when rates rise, bond prices fall—dividend-paying stocks are affected by inflation: When inflation is on the upswing, income stock prices generally decline. So owning dividend-paying stocks in times of increasing inflation usually means the stock prices will decrease. But investors looking to take positions in dividend-yielding stocks are allowed to buy them cheap when inflation is rising, providing attractive entry points.
The Bottom Line
Investors try to anticipate the factors that impact portfolio performance and make decisions based on their expectations. Inflation is one of those factors that affect a portfolio. In theory, stocks should provide some hedge against inflation, because a company’s revenues and profits should grow at the same rate as inflation, after a period of adjustment. However, inflation’s varying impact on stocks confuses the decision to trade positions already held or to take new positions. In the U.S. market, the historical proof is noisy, but it does show a correlation to high inflation and lower returns for the overall market in most periods.
When stocks are divided into growth and value categories, the evidence is clearer that value stocks perform better in high inflation periods, and growth stocks perform better during low inflation. One way investors can predict expected inflation is to analyze the commodity markets, although the tendency is to think that if commodity prices are rising, stocks should rise since companies “produce” commodities. However, high commodity prices often squeeze profits, which in turn reduces stock returns. Therefore, following the commodity market may provide insight into future inflation rates.
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7d8d9a654d5b0ba8eb6be6157c62d737 | https://www.investopedia.com/articles/investing/052915/different-types-swaps.asp | Different Types of Swaps | Different Types of Swaps
Swaps are derivative instruments that represent an agreement between two parties to exchange a series of cash flows over a specific period of time. Swaps offer great flexibility in designing and structuring contracts based on mutual agreement. This flexibility generates many swap variations, with each serving a specific purpose.
There are multiple reasons why parties agree to such an exchange:
Investment objectives or repayment scenarios may have changed.There may be increased financial benefit in switching to newly available or alternative cash flow streams.The need may arise to hedge or mitigate risk associated with a floating rate loan repayment.
Interest Rate Swaps
The most popular types of swaps are plain vanilla interest rate swaps. They allow two parties to exchange fixed and floating cash flows on an interest-bearing investment or loan.
Businesses or individuals attempt to secure cost-effective loans but their selected markets may not offer preferred loan solutions. For instance, an investor may get a cheaper loan in a floating rate market, but he prefers a fixed rate. Interest rate swaps enable the investor to switch the cash flows, as desired.
Assume Paul prefers a fixed rate loan and has loans available at a floating rate (LIBOR+0.5%) or at a fixed rate (10.75%). Mary prefers a floating rate loan and has loans available at a floating rate (LIBOR+0.25%) or at a fixed rate (10%). Due to a better credit rating, Mary has the advantage over Paul in both the floating rate market (by 0.25%) and in the fixed rate market (by 0.75%). Her advantage is greater in the fixed rate market so she picks up the fixed rate loan. However, since she prefers the floating rate, she gets into a swap contract with a bank to pay LIBOR and receive a 10% fixed rate.
Paul borrows at floating (LIBOR+0.5%), but since he prefers fixed, he enters into a swap contract with the bank to pay fixed 10.10% and receive the floating rate.
Image by Julie Bang © Investopedia 2019
Benefits: Paul pays (LIBOR+0.5%) to the lender and 10.10% to the bank, and receives LIBOR from the bank. His net payment is 10.6% (fixed). The swap effectively converted his original floating payment to a fixed rate, getting him the most economical rate. Similarly, Mary pays 10% to the lender and LIBOR to the bank and receives 10% from the bank. Her net payment is LIBOR (floating). The swap effectively converted her original fixed payment to the desired floating, getting her the most economical rate. The bank takes a cut of 0.10% from what it receives from Paul and pays to Mary.
Currency Swaps
The transactional value of capital that changes hands in currency markets surpasses that of all other markets. Currency swaps offer efficient ways to hedge forex risk.
Assume an Australian company is setting up a business in the UK and needs GBP 10 million. Assuming the AUD/GBP exchange rate at 0.5, the total comes to AUD 20 million. Similarly, a UK-based company wants to set up a plant in Australia and needs AUD 20 million. The cost of a loan in the UK is 10% for foreigners and 6% for locals, while in Australia it's 9% for foreigners and 5% for locals. Apart from the high loan cost for foreign companies, it might be difficult to get the loan easily due to procedural difficulties. Both companies have a competitive advantage in their domestic loan markets. The Australian firm can take a low-cost loan of AUD 20 million in Australia, while the English firm can take a low-cost loan of GBP 10 million in the UK. Assume both loans need six monthly repayments.
Both companies then execute a currency swap agreement. At the start, the Australian firm gives AUD 20 million to the English firm and receives GBP 10 million, enabling both firms to start a business in their respective foreign lands. Every six months, the Australian firm pays the English firm the interest payment for the English loan = (notional GBP amount * interest rate * period) = (10 million * 6% * 0.5) = GBP 300,000 while the English firm pays the Australian firm the interest payment for the Australian loan = (notional AUD amount * interest rate * period) = (20 million * 5% * 0.5) = AUD 500,000. Interest payments continue until the end of the swap agreement, at which time the original notional forex amounts will be exchanged back to each other.
Benefits: By getting into a swap, both firms were able to secure low-cost loans and hedge against interest rate fluctuations. Variations also exist in currency swaps, including fixed vs. floating and floating vs.floating. In sum, parties are able to hedge against volatility in forex rates, secure improved lending rates, and receive foreign capital.
Commodity Swaps
Commodity swaps are common among individuals or companies that use raw materials to produce goods or finished products. Profit from a finished product may suffer if commodity prices vary, as output prices may not change in sync with commodity prices. A commodity swap allows receipt of payment linked to the commodity price against a fixed rate.
Assume two parties get into a commodity swap over one million barrels of crude oil. One party agrees to make six-monthly payments at a fixed price of $60 per barrel and receive the existing (floating) price. The other party will receive the fixed and pay the floating.
If crude oil rises to $62 at the end of six months, the first party will be liable to pay the fixed ($60 *1 million) = $60 million and receive the variable ($62 * 1 million) = $62 million from the second party. Net cash flow in this scenario will be $2 million transferred from the second party to the first. Alternatively, if crude oil drops to $57 in the next six months, the first party will pay $3 million to the second party.
Benefits: The first party has locked in the price of the commodity by using a currency swap, achieving a price hedge. Commodity swaps are effective hedging tools against variations in commodity prices or against variation in spreads between the final product and raw material prices.
Credit Default Swaps
The credit default swap offers insurance in case of default by a third-party borrower. Assume Peter bought a 15-year long bond issued by ABC, Inc. The bond is worth $1,000 and pays annual interest of $50 (i.e., 5% coupon rate). Peter worries that ABC, Inc. may default so he executes a credit default swap contract with Paul. Under the swap agreement, Peter (CDS buyer) agrees to pay $15 per year to Paul (CDS seller). Paul trusts ABC, Inc. and is ready to take the default risk on its behalf. For the $15 receipt per year, Paul will offer insurance to Peter for his investment and returns. If ABC, Inc. defaults, Paul will pay Peter $1,000 plus any remaining interest payments. If ABC, Inc. does not default during the 15-year long bond duration, Paul benefits by keeping the $15 per year without any payables to Peter.
Benefits: The CDS works as insurance to protect lenders and bondholders from borrowers’ default risk.
Zero Coupon Swaps
Similar to the interest rate swap, the zero coupon swap offers flexibility to one of the parties in the swap transaction. In a fixed-to-floating zero coupon swap, the fixed rate cash flows are not paid periodically, but just once at the end of the maturity of the swap contract. The other party who pays floating rate keeps making regular periodic payments following the standard swap payment schedule.
A fixed-fixed zero coupon swap is also available, wherein one party does not make any interim payments, but the other party keeps paying fixed payments as per the schedule.
Benefits: The zero coupon swap (ZCS) is primarily used by businesses to hedge a loan in which interest is paid at maturity or by banks that issue bonds with end-of-maturity interest payments.
Total Return Swaps
A total return swap gives an investor the benefits of owning securities, without actual ownership. A TRS is a contract between a total return payer and total return receiver. The payer usually pays the total return of agreed security to the receiver and receives a fixed/floating rate payment in exchange. The agreed (or referenced) security can be a bond, index, equity, loan, or commodity. The total return will include all generated income and capital appreciation.
Assume Paul (the payer) and Mary (the receiver) enter into a TRS agreement on a bond issued by ABC Inc. If ABC Inc.’s share price rises (capital appreciation) and pays a dividend (income generation) during the swap's duration, Paul will pay Mary those benefits. In return, Mary has to pay Paul a pre-determined fixed/floating rate during the duration.
Benefits: Mary receives a total rate of return (in absolute terms) without owning the security and has the advantage of leverage. She represents a hedge fund or a bank that benefits from the leverage and additional income without owning the security. Paul transfers the credit risk and market risk to Mary, in exchange for a fixed/floating stream of payments. He represents a trader whose long positions can be converted to a short-hedged position while also deferring the loss or gain to the end of swap maturity.
The Bottom Line
Swap contracts can be easily customized to meet the needs of all parties. They offer win-win agreements for participants, including intermediaries like banks that facilitate the transactions. Even so, participants should be aware of potential pitfalls because these contracts are executed over the counter without regulations.
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9f506f1d35c9999f424e32c86d2d4f21 | https://www.investopedia.com/articles/investing/052915/how-invest-swiss-franc.asp | How To Invest In The Swiss Franc | How To Invest In The Swiss Franc
The Swiss franc has long been considered one of the safe havens of the financial world. In times of trouble, investors could park their money in Switzerland’s national currency and know it would retain its value. The financial crisis of 2007-2008 sent nervous investors flocking to buy Swiss francs. Its rock steady performance in the ensuring European debt crisis made the franc even more popular. In this article, we will explore financial instruments, like ETFs and forex options, that allow investors to bet on the Swiss franc without actually buying up the currency.
When a Currency Is Too Strong
Back in 2011, the European debt crisis was roiling, the EU and international investors looking for safety bought up Swiss francs, driving up the currency’s value. The stronger Swiss francs started to hurt the country’s exports. At this time, policymakers in Switzerland decided to artificially cap their currency at 1.20 against the euro in an attempt to prevent the Swiss franc from becoming too strong. To maintain this cap, the Swiss central bank printed more francs and bought euros with them.
In an unanticipated move in January 2015, the Swiss National Bank suddenly freed its currency by removing the artificial cap it had placed on the Swiss franc against the euro a little over three years before. The move came as a shock for the forex market and send the value of the franc, a stable and conservative currency soaring. In the ensuing chaos, many traders and brokers experienced huge losses. Despite the unexpected decision and its fallout, investors still see the Swiss franc as a safe haven backed by a robust financial system and strong competitive economy. (Related reading Is The Swiss Franc A Safe Haven?)
Ways to Invest in the Swiss Franc
According to the Bank of International Settlements (BIS), the Swiss franc accounts for approximately 5 percent of global foreign exchange transactions. The U.S. dollar and Swiss franc pair (USD/CHF), known among traders as the Swissie, is the sixth-most-traded currency pair. Here are some ways investors can get exposure to the Swiss franc.
Exchange-Traded Funds (ETFs)
Launched in 2006, CurrencyShares Swiss Franc Trust (NYSE: FXF) tracks the price of Swiss franc against the U.S. dollar. Accessing the Swiss markets through an exchange-traded fund is a good option for those looking to take advantage of tactical opportunities in the short-term and strategic opportunities in the long-term without having to own a foreign exchange account. This route offers some advantages to investors. Investors can use their traditional brokerage accounts to buy shares of the ETF. These are treated as regular securities with transaction costs far lower than currency spot market transaction costs. The shares are traded on the NYSE Arca daily which provides eligibility for a margin account as well as short sale which is permitted by the U.S. Securities and Exchange Commission (SEC). (Related reading Use This ETF To Trade The Swiss Franc)
Spot Market
Just the way a stock market provides a platform to buy and sell stocks, the foreign exchange market (commonly known as FX or forex) is the platform for trading in different currencies. Forex platforms offer a wider variety of currency pairs. Before plunging into forex, gain some basic knowledge of the market through a trading course or self learning. From there, it’s simple to open a forex trading account and begin performing currency trades in the same way as stocks.
The forex markets operate 24-hours-a-day, 5-days-a-week which provide a lot of freedom for investors and traders. These markets also allow trading on margin, a way for participants to increase investment amounts without actually having the capital. When using margins, always remember that leverage works both ways—it can magnify both profit and loss. The USD/CHF currency pair belongs to the category of major pairs (in other words, it is among the most widely traded and liquid currency pairs in the foreign exchange market). (Related reading Top US-Regulated Forex Brokers)
Futures and Options
Another way to invest in the Swiss Franc is through futures and options. Many people mistakenly think the opportunity to trade these derivatives is only restricted to stocks. The foreign exchange market offers retail traders these derivative products which manage the risks associated with currency rate fluctuation while taking advantage of profit opportunities from changes in currency rates. Forex futures trading and forex options trading are popular hedging techniques commonly used by banks and financial institutions.
These products are traded at many exchanges around the world with Chicago Mercantile Exchange (CME) being the most popular. CME introduced Swiss franc futures in 1972 followed by Swiss franc options in 1985. Several brokers provide a platform to trade in Swiss franc futures and options. (Related reading An Introduction To Trading Forex Futures and Getting Started In Forex Options)
Binary Options
The simplicity, flexibility, and ease provided by binary options have made them a popular choice for many in the forex market. Some of the popular currency pairs among binary option traders are the euro and U.S. dollar (EUR/USD), the British pound and U.S. dollar (GBP/USD), the euro and British pound (EUR/GBP), USD/CHF, and the U.S. dollar and Japanese yen (USD/JPY). The advantage of binary options is their simplicity. All you need to do is predict if the currency will move up or down.
The USD/CHF is a less volatile pair compared to other currency pairs, which can make predicting its movement difficult. Keep track of events that may influence the pair such as announcements regarding economic factors, monetary action by the U.S. Federal reserve, and actions by the Swiss National Bank. Other triggers to a movement between the two currencies can be gross domestic product estimates for either country, unemployment data, industrial growth figures, and national debt.
Experiment with a few other currency pairs and gain basic trading experience before moving on to the more challenging USD/CHF pair. You must also gain knowledge about technical analysis which will come in handy in forecasting the movement of the pair; these estimates must be backed by fundamental analysis. (Related reading Trading Forex With Binary Options)
The Bottom Line
Those interested in investing in Swiss francs must remember that foreign exchange markets, like stock markets, are prone to ups and downs which can have a negative impact on your position. Though the Swiss franc is usually stable above all, the Swiss National Bank’s recent decision to suddenly unpeg the value of the franc from the euro destabilized the currency, sending its value soaring. The episode is another reminder that currency movement is hugely dependent on the policies and actions of central banks in addition to macroeconomics. While risks exist, the Swiss franc, resting on Switzerland’s sound economy and financial system, will continue to be one of the safer investment options. (Related reading Why The Swiss Franc Is So Strong)
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bcfe66be2a791a8388c7a37eaf8522a2 | https://www.investopedia.com/articles/investing/060313/what-determines-your-cost-basis.asp | Cost Basis 101: How to Understand It | Cost Basis 101: How to Understand It
What Is Cost Basis?
Cost basis is the original value or purchase price of an asset or investment for tax purposes. The cost basis value is used in the calculation of capital gains or losses, which is the difference between the selling price and purchase price.
Calculating the total cost basis is critical to understanding if an investment is profitable or not, and any possible tax consequences. If investors want to know whether an investment has provided those longed-for gains, they need to keep track of the investment's performance.
2:00 Know Your Stock Cost Basis
Understanding Cost Basis
Cost basis starts as the original cost of an asset for tax purposes, which is initially the first purchase price. But the initial purchase price is only one part of the overall cost of an investment. As time moves forward, this cost basis will be adjusted for financial and corporate developments such as stock splits, dividends, and return of capital distributions. The latter is common with certain investments such as Master Limited Partnerships (MLPs).
Cost basis is used to determine the capital gains tax rate, which is equal to the difference between the asset's cost basis and the current market value. Of course, this rate is triggered when an asset is sold, or the gain or loss is realized. Tax basis still holds for unrealized gains or losses when securities are held but has not been officially sold, but taxing authorities will require a determination of the capital gains rate, which can be either short term or long term.
Key Takeaways Cost basis is the original value or purchase price of an asset or investment for tax purposes. Cost basis is used to calculate the capital gains tax rate, which is the difference between the asset's cost basis and current market value. The IRS requires the first-in, first-out (FIFO) method for calculating taxes and cost basis, meaning the oldest holdings get sold first.
Tax Reporting Cost Basis
Although brokerage firms are required to report the price paid for taxable securities to the IRS, for some securities, such as those held for a long period of time or those transferred from another brokerage firm, the historical cost basis will need to be provided by the investor. All of which puts the onus of accurate cost basis reporting on investors.
Determining the initial cost basis of securities and financial assets for only one initial purchase is very straightforward. In reality, there can be subsequent purchases and sales as an investor makes decisions to implement specific trading strategies and maximize profit potential to impact an overall portfolio. With all of the various types of investments, including stocks, bonds, and options, calculating cost basis accurately for tax purposes, can get complicated.
In any transaction between a buyer and seller, the initial price paid in exchange for a product or service will qualify as the cost basis. The equity cost basis is the total cost to an investor; this amount includes the purchase price per share plus reinvested dividends and commissions. Equity cost basis is not only required to determine how much, if any, taxes need to be paid on an investment, but is critical in tracking the gains or losses on investment to make informed buy or sell decisions.
Calculating Cost Basis
As stated earlier, the cost basis of any investment is equal to the original purchase price of an asset. Every investment will start out with this status, and if it ends up being the only purchase, determining the cost is merely the original purchase price. Note that it is allowable to include the cost of a trade, such as a stock-trade commission, which can also be used to reduce the eventual sales price.
Once subsequent purchases are made, the need arises to track each purchase date and value. For tax purposes, the method used by the Internal Revenue Service (IRS) is first-in, first-out (FIFO) for those familiar with the inventory tracking method for businesses. In other words, when a sale is made, the cost basis on the original purchase would first be used and would follow a progression through the purchase history.
For example, let's assume Lawrence purchased 100 shares of XYZ for $20 per share in June and then makes an additional purchase of 50 XYZ shares in September for $15 per share.
If he sold 120 shares, his cost basis using the FIFO method would be (100 x $20 per share) + (20 x $15 per share) = $2,300. The average cost method may also be applicable and represents the total dollar amount of shares purchased, divided by the total number of shares purchased. If Lawrence sold 120 shares, his average cost basis would be 120 x [(100 x $20 per share) + (50 x $15 per share)]/ 150 = $2,200.
IRS publications, such as Publication 550, can help an investor learn which method is applicable for certain securities. Otherwise, an accountant can help determine the best course of action. There are also differences among securities, but the basic concept of what the purchase price is applied. Typically, most examples cover stocks. However, bonds are somewhat unique in that the purchase price above or below par must be amortized until maturity. For mutual funds, gains must be paid out annually to shareholders, which triggers a taxable event in taxable (nonqualified) accounts. All amounts will be tracked by a custodian or guidance will be provided by the mutual fund firm.
Why Is Cost Basis Important?
The need to track the cost basis for investment is needed mainly for tax purposes. Without this requirement, there is a solid case to be made that most investors would not bother keeping such detailed records. And because taxes on capital gains can be as high as ordinary income rates (in the case of the short-term capital gains tax rate), it pays to minimize them if at all possible. Holding securities for longer than one year qualifies the investment as a long-term investment, which carries a much lower tax rate than ordinary income rates and decreases based on income levels.
In addition to the IRS requirement to report capital gains, it is important to know how an investment has performed over time. Savvy investors know what they have paid for a security and how much in taxes they will have to pay if they sell it. Tracking gains and losses over time also serves as a scorecard for investors and lets them know if their trading strategies are generating profits or losses. A steady string of losses may indicate a need to reevaluate the investment strategy.
Dividends
The equity cost basis for a non-dividend paying stock is calculated by adding the purchase price per share plus fees per share. Reinvesting dividends increases the cost basis of the holding because dividends are used to buy more shares.
For example, let's say an investor bought 10 shares of ABC company for a total investment of $1,000 plus $10 trading fee. The investor was paid dividends of $200 in year one and $400 in year two. The cost basis would be $1,610 ($1,000 + $10 fee + $600 in dividends). If the investor sold the stock in year three for $2,000, the taxable gain would be $390.
One of the reasons investors need to include reinvested dividends into the cost basis total is because dividends are taxed in the year received. If the dividends received are not included in cost basis, the investor will pay taxes on them twice. For instance, in the above example, if dividends were excluded, the cost basis would be $1,010 ($1,000 + $10 Fee). As a result, the taxable gain would be $990 ($2,000 - $1,010 cost basis) versus $390 had the dividend income been included in the cost basis.
In other words, when selling an investment, investors pay taxes on the capital gains based on the selling price and the cost basis. However, dividends get taxed as income in the year they're paid to the investor, regardless of whether the dividends were reinvested or paid out as cash.
Examples of Cost Basis
Calculating the cost basis gets more complicated as a result of corporate actions. Corporate actions include items such as adjusting for stock splits and accounting for special dividends, bankruptcies, and capital distributions, as well as merger and acquisition activity and corporate spinoffs. A stock split, such as a two-for-one split where a company issues an additional share for every share an investor owns, doesn’t change the overall cost basis. But it does mean the cost per share becomes divided by two, or whatever the share exchange ratio ends up being following the split.
According to CCH Capital Changes, a leading authority in helping the IRS and investors track cost basis for corporate actions, there are more than one million corporate action activities each year. Determining the impact of corporate actions isn’t overly complicated, but it can require sleuthing skills such as locating a CCH manual from a local library or heading to the investor relations section of a company’s website. These sources usually provide plenty of detail on M&A activity or spinoffs.
Mergers
When a company you own is acquired by another company, the acquiring company will issue stock, cash, or a combination of both to complete the purchase. Payouts for cash will result in having to realize a portion as a gain and pay taxes on it. The issuance of shares will likely keep capital gains or losses as unrealized, but it will be necessary to track the new cost. Companies provide guidance on the percentages and breakdowns. The same rules also apply for when a company spins out a division into its own new company. Some of the tax cost will go with the new firm, and it will be necessary for the investor to determine the percentage, which the company will provide.
For example, if XYZ company buys ABC company and issues two shares for every one share previously owned, then the investor referred to in the previous example now owns 20 shares of XYZ company. Companies need to file Form S-4 with the Securities and Exchange Commission (SEC), which outlines the merger agreement and helps investors determine the new cost basis.
Bankruptcies
Bankruptcy situations are even more complicated. When companies declare bankruptcy, the impact on shares varies. Declaring bankruptcy does not always indicate that shares are worthless. If a company declares Chapter 7, then the company ceases to exist, and the shares are worthless.
However, if a company declares Chapter 11, the stock may still trade on an exchange or over the counter (OTC) and still retain some value. Therefore the initial cost basis calculations apply. OTC is a broker-dealer network that trades securities that are not listed on a formal exchange.
However, if the bondholder of a company emerging from Chapter 11 is given common stock in exchange for some of the bonds held prior to declaring bankruptcy, the cost basis becomes more complicated. The cost basis would typically be considered the fair market value of the common stock on the effective date; this value is laid out in Chapter 11 emergence plans.
Stock Splits
Thankfully, not all corporate actions complicate cost basis calculations; declaring a stock split is one such action. For example, if a company declares a 2 for 1 split, instead of owning 10 shares of ABC company, an investor would own 20 shares. However, the initial cost of $1,000 stays the same, so the 20 shares would have a price of $50 instead of $100 per share.
Inherited Stocks and Gifts
In addition to corporate actions, other situations can impact the cost basis; one such situation is receiving a stock gift or inheritance. Calculating the cost basis for inherited stock is done by taking the average price on the date of the benefactor's death.
Conversely, a gifted stock is more complicated. If an investor sells the stock, cost basis becomes the purchase price on the date the gifter bought the stock, unless the price is lower on the date of the gift. If this is the case, the tax cost can be reduced, since the stock has suffered a loss in value.
Keeping it Simple
Several methods can help minimize the paperwork and time needed to track cost basis. Companies offer dividend reinvestment plans (DRIPs) that allow dividends to be used to buy additional stock in the firm. If possible, keep these programs in a qualified account where capital gains and losses don’t need to be tracked. Every new DRIP purchase results in a new tax lot. The same goes for automatic reinvestment programs, such as investing $1,000 every month from a checking account. New purchases always mean new tax lots.
The easiest way to track and calculate cost basis is through brokerage firms. Whether an investor has an online or traditional brokerage account, firms have very sophisticated systems that maintain records of transactions and corporate actions related to stocks. However, it's always wise for investors to maintain their own records by self-tracking to ensure accuracy of the brokerage firm's reports. Self-tracking will also alleviate any future problems if investors switch firms, gift stock, or leave stocks to a beneficiary as an inheritance.
For stocks that have been held over many years outside of a brokerage firm, investors may need to look up historical prices to calculate cost basis. Historical prices can be readily found on the internet. For investors that self-track stocks, financial software such as Intuit's Quicken, Microsoft Money, or using a spreadsheet like Microsoft Excel, can be used to organize the data. Lastly, websites such as GainsKeeper or Netbasis are available to provide cost basis and other reporting services for investors. All of these resources make tracking and maintaining accurate records easier.
The Bottom Line
Equity cost basis is important for investors to calculate and track when managing a portfolio and for tax reporting. Calculating equity cost basis is typically more complicated than summing the purchase price with fees. Continual monitoring of corporate actions is important to ensure that investors understand the gain or loss profile of a stock position, as well as ensuring that capital gains and losses are accurately reported. Although brokerage firms tend to track and report this information to the IRS, there are situations where they do not have it, such as in the case of a gifted stock. In addition to brokerage firms, there are many other online resources available to assist in maintaining accurate basis.
The concept of cost basis is fairly straightforward, but it can become complicated. Tracking cost basis is required for tax purposes but also is needed to help track and determine investment success. It's important to keep good records and simplify the investment strategy where possible.
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e3c923aed8e450caed0ca7e6fb2cbc6b | https://www.investopedia.com/articles/investing/060415/10-facts-you-didnt-know-about-amazon.asp | 10 Facts You Didn’t Know About Amazon (AMZN) | 10 Facts You Didn’t Know About Amazon (AMZN)
On Sep. 4, 2018, Amazon.com Inc. (AMZN) became only the second-ever company to join the $1 trillion market capitalization club, when its share price crossed the much-eyed $2050.27 threshold. This comes just over a month after Apple (AAPL) hit the $1 trillion mark on Aug. 2.
Amazon had its Initial Public Offering on May 15, 1997, trading at $18. A $1000 worth of Amazon purchased at its IPO price would on Sep. 4 be worth over $1.1 million.
Although most people know what Amazon does, they may not know some of these fun facts:
In the early stages of Amazon, Jeff Bezos, his wife MacKenzie Bezos, and Amazon's first employee Shel Kaphan, held their meetings inside their local Barnes and Noble. Before CEO and founder Jeff Bezos landed on "Amazon" as the name of the e-commerce giant, he had other names in his bag, such as "Cadabra" (as in "Abracadabra") and "Relentless." However, his lawyer convinced him that "Cadabra" did not sound magical at all. Rather, "Cadabra" sounded too similar to "cadaver." Although "Relentless" did not make the cut to be the name of the company, Jeff Bezos liked the name enough to buy the domain name and now the website; relentless.com redirects to the Amazon.com homepage.In Amazon's early stages as a public company, it launched an auction site to compete with its competitors in the e-commerce space. The day Amazon launched the auction site in 1999, its shares soared almost 8%. (Read: Amazon's Latest Disruption: Prime Rx Deliveries)Before powerhouse search engine company Google had its "Street View" on its map application, Amazon launched a search engine in 2004, A9.com, which started a project called Block View. Block view was a visual yellow pages that allowed its users to see the street view of addresses and directions to their destinations.AmazonSmile allows its users to support charities of their choice when they shop at smile.amazon.com. The AmazonSmile Foundation donates 0.5% of the purchase price of products eligible for AmazonSmile purchases.Amazon Flow, an augmented reality app, can identify millions of products from tissue boxes to book covers. With Amazon Flow, users do not have to memorize their shopping lists as the app allows them to take pictures on their phone. When integrated with Amazon's application, users can find products on Amazon and purchase them without the need to type or scan the bar code.Amazon Go, a high tech supermarket, allows shoppers to buy groceries without ever having to wait on line for a cashier. Amazon Go stores are equipped with hundreds of cameras that utilize a similar type of technology that self-driving cars use. This technology keeps a virtual shopping cart which allows customers just to walk out when they are done shopping. A bill is automatically sent to their Amazon account. The first book ever sold on Amazon was "Fluid Concepts and Creative Analogies," by Douglas Hofstadter.Amazon is developing a futuristic delivery system, Prime Air, which would let Amazon deliver packages to customers within 30 minutes using small drones. When Amazon first started, they rang a bell every time a customer made a purchase. Amazon employs over 563,000 people across the globe, more than Google, Facebook, and Alibaba combined.
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a30c3714c8a07cb09eb2f2a4542330e3 | https://www.investopedia.com/articles/investing/060815/how-rental-property-depreciation-works.asp | How Rental Property Depreciation Works | How Rental Property Depreciation Works
Real estate depreciation is an important tool for rental property owners. It allows you to deduct the costs from your taxes of buying and improving a property over its useful life, and thus lowers your taxable income in the process.
Key Takeaways Rental property owners use depreciation to deduct the purchase price and improvement costs from your tax returns. Depreciation commences as soon as the property is placed in service or available to use as a rental. By convention, most U.S. residential rental property is depreciated at a rate of 3.636% each year for 27.5 years. Only the value of buildings can be depreciated; you cannot depreciate land.
Tax Write-Offs
Investing in rental property can prove to be a smart financial move. For starters, a rental property can provide a steady source of income while you build equity in the property as it (ideally) appreciates over time. There are also several tax benefits. You can often deduct your rental expenses from any rental income you earn, thereby lowering your overall tax liability.
Most rental property expenses, including mortgage insurance, property taxes, repair and maintenance expenses, home office expenses, insurance, professional services, and travel expenses related to management are all deductible in the year you spend the money.
Real Estate Depreciation
Another key tax deduction—namely the allowance for depreciation—works somewhat differently. Depreciation is the process used to deduct the costs of buying and improving a rental property. Rather than taking one large deduction in the year you buy (or improve) the property, depreciation distributes the deduction across the useful life of the property.
The Internal Revenue Service (IRS) has very specific rules regarding depreciation, and if you own rental property, it’s important to understand how the process works.
Which Property Is Depreciable?
According to the IRS, you can depreciate a rental property if it meets all of these requirements:
You own the property (you are considered to be the owner even if the property is subject to a debt). You use the property in your business or as an income-producing activity. The property has a determinable useful life, meaning it's something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. The property is expected to last for more than one year.
Even if the property meets all of the above requirements, it cannot be depreciated if you placed it in service and disposed of it (or no longer use it for business use) in the same year.
Note that land isn't considered depreciable since it never gets "used up." And in general, you cannot depreciate the costs of clearing, planting, and landscaping, as those activities are considered part of the cost of the land and not the buildings.
When Does Depreciation Start?
You can begin taking depreciation deductions as soon as you place the property in service or when it's ready and available to use as a rental.
Here's an example: You buy a rental property on May 15. After working on the house for several months, you have it ready to rent on July 15, so you begin to advertise online and in the local papers. You find a tenant, and the lease begins on Sept. 1. As the property was placed in service—that is, ready to be leased and occupied—on July 15, you would start to depreciate the house in July, and not in September when you start to collect rent.
You can continue to depreciate the property until one of the following conditions is met:
You have deducted your entire cost or other basis in the property. You retire the property from service, even if you have not fully recovered its cost or other basis. A property is retired from service when you no longer use it as an income-producing property—or if you sell or exchange it, convert it to personal use, abandon it, or if it's destroyed.
You can continue to claim a depreciation deduction for property that's temporarily "idle" or not in use. If you make repairs after one tenant moves out, for example, you can continue to depreciate the property while you get it ready for the next.
How to Calculate Depreciation
Three factors determine the amount of depreciation you can deduct each year: your basis in the property, the recovery period, and the depreciation method used.
Any residential rental property placed in service after 1986 is depreciated using the Modified Accelerated Cost Recovery System (MACRS), an accounting technique that spreads costs (and depreciation deductions) over 27.5 years. This is the amount of time the IRS considers to be the “useful life” of a rental property.
While it’s always recommended that you work with a qualified tax accountant when calculating depreciation, here are the basic steps:
Determine the basis of the property. The basis of the property is its cost or the amount you paid (in cash, with a mortgage, or in some other manner) to acquire the property. Some settlement fees and closing costs, including legal fees, recording fees, surveys, transfer taxes, title insurance, and any amount the seller owes that you agree to pay (such as back taxes), are included in the basis. Some settlement fees and closing costs can’t be included in your basis. These include fire insurance premiums, rent for tenancy of the property before closing, and charges connected to getting or refinancing a loan, including points, mortgage insurance premiums, credit report costs, and appraisal fees. Separate the cost of land and buildings. As you can only depreciate the cost of the building and not the land, you must determine the value of each to depreciate the correct amount. To determine the value, you can use the fair market value of each at the time you bought the property, or you can base the number on the assessed real estate tax values. Say you bought a house for $110,000. The most recent real estate tax assessment values the property at $90,000, of which $81,000 is for the house and $9,000 is for the land. Therefore, you can allocate 90% ($81,000 ÷ $90,000) of the purchase price to the house and 10% ($9,000 ÷ $90,000) of the purchase price to the land. Determine your basis in the house. Now that you know the basis of the property (house plus land) and the value of the house, you can determine your basis in the house. Using the above example, your basis in the house—the amount that can be depreciated—would be $99,000 (90% of $110,000). Your basis in the land would be $11,000 (10% of $110,000). Determine the adjusted basis, if necessary. You may have to make increases or decreases to your basis for certain events that happen between the time you buy the property and the time you have it ready for rental. Examples of increases to basis include the cost of any additions or improvements that have a useful life of at least one year made before you place the property in service, money spent to restore damaged property, the cost of bringing utility services to the property, and certain legal fees. Decreases to the basis can be from insurance payments you receive as the result of damage or theft, casualty loss not covered by insurance for which you took a deduction, and money you receive to grant an easement.
Which System to Use
The next step involves determining which of the two MACRS applies: the General Depreciation System (GDS) or the Alternative Depreciation System (ADS). GDS applies to most properties placed in service, and in general, you must use it unless you make an irrevocable election for ADS or the law requires you to utilize ADS.
ADS is mandated when the property:
Has a qualified business use 50% of the time or less Has a tax-exempt use Is financed by tax-exempt bonds Is used primarily in farming
In general, you'll use GDS unless you have such a reason to employ ADS. Again, it’s recommended that you consult a qualified tax accountant, who can help you determine the most favorable way to depreciate your rental property.
Once you know which MACRS system applies, you can determine the recovery period for the property. The recovery period using GDS is 27.5 years for residential rental property. If you're using ADS, the recovery period for the same type of property is 30 years for property placed in service after Dec. 31, 2017, or 40 years if placed in service prior to that.
Next, determine the amount that you can depreciate each year. As most residential rental property uses GDS, we’ll focus on that calculation.
For every full year that a property is in service, you would depreciate an equal amount: 3.636% each year as long as you continue to depreciate the property. If the property was in service for less than one year (for example, you bought a house in May and began renting it in July), you would depreciate a smaller percentage that year, depending on when it was put in service. According to the IRS Residential Rental Property GDS table, that is:
January 3.485% February 3.182% March 2.879% April 2.576% May 2.273% June 1.970% July 1.667% August 1.364% September 1.061% October 0.758% November 0.455% December 0.152%
For example, take a house that has a basis of $99,000 and that was put into service on July 15.
For the first year, you’ll depreciate 1.667%, or $1,650.33 ($99,000 x 1.667%). For every year thereafter, you’ll depreciate at a rate of 3.636%, or $3,599.64, as long as the rental is in service for the entire year.
Note that this figure is essentially equivalent to taking the basis and dividing by the 27.5 recovery period: $99,000 ÷ 27.5 = $3,600. The small difference stems from the first year of partial service.
How Much Does Depreciation Reduce Tax Liability?
If you rent real estate, you typically report your rental income and expenses for each rental property on the appropriate line of Schedule E when you file your annual tax return. The net gain or loss then goes on your 1040 form. Depreciation is one of the expenses you’ll include on Schedule E, so the depreciation amount effectively reduces your tax liability for the year.
If you depreciate $3,599.64 and you’re in the 22% tax bracket, for example, you’ll save $791.92 ($3,599.64 x 0.22) in taxes that year.
The Bottom Line
Depreciation can be a valuable tool if you invest in rental properties, because it allows you to spread out the cost of buying the property over decades, thereby reducing each year’s tax bill. Of course, if you depreciate property and then sell it for more than its depreciated value, you'll owe tax on that gain through the depreciation recapture tax.
Because rental property tax laws are complicated and change periodically, it’s always recommended that you work with a qualified tax accountant when establishing, operating, and selling your rental property business. That way, you can be sure to receive the most favorable tax treatment and avoid any surprises at tax time.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
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b5295e6d4e8738c5ab5f1b96c836d4f1 | https://www.investopedia.com/articles/investing/061015/top-5-most-profitable-hotel-companies.asp | Leading Hotel Companies | Leading Hotel Companies
The universe for investing in hotel companies can include several subsets, all of which fall within the realm of consumer cyclicals, which tend to do well when the economy is in growth phases. In general, hotel companies can be super profitable if they’re managed correctly. They also usually operate under franchise models, allowing them to more easily branch out all over the U.S. and the world. Hotels can also bring in more money when they expand to luxurious escapes or pair their offerings with attractions like gambling.
Since hotels are consumer cyclicals, they do come with some higher than average risks. As a consumer cyclical, these companies do well when consumers have more disposable income and are willing to spend more on leisure. In cases of economic downturn this can lead to big losses and in crippling situations large, expensive buildings may be left empty or significantly unoccupied. Reputation risk can also be a big factor, with poor service or bad reviews dampening an already on edge profitability.
Below, we’ll look at some of the leading companies in different subsets across luxury, standard accommodations, and alternatives, along with some of the diversified investment options that investors may also be interested in. In general, when looking to invest in the hotel sector, diversification can be important as the above risks can easily take their toll either from individual challenges or big economic downturns.
Key Takeaways The growing hotel industry can be grouped by luxury, standard lodging, and alternatives.Disney and Las Vegas Sands are the two largest luxury hotel providers.Marriott and Hilton rise to the top of the standard lodging category.Airbnb is providing a growing alternative as an offshoot of emerging crowd sharing innovation.
Luxury
The Baird/STR Hotel Stock Index and its associated companies provide a comprehensive universe for looking at the biggest and best names in the hotel industry. Luxury hotels form their own subset of the market as they break away from the regular pack offering higher-end accommodations often centered around exotic locations, secluded getaways, and gambling.
In the luxury market, Disney (DIS) and Las Vegas Sands (LVS) rise to the top as the largest companies by market capitalization.
Disney
Disney has a market cap of $187.6 billion as of May 2020. It operates Disney Resorts all over the world. In the U.S. its two most popular resorts are Disneyland in California and Disney World in Florida. Hotel resorts are a big part of the company’s earnings. Its onsite resort lodging allows visitors to stay immersed in the Disney magic throughout their whole trip.
Las Vegas Sands
Las Vegas Sands is a luxury resort that offers both the beauty of Las Vegas’ lovely beaches along with the thrill of its gambling casinos. Las Vegas Sands trades publicly under the symbol LVS. It has a market cap of $34.96 billion as of May 2020. Sands owns six luxury properties in Las Vegas, including the Venetian.
Other Luxury Names
Other names in the luxury resort market include Wynn Resorts (WYNN), MGM Resorts (MGM), Boyd Gaming (BYD), Starwood Hotels and Resorts (HOT), Wyndham Hotels & Resorts (WH), Wyndham Destinations (WYND), and Marcus (MCS).
Standard Accommodations
In the category of standard lodging, Marriott International (MAR) and Hilton Worldwide Holdings (HLT) top the list, both in reputation and market capitalization.
Marriott International
Marriott International owns and operates hotels that range from Fairfield Inn & Suites and the Residence Inn all the way up to the recently acquired Delta and the Ritz. With over 6,700 properties, Marriott International has over 800,000 rooms under its control. Marriott also makes money from its timeshare division.
In the trailing 12 months through May 2020, Marriott reported revenue of $20.97 billion. Its net income for the same trailing 12-month period was $662 million.
Hilton Worldwide Holdings
Hilton Worldwide Holdings is a company with over 5,000 properties in 100 countries and territories. The company’s revenue stems from a familiar model in the hotel company world: timeshares, franchise fees, royalties, management fees, and actual ownership.
Hilton Worldwide operates hotel brands like Hilton, Embassy Suites, Hampton Inn, and Waldorf Astoria. For the trailing 12 months through May 2020, it had revenue of $9.2 billion and net income of $504 million.
Other Standard Lodging Names
Other names in the standard lodging category include:
InterContinental Hotels Group (IHG)Hyatt Hotels (H)Choice Hotels (CHH)Extended Stay America (STAY)Red Lion Hotels (RLH)
Alternatives
With online crowd sharing growing in popularity, consumers also have several alternatives when it comes to online searches and bookings. Airbnb has announced plans to go public in 2020. Airbnb has created its own niche, offering an online market for sharing spaces to consumers. Its listings range from discounted weekly stays to luxurious vacation spots. Consumers can search through the many listings on the Airbnb.com website to find a space that fits their needs, dealing with the renter directly.
Online, consumers also have several additional options, though none that quite rival the directness of Airbnb’s offering. Online alternatives often helpful in the short term rental search can include names like Tripping.com, Flipkey, Vacation Rental by Owner, Wimdu, Booking.com, Hotels.com, Expedia, and more.
Diversified Investment Options
When it comes to real estate, many investors are cautious. Investors also like to diversify in a concentrated sector and especially one with the higher cyclical risks that come with hotels. For these investors, real estate investment trusts (REITs) and exchange-traded funds (ETFs) can be good options.
REITs offer a trust fund with diversification that is often concentrated in special sectors. Hotel REITs can be quite popular. Among the universe from Baird/STR, the top four hotel REITs by market cap as of May 2020 include the following:
Host Hotels & Resorts (HST): trading price $9.77; market cap of $6.887.45 billionApple Hospitality REIT (APLE): trading price $7.88; market cap of $1.759.74 billionPark Hotels & Resorts (PK): trading price $7.30; market cap of $1.719.83 billionSunstone Hotel Investors (SHO): trading price $7.40; market cap of $1.595.01 billion
ETFs are also a good consideration as they provide diversification with high levels of liquidity and a lot of transparency for their investors. Hotel ETFs can be somewhat more difficult to identify distinctly. This often leads investors to consumer cyclical ETFs or ETFs more broadly investing in gambling, entertainment, and leisure. Some ETF options include the following:
Consumer Discretionary Select Sector SPDR Fund (XLY)Nuveen Short-Term REIT ETF (NURE)VanEck Vectors Gaming ETF (BJK)Invesco Dynamic Leisure & Entertainment ETF (PEJ)
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8eff31f7cc47dc111aec910c7a0889e9 | https://www.investopedia.com/articles/investing/061113/breaking-down-tsp-investment-funds.asp | Breaking Down the TSP Investment Funds | Breaking Down the TSP Investment Funds
The Thrift Savings Plan (TSP) offered to all U.S. government employees is one of the simplest and most efficient retirement plans in use today. But while thousands of civilian and military employees defer a portion of their earnings into the plan each year, many participants do not understand the actual fund options available or are unsure which funds are appropriate for them.
This article breaks down the five core investment funds available in the TSP along with the Lifecycle funds and their proper use.
Key Takeaways Thrift Savings Plans (TSPs) are direct-contribution retirement plans offered to U.S. government employees.While similar to the 401(k) plans offered by private-sector employers, TSPs offer five core mutual funds to invest in, four of which are diversified index funds.Each index fund specializes in a different asset class or market segment, such as U.S. equities, international equities, and corporate bonds.The fifth core fund, the G Fund, invests in very low-risk, low-yield government bonds and guarantees principal protection to investors. The G Fund is intended for very conservative investors.
Core TSP Funds
The five core funds offered in the Thrift Savings Plan loosely cover the basic range of publicly traded debt and equity securities. All five funds are managed by Blackrock Capital Advisers and are available only to TSP participants. None of them trade on any public exchange, although Blackrock does offer publicly traded equivalents of some TSP funds through iShares, its subsidiary company, which offers a comprehensive range of ETFs.
Four of the five funds are index funds, which hold securities exactly matching a broad market index. The money participants place in the F and C Funds is invested in separate accounts, while the S and I Fund monies are invested in trust funds commingled with other tax-exempt pension and endowment funds.
All of the funds, except for the G Fund, are 100% invested in their respective indexes, and they do not take into account the current or overall performance of either the specific index or the economy as a whole. Each TSP fund's share price is calculated daily and reflects investment returns minus administrative and trading costs. The five funds are broken down below.
Government Securities Investment Fund (G Fund)
This is the only core fund that does not invest in an index. The G Fund invests in a special non-marketable treasury security issued specifically for the TSP by the U.S. government. This fund is the only one in the TSP that guarantees the return of the investor’s principal.
This fund thus has the lowest risk of the five funds, and all money contributed into the TSP is placed into this fund by default unless the participant specifies otherwise. It pays an interest rate based on the current market yield of all outstanding publicly-traded treasury securities with a maturity of at least four years. The average maturity is about 11 years, and the aggregate interest rate is adjusted monthly.
The G Fund has historically provided the lowest rate of return of any of the core funds. The Barclays iShares funds matching the G Fund most closely are the iShares Barclays 7-10 year T-Bond fund (ARCA:IEF) with an average maturity of 8.47 years as of March 25, 2020, and the 10-20 year T-Bond fund (ARCA:TLH), which has an average maturity of 17.24 years as of March 25, 2020.
Fixed-Income Investment Index Fund (F Fund)
This fund represents the next step up the risk/reward ladder in the TSP. The F Fund purchases securities that exactly match the Barclays Capital U.S. Aggregate Bond Index. This index invests in a wide range of debt instruments, including publicly traded treasury and government agency securities, corporate and foreign bonds, and mortgage-backed securities (MBS).
This fund also pays monthly interest typically exceeding that paid by the G Fund. However, it does not guarantee the return of the investor’s principal. The Barclays iShares equivalent ETF is the iShares Core Total U.S. Bond Market ETF (ARCA:AGG).
Common Stock Index Investment Fund (C Fund)
This fund is the most conservative of the three stock funds available in the TSP. The C Fund invests in the 500 large and mid-cap companies that comprise the Standard and Poor’s 500 Index. This fund has experienced greater volatility than either the G or F Funds and has posted commensurately higher returns over time. The Barclays iShares equivalent ETF is the iShares Core S&P 500 (ARCA:IVV).
Small-Capitalization Stock Index Fund (S Fund)
The S Fund holds the same securities as the Dow Jones U.S. Completion Total Stock Market Index. This index is composed of the 4,500 companies outside of the Standard & Poor’s 500 Index that make up the rest of the Wilshire 5000 Index, the broadest of the stock indexes.
As the fund name indicates, these companies are smaller and less established than the S&P 500 companies and have greater potential for growth than those in the C Fund. The S Fund is considered one of two funds with the greatest risk in the TSP. It has outperformed the C Fund with proportionately greater volatility over time.
The Barclays iShares has no exact S Fund equivalents. Those who wish to duplicate this fund outside the TSP could use the following four funds to cover many of the companies in the S Fund (and some that are not):
Russell Midcap ETF (ARCA:IWR)Russell 2000 Index ETF (small caps only) (ARCA:IWM)iShares Core S&P Total U.S. Stock Market ETF (ARCA:ITOT)Russell 3000 ETF (ARCA:IWV)
International Stock Index Investment Fund (I Fund)
This fund invests in securities mirroring the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. This is one of the broader international indexes investing in larger, more established companies located in 22 developed countries around the world. It is regarded as the other high-risk fund in the TSP and has historically posted a higher average annual return than the C Fund.
This fund is the only one in the TSP that invests in companies outside the U.S. The Barclays iShares equivalent ETF is the iShares MSCI Europe, Australasia and Far East ETF (ticker symbol EFA).
Lifecycle Funds (L Funds)
The Lifecycle funds are composite funds that invest in a combination of the five core funds and act like target-date funds by nature. They are designed and managed by the portfolio managers at Blackrock Capital and function as "automatic pilot" funds for participants who do not wish to make their own asset allocations. They invest primarily in the stock funds when they are issued and are then slowly reallocated by the fund managers into the two bond funds every 90 days until they mature.
The fund's asset allocations include 74% invested in the bond funds, and the remaining 26% is divided between the three stock funds.
Participants should take care to match the maturity date of the L Fund they choose with the time they actually begin receiving distributions, instead of when they merely separate from government service. Each is designed to provide income for those who will begin taking distributions within five years of the maturity date.
They also offer the best possible mix of growth versus reward during both the growth and income phases of each fund. The L Income Fund can be used by those who have already retired and need a conservative stream of income at the present time.
TSP Investment Programs
Although the L Funds provide one avenue of professional portfolio management for TSP participants, some privately managed TSP investment programs may provide additional clout for aggressive investors. Tsptalk.com offers several levels of market-timing strategies, and TSPCenter.com provides additional commentary and ideas.
Those who seek higher returns and are willing to take on additional risk can search online for other proprietary market-timing strategies that may beat the indexes over time. Of course, many of these programs charge a quarterly or annual fee for their services, and they cannot guarantee their results.
The Bottom Line
The Thrift Savings Plan offers participants the options of growth, income, and capital preservation. The annual investment expenses in this plan are among the lowest in the industry, and all of the funds are fully transparent. There are no hidden fees in this plan, and participants should think carefully before rolling their plan assets elsewhere when they retire.
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5c7c3117256ab5fc3add1a8553c71357 | https://www.investopedia.com/articles/investing/061115/best-5-grocery-companies-work.asp | The Best 5 Grocery Companies to Work For | The Best 5 Grocery Companies to Work For
From teenagers looking for their first jobs to the elderly looking to get out of the house during the day, grocery stores are the answer with flexible working shifts, little responsibility, and a relatively easy learning curve; in fact, with the exception of cashier terminals, working in a grocery store today is basically the same as it was 60 years ago.
With such a variety of different chains though, how does one decide where to hand in his or her application when the time comes to find a job? Here are the top five grocery stores to work for.
Trader Joe’s
Trader Joe’s first opened its door in 1967 and since then has opened over 400 stores all over America. The company is focused on value prices and buys directly from suppliers in order to pass the savings onto its customers.
People are drawn to working at Trader Joe’s due to its fun atmosphere, twice yearly salary reviews (starting pay is $10 per hour by the way), good health insurance, and high potential for advancement. Of the four categories of employees (in order of responsibility: Crew, Merchant, Mate, and Captain) only Crew and Mate positions are filled externally, leading to an internal promotion rate of over 75%!
Whole Foods
Since opening in 1980, Whole Foods (WFM) has been dedicated to providing a good working environment for its employees. According to the aptly named “Why We’re A Great Place To Work” page, Whole Foods provides generous health benefits, retirement plans, a form of profit-sharing, and stock options. The company also provides 20% discounts, flexible time off, decent salaries for all employees, and annual raises.
Whole Foods has people, literally, flocking to its doors to work for them. Over 1 million people applied for jobs last year, giving the company a rate of 75 applicants for every one position. (For more, see: Who are Whole Foods' (WFM) main competitors?)
Publix
Publix, a private, employee-owned company based in Florida, is rapidly expanding and committed to promoting from within the company. How can retail employees afford to be owners of a multi-million-dollar grocery store chain? Publix’s benefits package includes quarterly and yearly stock options and bonuses as well as free, yes free, company stock.
Additional benefits include tuition reimbursement and health insurance for all employees (not just full-time ones), paid vacation, and regular performance and salary reviews. (For more, see: The Most Profitable Grocery Stores.)
Costco
Costco (COST), most recently famous in America for refusing to open on Thanksgiving Day, is committed to ethical business practices. Either as part of their ethical business strategy or to keep hold of their good workers, Costco’s average cashier salary hovers at almost $16 per hour. In addition to a livable salary, Costco provides flexible hours for its workers, a stock purchase plan, 401(k) matches, and excellent dental and health insurance for all full- and part-time workers. (For more, see: 5 Things Costco Wants You to Know.)
Wegmans
Wegmans is a small grocery chain located in the Northeast that has made Fortune’s Best Companies to Work For for the past 18 years. With a 5% turnover rate, what is Wegmans doing right? The company offers dental and health insurance, 401(k) plans, scholarships, and flexible hours. Wegmans also has ample opportunity for advancement, as well as steady pay increase and performance reviews.
The Bottom Line
If the Great Recession has taught us anything it’s that no job is guaranteed. With outsourcing and automation taking more jobs each year, it’s hard to plan too far into the future. That being said, people will always need to eat. The grocery industry is a resilient business and, as these five stores have shown, working in a grocery store doesn’t have to be a boring, minimum-wage experience. So, if you’re looking for work, try your neighborhood grocery store.
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2fc984dc2ae66afada405ee2eaa0908b | https://www.investopedia.com/articles/investing/061115/economics-solar-power.asp | The Economics of Solar Power | The Economics of Solar Power
Fossil fuels—namely crude oil, natural gas, and coal—are the world’s number one source of energy. Despite being a non-renewable source, there is still a high demand for fossil fuels due to their affordability and reliability. From heating and lighting homes to fueling vehicles, fossil fuels play an integral role in energy production and the global economy.
Even with the massive strides made in technological innovation, sustainable energy has failed to usurp traditional fossil fuels. In order to incentivize renewable energy adoption, governments have levied tax credits for solar and wind energy, which until recently, were far more expensive than the status quo.
Key Takeaways Fossil fuels still dominate U.S. energy consumption, with solar trailing at 1.8% of total energy consumption. While only two types of solar technology currently exist (solar thermal and photovoltaic), sharply declining costs of solar power are positioning the U.S. for an outburst of solar photovoltaic installations in the next five years. Corporations are also investing heavily in solar systems, contributing to the optimistic economics of solar power.
However, due to increased production, government subsidies, and mounting environmental concerns, the costs of solar and wind production have decreased. In fact, some markets generate renewable energy more cheaply than fossil fuels. While wind energy such as wind farms are predominantly used for commercial means, solar energy has both commercial and residential uses.
The True Cost of Fossil Fuels
Although an exact date is difficult to determine, many estimates suggest that fossil fuels will be depleted within the next 100 years. While sources of coal, natural gas, and crude oil has continued to deteriorate, the consumption of fossil fuels has not.
Among all energy sources, fossil fuels trump both renewable energy and nuclear power. In 2018, fossil fuels accounted for approximately 85% of all energy consumed—up from 80% in 2014. Not only are fossil fuels nonrenewable, but they are also a cause of various adverse environmental effects. Burning fossil fuels is the leading producer of anthropogenic CO2, which has contributed significantly to climate change. Notable effects include global warming, melting ice in the Arctic, rising sea levels, and poor crop yields.
Accumulating Economic Costs
While the U.S. spends over $1 trillion annually on fossil fuels, the harmful effects of burning them continue to accumulate economic costs. In fact, the U.S. spent $649 billion on fossil fuel subsidies alone in 2015. Research suggests air pollution in Europe generates economic costs of $1.6 trillion a year in diseases and death.
Combining expenditures on fossil fuels, healthcare costs, and environmental degradation, it is estimated the true cost of fossil fuels is $5.2 trillion a year globally.
Economics of Solar Power
Though renewable energy represents a fraction of total energy consumed, the U.S. is the leading consumer of renewable energy. Yet, despite the increase of available solar energy over the past 10 years, solar still only accounts for 1.8% of total energy used in the U.S. Solar power also trails hydropower, biomass, and wind in terms of preferred sources of renewable energy, making up 10% of total U.S. renewable consumption in 2019.
Currently, only two types of solar technology exist that are capable of converting the sun’s energy into a source of power: solar thermal and photovoltaic. Solar thermal collectors absorb the sun’s radiation in order to heat a home or water. Photovoltaic devices use sunlight to replace or supplement the electricity provided on the utility grid.
Solar Power Adoption
Until recently, solar energy systems were only accessible to the wealthy or fanatical. However, due to sharply declining costs, universal access to solar paneling systems is becoming a reality. In the early 2000s, the average U.S. solar system cost $10 per watt.
Today, the price per watt hovers between $2 to $3. As a result, the number of photovoltaic systems installed in the U.S. has drastically increased among residential and commercial spaces. Over the past decade, it is estimated that the installations of photovoltaics have increased by 35-fold.
A Global Increase
Solar energy has seen a global increase in consumption as more countries recognize the harmful effects of burning fossil fuels. Increased competition within the solar power industry has resulted in sharp declines in installation costs.
Many of the largest economies, including the U.S., China, India, and several European nations, have begun to implement solar energy. In an effort to combat pollution, China has made the biggest push into renewable energy and installed a large quantity of photovoltaics. India, which is also plagued by pollution, is making a $160 billion plan for solar energy expansion. Meanwhile, the capacity for solar photovoltaic installations in the United States is expected to more than double over the next five years.
Big Businesses
Big businesses are also investing in reusable solar systems. Walmart (WMT), Verizon (VZ) and Apple (AAPL) are switching stores, offices, and facilities to solar energy. In the largest ever solar procurement deal, Google purchased 1,600 megawatts from 18 different providers in the fall of 2019.
Although solar power continues to account for a small share of overall energy supply, the residential and commercial sectors are slowly embracing renewable energy. As prices continue to decline, it is expected that solar energy systems become more prevalent. In Europe, the price per kilowatt-hour is expected to decline to between 4 and 6 cents in 2025 and further decrease to as low as 2 cents in 2050.
Solar Photovoltaics
Assuming forecasts are correct, solar photovoltaics will be amongst the cheapest sources of energy. With declining prices, the IEA conservatively estimates solar systems to supply 5 percent of global electricity consumption in 2030, rising to 16% by 2050. Achieving this vision would require increasing the global capacity of solar energy from 150 gigawatts in 2014 to 4600 gigawatts by 2050. As a result, this would avoid the emission of 6 billion tons of carbon dioxide annually.
In conjunction with the increased production of renewable energy, there is an increasing commitment to declining greenhouse gas emissions from burning fossil fuels. Many cities and countries around the world have committed to cutting greenhouse gas emissions 80 percent by 2050, including New York City. Besides cutting emissions, California has committed to producing 33% of total energy by renewable resources by 2020.
Tax Credits
Even though solar energy systems are more cost-effective today, residential and commercial usage still receive government subsidies. In the U.S., the Renewable Energy Tax Credit decreases the tax liability of solar energy users. A taxpayer can claim a credit of 30% of qualified expenditures for systems that serve an occupied space. The U.S. government applies the same credit to wind and geothermal systems.
Many European countries impose a feed-in-tariff scheme to increase the appeal of renewable energy systems. Under a feed-in-tariff scheme, renewable energy system owners can collect money from the government. Costs are calculated per kilowatt-hour (kWh), with prices varying between countries.
The Bottom Line
For the most part, the commitment to renewable resources has come from individuals, big businesses and countries. Besides solar energy, companies such as Google (GOOG) and Amazon (AMZN) have committed to using wind to power company facilities. With big businesses, individuals and countries continuing to transition to renewable energy sources, adverse environmental effects from burning fossil fuels can hopefully be moderated.
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a081ba46dac7f70e452eb005d5ca011c | https://www.investopedia.com/articles/investing/061215/how-are-ebay-and-amazon-different.asp | How Are eBay and Amazon Different? | How Are eBay and Amazon Different?
The electronic commerce (e-commerce) movement is bigger than ever and only shows signs of becoming bigger. Under the purview of e-commerce companies, both eBay (EBAY) and Amazon (AMZN) stand out as longstanding, major players in the marketplace.
Both eBay and Amazon operate as online shopping sites, providing visitors the ability to browse through available products listed for sale or auction through each company's online storefront. While eBay and Amazon have both evolved over time to meet the needs of today's consumers, there are distinct differences between the two companies. Amazon and eBay differ in terms of business models and pricing, services for sellers and ancillary services for buyers.
Business Models and Pricing Strategies
The greatest difference between eBay and Amazon is the business model under which each company operates. Specifically, eBay is an auction house and marketplace that simply facilitates the sale of goods between third-party buyers and sellers. Buyers visit the site to search for products they want to buy from a vast array of individual sellers and then bid on items through individual auctions.
Conversely, Amazon is a direct provider of goods, and customers visiting its site view products that Amazon maintains as inventory in its large network of warehouses. For some products, Amazon allows third-party sellers to offer purchase options to buyers, but the company keeps the majority of its products in-house.
Within an auction model, eBay employs a wholesale pricing strategy. In most cases, interested buyers must bid on items for sale on eBay Sellers list auction items for a three-, five-, seven- or 10-day period, and the buyer willing to pay the highest amount wins the product at the end of that time frame. Some items listed on eBay feature a "buy it now" option, which allows a buyer to purchase the product immediately, albeit likely for a premium.
Amazon operates as a retail outlet, providing customers with fixed prices on all products. While various sellers may list the same product, there is no need for a customer to place bids or win an auction before purchasing.
Seller Services: Is eBay Cheaper Than Amazon?
Amazon and eBay also differ greatly in terms of how each company works to facilitate sales. Because eBay needs sellers to list products on its site to generate revenue, the company is far more seller-oriented than Amazon. Notably, eBay actively invites sellers to participate in its auction marketplace, and the company provides platforms for sellers to offer products to buyers within an eBay store or through the auction site's classified section.
Amazon is more buyer-oriented, actively inviting buyers to visit the site to browse through and subsequently purchase its own inventory. While some third-party sellers use Amazon to distribute products, the company is more focused on attracting buyers to the site.
Amazon Seller Fees
It doesn't matter if you're a small seller or big potatoes with an already established product line that you want to put onto the Amazon marketplace as a third-party seller. Amazon offers third-party sellers two different plans based on their prospective selling habits and other key features.
You'll have to decide which one fits your needs. The professional plan is geared toward those who plan on doing a lot of selling, while the individual account is a no-frills, cheaper alternative. Below are some of the features of both plans.
Amazon Professional Account
If you're planning on selling more than 40 items each month, this is the option for you. But it does come with a subscription fee of $39.99 each month. That means you'll be paying almost $480 a year to put and sell your products on Amazon. You also get access to Amazon Sponsored Products ads, which put your products into ads on different product pages for customers to view. This option doesn't have any selling fees, but referral fees do apply.
Amazon Individual Account
This plan is tailored for anyone who plans to sell less than 40 items each month. The benefit of this account is the lack of a monthly subscription fee. But you do have to pay the selling fee to Amazon—$0.99 for every item you sell on the site. There are also referral fees that apply to each sale, just like the professional account. The one downside is that you have no exposure to your products through Amazon's Sponsored Product Ads.
Here's how Amazon calculates end revenue for an item sold by a third-party seller on the platform:
Take the item price, and add the shipping charges, which are paid by the buyer. Add any gift wrap charges, also paid by the buyer (if any). Subtract referral fee (which is calculated on the item price as well as any gift wrap charges). Subtract the closing fee. Subtract $0.99 per item fee (not applicable to professional accounts and others who don't pay subscription fees). Remainder equals total deposited to the seller account.
Seller Fees: eBay
Notably, eBay charges its sellers two different fees: an insertion fee and a final value fee. Here's a breakdown of each:
Insertion fee: The company's insertion fee is the same as a listing fee. All sellers get up to 50 zero-fee listings every month. Those who have an eBay store may get more. Once those are used up, the fees cannot be refunded even if the item doesn't sell. Sellers are charged one insertion fee per listing, per category. The account holder gets one fee credit for every auction-style listing for which they paid an insertion fee, provided the item sells. Final value fee: If the item sells, eBay charges sellers a final value fee. The value of the fee, charged per item, depends on the total sale amount. Although tax is not included, the total sale amount includes shipping and any other additional charges added to the item's price.
Additional fees may apply. Here's a look at two of them:
Advanced listing upgrade fees: The company charges sellers fees if they add advanced listing upgrades. The fees are based on the type of upgrade added. These are add-ons to the listing that aren't covered in the basic listing or insertion fee. Not all listing upgrades are available with every listing tool. Supplemental service fees: The site also charges sellers supplemental service fees. These range from shipping labels originated from the eBay site or refund reimbursements to eBay.
Additional Services for Buyers
Another vast difference between eBay and Amazon is the ancillary services available to buyers. In recent years, Amazon has rapidly expanded its additional services, most notably through its global rollout of Amazon Prime. The membership program requires users to pay an annual fee but grants them exclusive access to expedited two-day shipping at no additional cost, digital media such as movies, music, and Kindle e-books, and unlimited photo storage through the cloud.
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84b87fcae87f07be285925b1b44bf899 | https://www.investopedia.com/articles/investing/061313/10-common-financial-terms-every-newbie-needs-know.asp | Common Finance Terms Every Newbie Needs to Know | Common Finance Terms Every Newbie Needs to Know
Anyone who starts to read financial news will need a quick primer on the terms that are commonly used. To help you get a better understanding of what you read, we’ll briefly explore terms commonly encountered in market news—specifically, when a company announces its earnings—along with where you will see these words, what they mean, and their significance for the company.
Key Takeaways Company earnings announcements contain terms that any beginning investor needs to understand to know the health of the firm.Four terms commonly used in earnings announcements are net income, EBITDA, GAAP, and EPS.News reports also look at how much companies have in free cash flow, total debt, and assets they have available in cash equivalents.How effectively a company handles the cash it possesses and how it pays down its debts are both indicators of its ability to grow and increase shareholder value.
Earnings Announcement
To illustrate, here are excerpts from an apocryphal earnings news report covering a fictional company, "Hemlock Incorporated."
Hemlock Incorporated announced its fiscal 2019 Q3 results after the markets closed, reporting non-GAAP earnings per share of 67 cents, an increase of 17% from the last quarter, coupled with a net income of $250 million, up from $235 million. Earnings guidance from Hemlock Incorporated fell within range, with EBITDA, net income from continuing operations, and free cash flow beyond the high-end of their respective guidance ranges.
Highlights from the third quarter of 2017 include:
Cash and cash equivalents of $128 million.EBITDA increase of 19% from Q2.Free cash flow of $35 million, up from Q2’s $32.7 millionTotal debt increased from $95 million to $100 million.
However, despite the 17% EPS gain, Hemlock Incorporated fell well below the analyst earnings estimate of 71 cents. Coupled with Hemlock’s increasing total debt, some analysts are left questioning the company’s ability to service its debt moving forward.
Four Common Terms and What They Mean
This earnings announcement contains four terms that are commonly used. Knowing what they mean will help you understand what the announcement is really reporting.
1) Net income
At its most basic, net income defines a company’s total earnings or profit. Simply put, net income is what you get when you subtract all expenses (including tax expenses) from revenue. When a company’s net income increases, it’s normally a result of either revenue increasing or expenses being slashed. It goes without saying that an increase in net income is generally perceived as positive and factors into a stock’s performance.
2) EBITDA
EBITDA stands for earnings before interest, tax, depreciation, and amortization and is calculated by subtracting operating expenses from revenue and adding back depreciation and amortization to operating profit (aka EBIT). EBITDA can be used as a proxy for free cash flow (FCF) because it accounts for the non-cash expenses of depreciation and amortization.
On a company's income statement, EBITDA is a line item above net income that excludes other non-operating expenses, as well as interest expenses and taxes. It can be argued that compared to net income, EBITDA paints a rawer image of profitability. While some proponents of EBITDA claim that it’s a less-complicated look at a company’s financial health, many critics state that it oversimplifies earnings and can create misleading values and measurements of company profitability.
3) GAAP
As a new investor, it’s important to know the distinctions between like measurements because the market allows firms to advertise their numbers in ways not otherwise regulated. Often companies will publicize their numbers using either GAAP or non-GAAP measures. GAAP, or generally accepted accounting principles, outlines rules and conventions for reporting financial information. It is a means to standardize financial statements and ensure consistency in reporting.
When a company publicizes its earnings and includes non-GAAP figures, it means it wants to provide investors with an arguably more accurate depiction of the company’s health, for instance by removing one-time items to smooth out earnings. However, the further a company deviates from GAAP standards, the more room is allocated for some creative accounting and manipulation (as in the case of EBITDA). When looking at a company publishing non-GAAP numbers, new investors should be careful of these pro-forma statements, as they may differ greatly from what GAAP deems acceptable.
4) EPS
Finally, earnings per share (EPS)—one of the most common items highlighted in an earnings announcement—provides investors insight into a company’s earnings health, and often affects its stock price after an announcement. EPS is calculated by taking net income, subtracting the preferred dividends (for the sake of simplicity, let’s assume Hemlock Incorporated doesn't pay dividends on preferred shares), and dividing that difference by the average number of outstanding shares.
In the case of Hemlock, its current quarterly EPS is calculated by dividing its net income of $250 million by the company’s 37 million outstanding shares. When reported, EPS is typically compared to earnings from either the previous quarter or the same quarter in the previous fiscal year (year over year, or YOY). It is also used in basic valuation calculations like the P/E ratio (price-to-earnings ratio).
Cash on Hand, Money in the Bank
Another thing most news reports look at is how companies manage their money—specifically, how much they have in free cash flow, total debt, and assets they have available in cash equivalents, such as short-term government bonds that they can sell to settle debts.
In Hemlock Inc.’s announcement, free cash flow is increasing, meaning that after all expenses have been laid out in order to maintain the business’ continuing operations, the amount of cash it has on hand is growing. On Hemlock’s balance sheet, the company shows cash and cash equivalents of $128 million, which can be converted into cash if required, especially in the event that the firm's total debt increases and/or income takes a hit.
When assessing a company’s quarterly success or failure, pay attention to those terms. How effectively a company handles the cash it possesses and how it pays down its debts are both indicators of its ability to grow and increase shareholder value.
Plans and Expectations
Even though Hemlock has seen numbers jump in various areas over the past quarter, the fact that it missed analysts' estimates may not bode well for investor confidence. Earnings estimates are forecast expectations of earnings or revenue based on projections, models, and research into the company’s operations and most frequently published by financial analysts.
Some companies will provide "guidance" of management's expectations for future results.
Even if a company sees an increase in profitability, if the actual earnings fall below expected earnings, the market will see to it that the stock price adjusts to the new information (read: drop in value.) This is due to the fact that estimates are usually built into the current price of a stock. Thus, when investors hear how a company “missed expectations” in spite of higher revenues being reported, the market corrects the price of the stock accordingly.
The Bottom Line
Like anything else in life, learning how financial markets work takes time. Adopting the easier approach by maintaining a level of ignorance can be dangerous, however, especially when it is the company’s prerogative to boost investor confidence by using as many positive values as possible. Knowing what each term means, why it is being used, and understanding how it affects stock price are just a few ways beginners can gain a better knowledge of the financial markets as well as critical-thinking skills when it comes to financial news.
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bd7924436a4d4ff40b786339479da1af | https://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp | Investing in Property Tax Liens | Investing in Property Tax Liens
One investment niche that is often overlooked by investors is property tax liens. The increasing volatility of the stock market, combined with still historically low-interest rates, has many investors seeking this type of alternative avenue in order to provide a decent rate of return. In some cases, this unique opportunity can provide knowledgeable investors with excellent rates of return.
Property liens can also carry substantial risk, which means novice buyers need to understand the rules and potential pitfalls that come with this type of asset. This article discusses tax liens, how you can invest in them, and the disadvantages of this type of investment vehicle.
Key Takeaways A tax lien is a claim the government makes on a property when the owner fails to pay the property taxes.Liens are sold at auctions that sometimes involve bidding wars.If you need to foreclose, there may be other liens against the property that keep you from taking possession.If you get the property, there may be unforeseen expenses such as repairs or even evicting the current occupants.You can also invest in property lien funds.
What Is a Tax Lien?
A tax lien is a legal claim against the property of an individual or business that fails to pay taxes owed to the government. For example, when a landowner or homeowner fails to pay the taxes on their property, the city or county in which the property is located has the authority to place a lien on the property. The lien acts as a legal claim against the property for the unpaid amount that's owed. Property with a lien attached to it cannot be sold or refinanced until the taxes are paid and the lien is removed.
When a lien is issued, a tax lien certificate is created by the municipality that reflects the amount owed on the property, plus any interest or penalties due. These certificates are then auctioned off to the highest bidding investor. Investors can purchase tax liens for as little as a few hundred dollars if it is a very small property. However, the majority cost much more.
Investors can purchase property tax liens from a municipality, allowing them as the new lien owner to collect payments with interest from the property owner. In some cases, they may foreclose and attain title to the property.
Tax Liens by the Numbers
In 2017, approximately $14 billion in property taxes were not paid, according to Brad Westover, executive director of the National Tax Lien Association (NTLA). About a third of those liens are subsequently sold off to private investors. Local governments benefit from private sales because they immediately recoup the monies owed on the property in question. Thirty states sell tax lien certificates, Westover says.
In the state of Florida, unpaid property taxes dropped from $1.2 billion in 2008 to $740 million in 2018, "almost half of what it was at the peak," and that drop in availability of liens for investors is likely a national trend. "[When there is] a healthy economy, it makes sense that more people are paying their property taxes," he says.
A study released by the National Consumer Law Center (NCLC) in 2012 on America’s “Other Foreclosure Crisis” found that along with home mortgage defaults and unemployment rates, property tax delinquencies skyrocketed during the Great Recession. According to the study, The study found that annually, county and municipal governments in the U.S. failed to collect an estimated $15 billion in property taxes.
How Can I Invest in Tax Liens?
Investors can purchase property tax liens the same way actual properties can be bought and sold at auctions. The auctions are held in a physical setting or online, and investors can either bid down on the interest rate on the lien or bid up a premium they will pay for it. The investor who accepts the lowest interest rate or pays the highest premium is awarded the lien. Buyers often get into bidding wars over a given property, which drives down the rate of return that is reaped by the winning buyer.
Buyers of properties with tax liens need to be aware of the cost of repairs, along with any other hidden costs that they may need to pay if they assume ownership of the property. Those who then own these properties may have to deal with unpleasant tasks, such as evicting the current occupants, which may require expensive assistance from a property manager or an attorney.
Anyone interested in purchasing a tax lien should start by deciding on the type of property they'd like to hold a lien on—residential, commercial, undeveloped land, or property with improvements. They can then contact their city or county treasurer's office to find out when, where, and how the next auction will be held. The treasurer’s office can tell the investor where to get a list of property liens that are scheduled to be auctioned, as well as the rules for how the sale will be conducted. These rules will outline any preregistration requirements, accepted methods of payment, and other pertinent details.
Tips for Tax Lien Buyers
Buyers also need to do their due diligence on available properties. In some cases, the current value of the property can be less than the amount of the lien. The NTLA advises dividing the face amount of the delinquent tax lien by the market value of the property. If the ratio is above 4%, potential buyers should stay away from that property. Furthermore, there may also be other liens on the property that will prevent the bidder from taking ownership of it.
Every piece of real estate in a given county with a tax lien is assigned a number within its respective parcel. Buyers can look for these liens by number in order to obtain information about them from the county, which can often be done online. For each number, the county has the property address, the name of the owner, the assessed value of the property, the legal description, and a breakdown of the condition of the property, and any structures located on the premises.
Don't invest in tax liens with the expectation that you will get a property out of it; about 98% of homeowners redeem the property before the foreclosure process starts.
How to Profit From a Lien
Investors who are interested in locating tax lien investing opportunities should get in touch with their local tax revenue official responsible for the collection of property taxes. There are currently 2,500 jurisdictions cities, townships, or counties that sell public tax debt.
While not every state provides for the public sale of delinquent property taxes, if the state does allow the public auction of the unpaid property tax bill, investors should be able to determine when and where these taxes are published for public review. Property tax sales are required to be advertised for a specified period of time before the sale. Typically, the advertisements list the owner of the property, the legal description, and the amount of delinquent taxes to be sold.
Investors who purchase property tax liens are typically required to immediately pay back the full amount of the lien to the issuing municipality. In all but two states, the tax lien issuer collects the principal, interest, and any penalties; pays the lien certificate holder, and then collects the lien certificate if it’s not on file. The property owner must repay the investor the entire amount of the lien plus interest, which varies from one state to another—but is typically between 10% and 12%. If the investor paid a premium for the lien, this may be added to the amount that is repaid in some instances.
The repayment schedule usually lasts anywhere from six months to three years. In most cases, the owner is able to pay the lien in full. If the owner cannot pay the lien by the deadline, the investor has the authority to foreclose on the property just as the municipality would have, although this happens very rarely.
Investing Passively Through an Institutional Investor
Tax lien investing requires a significant amount of research and due diligence, so it may be worth it to consider investing passively through an institutional investor who is a member of the NTLA. Approximately 80% of tax lien certificates are sold to NTLA members.
If you'd like to become a member of the NTLA, it costs $500 a year (for investors with less than $1 million). For institutional investors, membership fees range from $2,000 to $10,000, depending on the size of their investment portfolio. Institutional investors can generate returns that range from 4% to 9% a year. The NTLA can help match up interested investors who become members of the NTLA with institutional investors who focus on tax lien investing.
Disadvantages of Investing in Property Tax Liens
Although property tax liens can yield substantial rates of interest, investors need to do their homework before wading into this arena. Tax liens are generally inappropriate for novice investors or those who have little experience in or knowledge of real estate.
Investors are advised not to purchase liens for properties with environmental damage, such as one where a gas station dumped hazardous material.
Neglected Properties
Investors also need to become very familiar with the actual property upon which the lien has been placed. This can help them ensure that they will actually be able to collect the money from the owner. A dilapidated property located in the heart of a slum neighborhood is probably not a good buy, regardless of the promised interest rate. The property owner may be completely unable or unwilling to pay the tax owed. Properties with any kind of environmental damage, such as from chemicals or hazardous materials that were deposited there, are also generally undesirable.
Not a Passive Investment
Lien owners need to know what their responsibilities are after they receive their certificates. Typically, they must notify the property owner in writing of their purchase within a stated amount of time. They are also usually required to send a second letter of notification to them near the end of the redemption period if payment has not been made in full by that time.
Tax Liens Can Expire
Tax liens are not everlasting instruments. Many have an expiration date after the end of the redemption period. Once the lien expires, the lienholder becomes unable to collect any unpaid balance. If the property goes into foreclosure, the lienholder may discover other liens on the property, which can make it impossible to obtain the title.
Competition
Many commercial institutions, such as banks and hedge funds, have become interested in property liens. As a result, they’ve been able to outbid the competition and drive down yields. This has made it harder for individual investors to find profitable liens, and some have given up as a result. However, there are also some funds now available that invest in liens, and this can be a good way for a novice investor to break into this arena with a lower degree of risk.
Tax Lien FAQs
What Does it Mean If You Have a Tax Lien?
If you have a tax lien, it means that the government has made a legal claim against your property because you have neglected or failed to pay a tax debt. In the case of a property tax lien, you have either neglected or failed to pay the property taxes that you owe to the city or county where your property is located. When this happens, your city or county has the authority to place a lien on the property.
How Does a Tax Lien Sale Work?
Twenty-nine states, plus Washington, DC, the Virgin Islands, and Puerto Rico, allow tax lien sales. Every state uses a slightly different process to perform its tax lien sales.
Usually, after a property owner neglects to pay their taxes, there is a waiting period. Some states wait a few months while other states wait a few years before a tax collector intervenes. After this, the unpaid taxes are auctioned off at a tax lien sale. This can happen online or in a physical location. Sometimes it is the highest bidder that gets the lien against the property. Other auctions award the investor who accepts the lowest interest rate with the lien. Tax collectors use the money that they. earn at the auction to compensate for unpaid back taxes. Once the lien has been transferred to the investor, the homeowner owes them their unpaid property taxes, plus interest (or else they will face foreclosure on their property).
Where Can I Find Tax Liens for Sale?
You can call your county's tax collector directly to find out the process for buying tax liens. Some counties will also advertise the process on their website, as well as providing instructions for how to register as a bidder.
When counties list auctions on their websites, they will also provide information about the properties up for auction, when they go to auction, and the minimum bid. This list can help you identify if there are any properties you are interested in based on their location, property type, size, and minimum bid.
What Happens to a Mortgage in a Tax Lien Sale?
A lien stays with the property when it is sold. However, the lien remains on the previous owner’s credit report.
Property tax lien foreclosures occur when governments foreclose properties in their jurisdictions for the delinquent property taxes owed on them. Property tax liens are superior to other liens so their foreclosure eliminates other liens, including a mortgage lien. Homeowners with delinquent taxes typically also have outstanding mortgage debt. After purchasing a tax-foreclosed property, if you discover that there is a mortgage lien on it, it should be removed by the county in which you bought it. The county will discharge the lien based on the tax sale closing documents. In the event that this does not work, you can also contact the lien holder to have it removed.
In every state, after the sale of a tax lien, there is a redemption period (although the length of time varies depending on the state) where the owner of the property can try to redeem their property by paying their delinquent property taxes. However, even if the owner is paying their property taxes, if they fail to make their mortgage payments during this time, the mortgage holder can foreclose on the home.
Are IRS Tax Liens Public Record?
If a legal claim is made against your property in order to satisfy a tax debt, the IRS will file a Notice of Federal Tax Lien. This is a public document and serves as an alert to other creditors that the IRS is asserting a secured claim against your assets. Credit reporting agencies may find the notice and include it in your credit report.
The Bottom Line
Property tax liens can be a viable investment alternative for experienced investors familiar with the real estate market. Those who know what they are doing and take the time to research the properties upon which they buy liens can generate substantial profits over time. However, the potential risks render this arena inappropriate for unsophisticated investors.
Without the proper research and understanding of the real estate market, an investor could easily end up with a property that doesn't get redeemed by the owner (in the form of them paying their taxes to you with interest) and that has no value. That low-value property will then ultimately end up as the property of the investor.
For those interested in investing in real estate, buying tax liens is just one option. Buying a home in foreclosure or buying a home at an auction can also be valuable investment opportunities. If you are still interested in property tax liens, it is recommended that you consult your real estate agent or financial adviser.
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48e996b50b448eb0f7b83d4f50d2f7c4 | https://www.investopedia.com/articles/investing/061314/best-best-wealth-management-firms.asp | The Biggest and Best Wealth Management Firms | The Biggest and Best Wealth Management Firms
In 2020, ADV Ratings released its ranking of the world's largest wealth management firms. The wealth managers are ranked by assets under management (AUM) as of June 30, 2020. The rankings here reflect the top 10 wealth management firms by assets.
Key Takeaways High-net-worth individuals often seek a professional to manage their money. While size isn't everything, a large sum of assets under management is a signal that the firm attracts an affluent clientele. The rankings here reflect the top 10 investment management firms by assets and net income.
1. UBS Wealth Management
UBS Wealth Management is ranked number one on the list, with $2.6 trillion in AUM. Although UBS is a Swiss company, it operates in over 50 countries and from all major international financial centers. UBS has 286 branch locations in the U.S.
In the U.S., UBS financial advisors offer planning, investing, and banking services and private wealth management for individuals. For companies and organizations, UBS financial advisors can help with financial wellness, retirement plan services, equity plan services, institutional consulting, and workplace insights.
2. Credit Suisse
Credit Suisse is ranked second on the list, with $1.25 trillion in AUM. Like UBS Wealth Management, Credit Suisse is also a Swiss company.
Wealth management solutions at Credit Suisse include preserving, accumulating, or transferring wealth. Previously, the company had investment-banking professionals in offices in Boston, Chicago, Houston, Los Angeles, New York, and San Francisco. However, in January 2015, Credit Suisse announced that it would be exiting its private banking and wealth management services in the U.S. The company offloaded its U.S. wealth business to Wells Fargo in the same year.
3. Morgan Stanley Wealth Management
Morgan Stanley Wealth Management ranks third on the list with $1.24 trillion in AUM. Morgan Stanley has 250 advisory firms that are committed to helping clients grow their financial, family, and social capital.
Morgan Stanley Wealth Management operates in all 50 states and Washington D.C. It has more than 15,600 wealth managers in nearly 600 branches.
4. Bank of America Global Wealth & Investment Management
Banks of America Global Wealth & Investment Management (comprising Merrill Lynch Wealth Management and Bank of America Private Bank) ranks fourth on the list with $1.22 trillion in AUM.
Bank of America offers investment management for individuals and families. Services that the company provides include portfolio management, access to capital markets, specialty asset management, and sustainable and impact investing.
The Global Wealth & Investment Management division focuses on two types of clients: people with over $250,000 in total investable assets and high-net-worth individuals for whom Bank of America can provide comprehensive wealth management solutions. It has more than 20,000 wealth managers in 750 branches.
5. J.P. Morgan Private Bank
J.P. Morgan Private Bank ranks fifth on ADV Ratings' list with $677 billion in AUM. Advisors, strategists, and investors at J.P. Morgan help individuals create custom financial plans and help achieve those goals. The company employs specialists who are focused on investing, banking, lending, and trusts and estates.
6. Goldman Sachs
Goldman Sachs ranks sixth on the list with $558 billion in AUM. At Goldman Sachs, clients work with private wealth management teams to select from investment vehicles covering the entire asset spectrum—including cash, fixed income and equities, as well as a range of alternative offerings such as private equity and hedge funds.
Goldman Sachs’ Investment Strategy Group (ISG) can also provide guidance to individuals on asset allocation and portfolio diversification. The company's Wealth Advisory Group can also assist clients in estate planning, gift planning, generation-skipping tax planning, and philanthropy. It has 500 wealth managers operating in 13 branches.
7. Charles Schwab
Charles Schwab is ranked seventh on the list of wealth management firms, with $506.3 billion in AUM. Charles Schwab offers wealth management services through an entire team of advisors, called Schwab Private Client. These advisors consider individual clients' retirement income planning, estate planning, and insurance needs. A dedicated member of a clients' team is also tasked with monitoring a portfolio and suggesting adjustments as the market changes.
The company employs over 2,000 wealth managers and has over 345 U.S. branch offices.
8. Citi Private Bank
Citi Private Bank is ranked eighth in ADV's list of the world's largest wealth management firms. Its AUM is $500 billion. Citi Private Bank offers services for professional investors, wealthy individuals, family offices, and lawyers and law firms. Citi maintains an extremely high ratio of advisors to ensure that every client's portfolio gets the attention it needs. They craft customized investment strategies and help entrepreneurs, wealthy individuals, sophisticated investors, over one thousand family offices, and the legal profession with global banking and investment services.
9. BNP Paribas Wealth Management
BNP Paribas Wealth Management ranks ninth in this list, with $424 billion in AUM. BNP Paribas' Wealth Management experience includes providing its clients with a portfolio that matches their long-term goals. The company's team of investment strategists can manage, diversify, or personalize your financial portfolio, as well as provide advice for a wide range of solutions.
10. Julius Baer
Julius Baer ranks tenth in this list, with $423.5 in AUM. Advisors at Julius Baer, together with a broad network of external experts, provide a holistic approach to managing wealth, from financial planning, wealth structuring, retirement, taxation succession, relocation, and philanthropy
Julius Baer employs a staff of over 6,700 worldwide. The group manages assets for private clients from all over the world.
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c96eab9f2c5801758b60bc123caac16b | https://www.investopedia.com/articles/investing/061515/what-do-federal-reserve-banks-do.asp | What Do the Federal Reserve Banks Do? | What Do the Federal Reserve Banks Do?
In 1913, the Federal Reserve Act established the Federal Reserve System (FRS), an independent governmental entity that would serve as a central bank to the U.S. government. In addition to the board of governors, the board of directors and the Federal Open Market Committee (FOMC), the act formed 12 Federal Reserve Banks spread out across the United States. Together, the banks’ mission is to provide the nation with stable monetary policy and a safe and flexible financial system, but what do the Reserve Banks really do?
Key Takeaways The Federal Reserve System in the U.S. conducts the nation's monetary policy and regulates its banking institutions. The system is comprised of 12 regional reserve member banks, each of which focuses on its particular geographical zone, in coordination with the New York Fed. These are based in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
A Network of Regional Fed Banks
The 12 Reserve Banks oversee the regional member banks, protect regional economic interests, and ensure that the public has clout in central bank decisions. Although Federal Reserve Banks don’t operate for profit, they generate income from interest on government securities acquired through Fed monetary policy actions and financial services provided to depository institutions. Each year, after accounting for operational expenses, the regional banks return any excess earnings to the U.S. Treasury. Overall, these regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy, and provide payment services.
Image by Sabrina Jiang © Investopedia 2020
Facilitating Monetary Policy
Regional banks enforce the monetary policies that the Board of Directors sets by ensuring that all depository institutions—commercial and mutual savings banks, savings and loan associations and credit unions—can access cash at the current discount rate.
They also assist the FOMC and the Federal Reserve by contributing to the formulation of monetary policy. Each regional bank has a staff of researchers that collects information about its region, analyzes economic data, and investigate developments in the economy. These researchers advise regional bank presidents on policy matters who then publicize the information to their constituencies in order to survey public opinion.
Supervising Member Institutions
The Board of Governors delegates most supervisory responsibilities over member institutions to the Reserve Banks, which are charged with conducting on-site and off-site examinations, inspecting state-chartered banks and authorizing banks to become chartered. They also ensure that depository institutions maintain the proper reserve ratio—the requirement outlining the proportion of deposits that must be held on reserve as cash. In addition, Reserve Banks are responsible for writing regulations for consumer credit laws and ensuring that communities have access to sufficient credit from banks.
Servicing the Government
Reserve Banks also engage in financial services to the federal government by acting as the liaison between the Department of Treasury and depository institutions. The regional banks collect unemployment and income tax, excise taxes to deposit to the Treasury and issue and redeem bonds as well as T-bills in the specified allotments to retain the desired level of bank reserves.
Additionally, Reserve Banks maintain the Treasury Department’s transaction and operating accounts by holding collateral for government agencies to secure funds currently on deposit with private institutions. The banks also make regular interest payments on outstanding government obligations.
Servicing Depository Institutions
Distributing paper money to chartered depository institutions is another one of the Reserve Banks duties. Excess cash is deposited at the Reserve Banks when demand is light; when demand is heavy, institutions can withdraw or borrow from the banks. The regional banks have the electronic infrastructure in place to handle wire transfers, moving funds between its 7,800 depository institutions.
In addition, the Reserve Banks are a check-clearing system that processes 18 billion checks annually and routes them to the correct depository institution. The Reserve Banks also provide automated clearinghouses that allow depository institutions to exchange payment in order to carry out payroll direct deposits and mortgage payments.
The Bottom Line
Often called a bank for banks, the network of Reserve Banks carries out the orders of the Fed, provide support for member banks around the country, and cultivate safe banking practices. Many of the services provided by these banks are similar to the services that ordinary banks offer, except the Reserve Banks provide these services to banks rather than individuals or business customers. Reserve Banks hold cash reserves and make loans to depository institutions, circulate currency, and provide payment services to thousands of banks.
Without these regional banks, the Federal Reserve wouldn’t be able to sanction its policies across the nation, govern the thousands of depository institutions, or ensure that the central bank hears the voices of people from each region when making policy judgments. They are the fiscal agents and the operating arms of the central bank.
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1ec2361024cc4c484623346ee7a7e8a2 | https://www.investopedia.com/articles/investing/061913/why-monsanto-evil-dupont-isnt.asp | Why Is Monsanto Evil, but DuPont Isn't? | Why Is Monsanto Evil, but DuPont Isn't?
A company's public perception is just as important as a brand image in the retail marketplace. As we explored in the retail sector, Walmart (WMT) and Amazon's (AMZN) public perception is a curious thing. The two companies do many of the same things, and yet one will take a much larger amount of flack and criticism for committing the same faux pas. It is all about corporate image—as the Seattle Organic Restaurants' website says, “the difference between a rainforest and a jungle is that a rainforest has a PR agent.”
To that end, it is quite interesting that Monsanto (which was purchased by Bayer AG in 2018) is one of the most-hated brands on the planet, with the internet and social media full of stories and passed-around memes that declare it to be one of the worst companies in the world. And yet, DuPont is just as big in genetically-modified seeds and agricultural chemicals—now even more so with the Dow-DuPont merger, and pursues largely the same policies as Monsanto with respect to pricing, intellectual property enforcement, and so on. So it merits the question—Why is Monsanto considered to be evil, but DuPont isn't?
Key Takeaways Why is Monsanto considered to be evil, but DuPont isn't? The two companies operate in the same industries and produce similar products. Corporate image and public perception is a real economic force that businesses must deal with and manage. Public perception is shaped by several social forces including a company's history as well as the portrayal in the news media.
Comparing Histories
One of the most commonly circulated bits on Monsanto in the media space is the argument that the company has a long corporate history of developing dangerous products. In prior corporate incarnations, Monsanto did indeed produce Agent Orange, polychlorinated biphenyl (PCBs), DDT, and artificial sweeteners like saccharin and aspartame. While there is still vigorous debate about the safety of artificial sweeteners, nobody disputes that Agent Orange, PCBs, and DDT are bad news.
DuPont started as a virtual monopoly manufacturer of gunpowder, making money hand over fist during the U.S. Civil War and then expanding into various other military explosives. Unlike Alfred Nobel, who felt so guilt-ridden about his invention of dynamite and its subsequent use in warfare that he established the Nobel Prizes, the DuPont family was apparently more interested in arranging marriages between cousins to maintain the family fortune.
DuPont was also involved in the development of nuclear weapons. Later, DuPont developed synthetic materials like nylon and polyester that will, in many cases, still be on this planet for a long, long time. Likewise, DuPont has had its share of dangerous pesticides, herbicides, and other chemicals including coatings like C8. By the way, DuPont also manufactured Agent Orange, DDT, and PCBs … just like Monsanto did.
The point is, it's difficult to be a large player in the chemicals industry and not eventually produce a dangerous product and/or experience a significant industrial accident. Many of the chemical companies large enough and old enough to be around at the time (including Monsanto, DuPont, and Dow) made products like Agent Orange, DDT, PCBs. Likewise, investors and those worried about the environment ought to be at least as worried about the neonicotinoid insecticides made by the likes of crop science company Syngenta (SYT) that have been implicated in colony collapse disorder affecting honeybees.
When Germany's Bayer AG closed its $63 billion takeover of Monsanto in 2018, it dropped the company's name from the combined firm.
Both Aren't Shy About Their Power or Patents
Monsanto has been roundly attacked for “buying” the U.S. government by spending millions on lobbying efforts, getting former executives into positions of power in government administrations, and vigorously enforcing its intellectual property patent rights.
Monsanto does indeed spend millions on lobbying—around $5 million a year. In 2016, Monsanto was the top lobbyist spender in the agricultural services/products group with $4.6 million. Dow Chemical paid much less at only $200,000. Likewise, it is true that several former Monsanto executives have found their way into presidential administrations.
Similar concerns have arisen around lobbying efforts for specific GMO legislation. Monsanto was frequently singled out as a major donor and supporter of efforts to defeat California's GM labeling law. Monsanto was, in fact, the largest donor to this initiative at $8.1 million, while DuPont was second at $5.4 million. Other GMO crop companies (Dow and BASF) chipped in between $2 million, while food companies like PepsiCo (PEP), Nestle (NSRGY), and Coca-Cola (KO) all contributed over $1 million each.
While Monsanto obviously was not alone in undermining legislation that would significantly increase the labeling and transparency of genetically engineered foods it is just yet another example of the commitment it has to minimize legalities and transparencies around drug and chemical disclosures. In many cases, Monsanto’s lobbying efforts seek to deny consumers awareness and the right to receive full transparency.
As far as the intellectual property situation goes, it is true that Monsanto has been aggressive in suing farmers who violated the terms of their sales agreements with the company and held back seed to plant the next year. Monsanto has been quite successful in these suits, winning nearly all that went to trial. But here again, DuPont does the exact same thing, recently hiring former police officers to inspect fields and determine whether or not farmers are violating terms and withholding seeds (and reportedly Syngenta and other GM seed companies do this as well). While some may argue this is inherently unfair, all of these farmers signed contracts and agreed to abide by these rules.
Unlike DuPont, Monsanto has also been accused of aggressively suing farmers that have experienced accidental cross-contamination with Monsanto traits. In point of fact, it doesn't appear that Monsanto has actually done this to any meaningful extent. They have been extremely aggressive in pursuing those that they believe have illegally used their seeds without paying royalties (the Schmeiser case in Canada in particular), but I have not uncovered an example of Monsanto suing for accidental contamination. In fact, Monsanto has been sued by farmers on multiple occasions for such contamination, and Monsanto generally offers to remove any of its GM seeds/plants from fields where they don't belong, at the company's expense.
The Genetically-Modified Market
The debate over whether genetically-modified (GMO) crops/plants are inherently bad is beyond the scope of this piece. I make no apologies for being pro-GM crops, nor for pointing out that those who argue that GM crops cause allergies, cancer or other negative health effects are decidedly lacking in 3rd-party peer-reviewed research. My point here, though, is simply to observe that strictly from the point of view of making and selling GM seeds, Monsanto and DuPont are on equal footing.
Although Monsanto is widely regarded as having some of the best GM crop R&D efforts in the world, DuPont, Syngenta, Dow, and BASF are all significant players in this market. That said, DuPont and Monsanto clearly stand apart in the U.S. Notice that I said DuPont and then Monsanto—while Monsanto has a slight edge in U.S. corn market share (37 to 36%), DuPont is bigger in GM soybeans (36 to 28%). While there are other areas where these companies are involved in GM crops (cotton and vegetables, for instance) and the shares differ, for all intents and purposes I would argue that Monsanto and DuPont are basically neck-and-neck in the GM market.
Likewise, both companies pursue very similar pricing strategies. Activists routinely thrash Monsanto for charging so much for its seeds, but the reality is that Monsanto and DuPont pursue nearly identical pricing formulas—requiring farmers to pay them about 25 to 33% of the extra value produced by the GM crops. In other words, farmers keep 67 to 75% of the benefits of using GM crops (generally in the form of higher yields).
The Bottom Line
The objective here is not to sway opponents of GM/GMO crops over to one side or the other. That is an entirely separate debate. Instead, the hope is to inject a bit of objectivity into the discussion—a discussion where it seems that Monsanto is the go-to whipping boy and evil incarnate while competing companies like Dow-DuPont and Syngenta manage to quietly walk by unnoticed.
For all of the bad things Monsanto has done, both alleged and real, its rivals have done largely the same. Every crop science company works to protect its intellectual property, every crop science company looks to get a good price for its technology, and every crop science company opens its wallet to attempt to sway public and governmental opinion to their side—just as companies in technology, healthcare, banking, and virtually every other industry do, and have done for decades.
Monsanto may be a victim of its own success. All they do is crop science (seeds and chemicals), whereas it's just a part of what Dow-DuPont and BASF do (and Syngenta has a relatively modest presence in the U.S.). Likewise, they've been very good at what they do. Perhaps it is time for Monsanto to start spending a few dollars on a PR campaign, as it still flummoxes me that the consensus opinion is that Monsanto is evil, while Dow-DuPont is basically okay.
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d0175cd7c106b81121ea1b643f224cd2 | https://www.investopedia.com/articles/investing/061915/how-snapchat-makes-money.asp | How Snapchat Makes Money | How Snapchat Makes Money
Social-networking giant Snapchat, now officially called Snap Inc. (SNAP), describes itself as a camera company. That's because its flagship product is a camera app called Snapchat that allows users to connect with family and friends, exchange photos ('Snaps') or videos ('Stories'), and chat. Snapchat is a platform for selling advertising space. That's how Snap, the company, generates substantially all of its revenue.
Snap faces significant competition from other companies focused on mobile engagement and advertising. That includes technology companies with digital platforms, and also companies in the more traditional sectors of print, radio, and television. Major competitors include Apple Inc. (AAPL); Facebook Inc. (FB), including its Instagram and WhatsApp offerings; Google, whose parent is Alphabet Inc. (GOOGL); and Twitter Inc. (TWTR).
Key Takeaways Snap offers a mobile-phone camera application that allows users to take photos and videos, exchange them with family and friends, and chat. Snap generates substantially all of its revenue through advertising. Snap's net loss decreased in 2020 as revenue growth accelerated. Snap recently acquired AI startup Ariel AI and location data startup StreetCred.
Snap's Financials
Snap posted a net loss of $944.8 million on $2.5 billion of revenue in its 2020 fiscal year (FY), which ended December 31, 2020. The net loss was not unusual considering the company has posted net losses in each of the past five years. Net losses are also typical of newer companies still focused on generating future growth. Snap's net loss for the year marked a noticeable improvement from the $1.0 billion net loss posted in 2019. Also, revenue grew 46.1% for the year, marking a slight acceleration from the 45.3% and 43.1% annual growth rates posted in 2019 and 2018, respectively.
As much as 66% of the company's revenue originated in North America, which includes Mexico, the Caribbean, and Central America. The U.S. alone accounted for 64% of total revenue in 2020. The remaining 34% of revenue can be accounted for by two broad regional groupings: Europe (including Russia and Turkey) and other countries throughout the world, with each group generating 17% of total revenue. Revenue for North America in 2020 grew the fastest at a rate of 54.5%.
Snap celebrated its ten-year anniversary last year, having been founded in 2010 as a California limited liability company (LLC) named Future Freshman, LLC. After several name changes, the company eventually settled on its current name Snap Inc. in 2016.
Both Snap's Daily Active Users (DAUs) and Average Revenue (ARPU) grew in Q4 2020 compared to the same quarter a year ago. The company finished the fourth quarter with an average of 265 million DAUs over the three-month period, 21.5% higher than the same quarter a year ago. ARPU was $3.44 for the quarter, up from $2.58 in the year-ago quarter.
Snap's Business Segments
Snap has no individual business segments that it breaks out in its financial metrics. Substantially all of Snap's revenue is generated from advertising, which accounted for 99% of the company's total $2.5 billion in revenue in 2020, up from 98% in 2019. The company says it also generates a small and "not material" share of revenue from Spectacles, the company's only physical product. Spectacles are glasses that connect to the Snapchat app and allows users to make Snaps and record videos. Snap earnings cannot be broken out because the company does not produce positive net income.
Snap's camera-app, Snapchat, can be downloaded to mobile devices free of charge. All of its features can be accessed for free, including by creating Snaps; conversing with family and friends; and finding friends' Stories on the Discover feature. These features are designed to drive user engagement, which in turn helps to attract advertisers and drive revenue from advertising, which includes Snap Ads and augmented reality (AR) Ads.
Snap Ads allows advertisers a way to tell stories similar to the way Snap's users do, while also providing additional features such as long-form video, and the ability for users to visit an advertiser's website or install an advertiser's app. AR Ads includes Sponsored Lenses or Sponsored Filters. The former provides users with branded augmented reality experiences. The latter provides entertaining, artistic overlays that allow users to interact with an advertiser's brand.
Snap’s Recent Developments
On January 26, 2021, it was reported that Snap acquired artificial intelligence (AI) startup Ariel AI. The U.K.-based firm, founded in 2018 by former Google and Facebook research scientists, specializes in augmented reality, which involves the overlaying of digital content and information onto the physical world. Snap did not disclose the value of the acquisition, but CNBC estimated that it was in the single-digit millions.
On January 11, 2021, it was reported that Snap acquired StreetCred, a New York City startup working on a platform for location data. Snap is planning to leverage StreetCred's expertise in building map and location-related products. Snap's Snap Map currently allows users to view public snaps taken in a particular area and to share the location with friends. The financial terms of the deal were not disclosed.
How Snapchat Reports Diversity & Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Snapchat and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Snapchat releases. It shows Snapchat does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. It also shows Snapchat does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.
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19627970138802a59004a91e37a00db9 | https://www.investopedia.com/articles/investing/061915/most-crucial-financial-ratios-penny-stocks.asp | The Most Crucial Financial Ratios For Penny Stocks | The Most Crucial Financial Ratios For Penny Stocks
Wise investors who want to keep their money usually stay away from penny stocks. But once in a while, a penny stock can hit the jackpot. Ford Motor Co. (F) and American Airlines Group Inc. (AAL), for example, both started out as penny stocks and are now at the blue chip end of the trading spectrum. Investors who are willing to brave the volatile and lightly regulated world of penny stocks can study key financial ratios to mitigate risks and possibly even make a good investment.
What Are Penny Stocks?
Penny stocks, as defined by the U.S. Securities and Exchange Commission, are securities, usually issued by small companies, that trade at less than $5 a share. Some experts choose to adopt a lower cut-off value of $1 per share. These stocks trade in over-the-counter (OTC) markets. Unlike conventional exchanges like NASDAQ or the New York Stock Exchange, over-the-counter markets do not hold companies to minimum standard requirements to remain on the exchange. These may be companies that have no proven track record, unpredictable revenues or earnings, shaky management, and very little disclosure about their operations. Other penny stock companies operate in unproven sectors of the economy or have products or services that are yet to be tested in the market.
Penny stocks are attractive because they are cheap. Investors dream of finding that future Ford Motor or American Airlines and reaping the rewards of exponential growth. Yet, these low share prices often come with considerable liabilities. Penny stocks are highly volatile and lack adequate liquidity. This means that even if stock prices rise, investors may not be able to sell shares before prices fall again. The speculative nature of penny stocks requires due diligence and analysis to make the investment in these securities something other than a pure gamble.
How to Reduce the Risks of Penny Stocks
One way to reduce the risk associated with the inadequate disclosure of penny stocks is to pick from companies in the OTCQX tier of the over-the-counter markets. OTCQX has stricter financial standards for the listed companies. These companies must comply with U.S. securities laws and meet higher standards of operations when compared to the other two OTC market tiers—OTCQB and OTC Pink. Investors should be especially wary of companies listed on OTC Pink as they are not required to file with the SEC and are therefore not regulated.
To uncover sound penny stock investment, use fundamental analysis to identify factors affecting the company and to assess the strength of its operations. Keep in mind though, with penny stocks, the lack of timely and pertinent public information may make good fundamental analysis difficult to complete.
Financial Ratios
Given adequate financial disclosure, we can apply some of the same analytical methods we use for larger companies to determine if a given penny stock is worth our investment dollars. Strong numbers and a positive trend on the balance sheet, income statement, and cash flow statement, are important because so much of the penny stock’s value is based on future expectations of performance. (For a list of financial ratios and their calculations, see Financial Ratio Tutorial)
Liquidity Ratios: Liquidity ratios (such as the current ratio, quick ratio, cash ratio, operating cash flow ratio) are the first ratios that an investor should compute for penny stocks. Often, penny stocks are unable to cover their short-term liabilities in a given time frame. Lower liquidity ratios (say less than 0.5) are a good indication that the company is struggling to stay in business or to advance its operations.
Leverage Ratios: Another important subset of ratios are leverage ratios. They are similar to liquidity ratios in that they focus on the company’s ability to cover debt. In this case, it is the long-term debt that we are concerned about. Two important leverage ratios are the debt ratio and the interest coverage ratio.
Debt Ratio = Total LiabilitiesTotal Assets\text{Debt Ratio}\ =\ \frac{\text{Total Liabilities}}{\text{Total Assets}}Debt Ratio = Total AssetsTotal Liabilities
Here, we are looking for trends such as if the debt load is shrinking or expanding. If it is expanding, then it should only be for a reason of supporting future growth opportunities and business development.
Interest coverage ratio is computed to determine if the debt load is manageable and if the company generates adequate level of earnings to service its outstanding debt.
Interest Coverage Ratio = Earnings Before Interest and TaxesInterest Expense\text{Interest Coverage Ratio}\ =\ \frac{\text{Earnings Before Interest and Taxes}}{\text{Interest Expense}}Interest Coverage Ratio = Interest ExpenseEarnings Before Interest and Taxes
Higher interest coverage ratio numbers are better. Anything less than two signals trouble in servicing long-term debt in the future.
Performance Ratios: Performance ratios (such as gross profit margin, operating profit margin, net profit margin, return on assets, and return on equity) help quantify the money made at each level of the company’s income statement. The challenge is that profit margins of penny stocks are often very small in early stages of growth. Healthy and consistent growth in operating earnings is more critical in the context of penny stocks.
Valuation Ratios: Finally, valuation ratios help us measure the attractiveness of the stock at its current price. Penny stock shares can be seriously overvalued. The most common ratio measuring value is the price-to-earnings (P/E) ratio.
Price-to-Earnings Ratio = Current Share PriceEarnings Per Share\text{Price-to-Earnings Ratio}\ =\ \frac{\text{Current Share Price}}{\text{Earnings Per Share}}Price-to-Earnings Ratio = Earnings Per ShareCurrent Share Price
Generally speaking, a lower P/E ratio signifies better value-per-dollar of earnings. This ratio, however, becomes meaningless if company earnings are nonexistent or negative, which is often the case with penny stocks. A better measure of penny stock value is the price-to-earnings-to-growth (PEG) ratio, which incorporates the company’s annual earnings growth rate into the above equation. It is derived by dividing the P/E ratio by the expected annual growth rate in earning per share (EPS). Provided that the growth rate estimation is reliable, the PEG ratio is a useful measure of value for penny stocks since much of their value rests in the anticipated future growth of the company’s earnings.
As mentioned above, P/E and PEG ratios are useless when company earnings are zero or negative. In this scenario, we can use the price-to-sales and price-to-cash flow ratios, which are far more effective with regard to penny stocks.
Price-to-Sales Ratio = Current Share PriceSales Per Share\text{Price-to-Sales Ratio}\ =\ \frac{\text{Current Share Price}}{\text{Sales Per Share}}Price-to-Sales Ratio = Sales Per ShareCurrent Share Price
A price-to-sales ratio of two or less is generally considered a good share value.
Price-to-Cash Flow Ratio = Current Share PriceTotal Cash Flow Per Share\text{Price-to-Cash Flow Ratio}\ =\ \frac{\text{Current Share Price}}{\text{Total Cash Flow Per Share}}Price-to-Cash Flow Ratio = Total Cash Flow Per ShareCurrent Share Price
The price-to-cash flow ratio is a variation of price-to-sales. It is especially useful to compute if the quality of earnings is under question.
Once these financial ratios are calculated, we can compare them with the same ratios for the previous reporting periods or forecast ratios into the future. We can also compare these ratios to those of direct competitors and the market overall to gain useful insight into the company’s performance and value.
The Bottom Line
Penny stock shares rise and fall based on the trading demand and are often only loosely related to company fundamentals and the balance sheet. It is often not possible to calculate a penny stock’s correct intrinsic value. Their prices are highly unpredictable and reflect perceived potential over actual value. Company disclosure level is at best mediocre, and often nonexistent. Stocks trading on OTCQX require periodic and accurate disclosure of company fundamentals. Investors who wish to trade in penny stocks should stick to the OTCQX market and use financial ratio analysis to mitigate risks.
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f5b83828db352e3472b6a42200add5e0 | https://www.investopedia.com/articles/investing/061916/what-best-measure-companys-financial-health.asp | What Is the Best Measure of a Company's Financial Health? | What Is the Best Measure of a Company's Financial Health?
When evaluating a stock, investors are always searching for that one golden key measurement that can be obtained by looking at a company's financial statements. But finding a company that ticks off every box is simply not that easy.
There are a number of financial ratios that can be reviewed to gauge a company's overall financial health and to judge the likelihood that the company will continue as a viable business. Standalone numbers such as total debt or net profit are less meaningful than financial ratios that connect and compare the various numbers on a company's balance sheet or income statement. The general trend of financial ratios, whether they are improving over time, is also an important consideration.
To accurately evaluate the financial health and long-term sustainability of a company, several financial metrics must be considered in tandem. The four main areas of financial health that should be examined are liquidity, solvency, profitability, and operating efficiency. However, of the four, perhaps the best measurement of a company's health is the level of its profitability.
Key Takeaways There's no one perfect way to determine a company's financial health, let alone sustainability, despite investors' best efforts. However, there are four critical areas of financial well-being that can be scrutinized closely for signs of strength or vulnerability. Liquidity, solvency, profitability, and operating efficiency are important areas to consider, and all should be considered in combination.
Liquidity
Liquidity is a key factor in assessing a company's basic financial health. Liquidity is the amount of cash and easily-convertible-to-cash assets a company owns to manage its short-term debt obligations. Before a company can prosper in the long term, it must first be able to survive in the short term.
The two most common metrics used to measure liquidity are the current ratio and the quick ratio. Of these two, the quick ratio, also known as the acid test, is the conservative measure. This is because it excludes inventory from assets and also excludes the current part of long-term debt from liabilities. Thus, it provides a more realistic or practical indication of a company's ability to manage short-term obligations with cash and assets on hand. A quick ratio lower than 1.0 is often a warning sign, as it indicates current liabilities exceed current assets.
A company's bottom line profit margin is the best single indicator of its financial health and long-term viability.
Solvency
Related to liquidity is the concept of solvency, a company's ability to meet its debt obligations on an ongoing basis, not just over the short term. Solvency ratios calculate a company's long-term debt in relation to its assets or equity.
The debt-to-equity (D/E) ratio is generally a solid indicator of a company's long-term sustainability because it provides a measurement of debt against stockholders' equity, and it is therefore also a measure of investor interest and confidence in a company. A lower D/E ratio means more of a company's operations are being financed by shareholders rather than by creditors. This is a plus for a company since shareholders do not charge interest on the financing they provide.
D/E ratios vary widely between industries, but regardless of the specific nature of a business, a downward trend over time in the D/E ratio is a good indicator a company is on increasingly solid financial ground.
Operating Efficiency
A company's operating efficiency is key to its financial success. Operating margin is one of the best indicators of efficiency. This metric not only considers a company's basic operational profit margin after deducting the variable costs of producing and marketing the company's products or services, it also indicates how well the company's management is able to control costs.
Good management is essential to a company's long-term sustainability. Good management can overcome an array of temporary problems, while bad management can lead to the collapse of even the most promising business.
Financial ratios can be used to assess a company's overall health; standalone numbers are less useful than those that compare and contrast specific numbers on a company's balance sheet, such as the price-to-earnings (P/E) or debt-to-equity (D/E) ratios.
Profitability
While liquidity, basic solvency, and operating efficiency are all important factors to consider in evaluating a company, the bottom line remains a company's bottom line: its net profitability. Companies can indeed survive for years without being profitable, operating on the goodwill of creditors and investors, but to survive in the long run, a company must eventually attain and maintain profitability.
A good metric for evaluating profitability is net margin, the ratio of net profits to total revenues. It is crucial to consider the net margin ratio because a simple dollar figure of profit is inadequate to assess the company's financial health. A company might show a net profit figure of several hundred million dollars, but if that dollar figure represents a net margin of only 1% or less, then even the slightest increase in operating costs or marketplace competition could plunge the company into the red. A larger net margin, especially as compared to industry peers, means a greater margin of financial safety, and also indicates a company is in a better financial position to commit capital to growth and expansion.
The Bottom Line
No single metric can identify the overall financial and operational health of a company. Liquidity will tell you about a firm's ability to ride out short-term rough patches and solvency tells you about how readily it can cover longer-term debt and obligations. Efficiency and profitability say something about its ability to convert inputs into cash flows and net income. All of these factors together, however, are necessary to get a complete and holistic view of a company's stability.
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9145e19f30c11598fb9e4b00964adb8c | https://www.investopedia.com/articles/investing/062113/understanding-profit-metrics-gross-operating-and-net-profits.asp | 3 Profit Metrics Every Investor Should Understand | 3 Profit Metrics Every Investor Should Understand
When investors want to see how a company is performing, chances are they’ll browse the company’s website or annual report for its income statement. One sees the business’s total revenue at the top, followed by several rows of expenses. The very bottom row shows what’s left over: the net profit or loss. If this number is bigger than last year’s, one might presume the firm is doing better. But is it?
As it turns out, an organization's performance is a little more complex than its renowned bottom line. That’s why most analysts look at more than one form of profit when evaluating a stock. In addition to the net profit, they may also factor in gross profit and operating profit. Each of these line items on the income statement has important information about how the company is doing. And if the investor knows what to look for, the different measures of profit can help indicate whether recent trends – good or bad – are likely to continue.
The Three Major Profits
To understand each type of profit, it’s useful to get a grasp on the income statement itself. This is a financial document that shows the company’s revenue and expenses for a specific time period, usually a quarter or a full year. If it’s a publicly-traded company, an individual can virtually always find it on the company’s investor relations webpage.
The following is a full-year income statement for Active Tots, a maker of outdoor children’s toys.
(in millions) 2012 2011 Net Sales 2,000 1,800 Cost of Goods Sold (900) (700) Gross Profit 1,100 1,100 Operating Expenses (SG&A) (400) (250) Operating Profit 700 850 Other Income (Expense) (100) 50 Extraordinary Gain (Loss) 400 (100) Interest Expense (200) (150) Net Profit Before Taxes (Pretax Income) 800 650 Taxes (250) (200) Net Income 550 450
The top line of the table shows the company’s revenue or net sales – in other words, all the revenue it has generated over a given stretch of time from its day-to-day operations. From this initial sales figure, the business subtracts all the expenses associated with actually producing its toys, from raw materials to the wages of people working in its factory. These production-related expenditures are referred to as the “cost of goods sold." The remaining amount, usually on line 3, is the gross profit.
The next row down shows the business’s operating expenses, or SG&A, which stands for selling, general and administrative expenses. Essentially, these are its "overhead." Companies can’t just make products and collect the proceeds. They need to hire salespeople to bring the goods to market and executives who help chart the organization’s direction. Usually, they’ll also pay for advertising as well as the cost of any administrative buildings. All of these items are included in the operating expense figure. Once this is subtracted from gross profit, we arrive at the operating profit.
Toward the bottom of the income statement are expenses not related to the firm’s core business. For example, there’s a line for extraordinary gains or losses, which include unusual events such as the sale of a building or business unit. Here, we also see any gains or losses from investments or interest expenses. Finally, the document includes a line representing the corporation’s tax expense. Once these additional expenses are deducted from operating profit, the investor arrives at the net income or net profit – or net loss, if that’s the case. This is the amount of money the company has either added to or subtracted from its coffers over a given time period.
1:48 Profit Metrics: Gross, Operating & Net Profits
Understanding the Differences
So why use these different metrics? Let’s examine the Active Tots income statement to find out. Many beginning investors will naturally look right for the net profit line. In this case, the company earned $550 million in its latest fiscal year, up from $450 million the year before.
On the surface, this looks like a positive development. However, a closer look reveals some interesting information. As it turns out, the firm’s gross profit – again, the revenue that remains after subtracting production expenses – is the same from one year to the next. In fact, the cost of goods sold grew at a faster pace than net sales. There could be any number of reasons for this. Perhaps the cost of plastic, a primary material in many of its products, rose significantly. Or, perhaps, its unionized plant workers negotiated for higher wages.
What is perhaps more interesting is that the business’s operating profit actually went down in the latest year. This may be a sign that the company’s staff is becoming bloated, or that Active Tots has failed to rein in employee perks or other overhead expenses.How, then, is the company earning $100 million more in net profit? One of the biggest factors appears toward the bottom of the income statement. Last year, Active Tots recorded an extraordinary $400 million gain. In this case, the one-time windfall was the result of selling its educational products division.
While the sale of this business unit increased net profit, it’s not income the company can count on year after year. For this reason, many analysts emphasize operating profit, which captures the performance of a firm’s core business activity, over net profit.
It’s important to note, however, that not all spending increases are negative. For example, if Active Tots saw its operating expenses shoot up as a result of a new advertising campaign, the firm might more than makeup for it the following year with increased revenue. In addition to looking at the income statement, it’s important to read up on the company to find out why figures are changing.
Evaluating Performance
Profit metrics can help assess a company’s health in two ways. The first is to use them for an internal review – in other words, comparing new numbers to the firm’s historical data. A knowledgeable investor will look for trends that help predict future performance. For instance, if the costs associated with production have risen faster than the company’s sales over multiple years, it may be difficult for the company to maintain healthy profit margins going forward. By contrast, if its' administrative expenses start to take up a smaller part of revenue, the company is probably doing some belt-tightening that will enhance profitability.
Investors should also compare these three metrics – gross profit, operating profit, and net profit – to those of a company's competitors. Many investors look at earnings per share figures, which are based on net profit, when deciding which stocks offer the best value. However, because one-time gains or expenses can distort financial performance, many securities analysts will instead key in on operating profit to determine what shares are worth. Some even advise zooming in on net operating income, another more finely tuned profit metric that takes into account taxes, but not extraordinary one-time gains or losses.
The Bottom Line
While it’s tempting to look at the bottom line of an income statement to size up a company, investors should be mindful of this figure’s shortcomings. Because gross profit and operating profit focus on the company’s core activities, these numbers are often the best barometer for determining an organization's future course.
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bd2b2514f8ba38ea471ae2fb574b385f | https://www.investopedia.com/articles/investing/062413/peek-shareholder-meetings.asp | A Peek Into Shareholder Meetings | A Peek Into Shareholder Meetings
When you hear the term shareholder meeting, what's the first thing you think about? If you're like most people, the most immediate thought that may come to mind may be the carnival- or festival-like atmosphere that surrounds Berkshire Hathaway's (BRK.A, BRK.B) well-known annual gathering. Or perhaps it's the protests and controversy that often accompany the annual meetings at large public companies like Wal-Mart as shareholders argue against a wide range of corporate policies in a very public way.
While both scenarios are, in fact, a reality, they generally represent only a slice of the full range of shareholder meeting experiences. In fact, most annual meetings are not nearly as glamorous, exciting, or even controversial. But they are a necessary part of the life of many companies—both public and private. So what exactly happens at these meetings? Before we explore the meetings themselves, it may help to give some insight into the purpose of the meeting.
Key Takeaways Shareholder meetings are a regulatory requirement which means most public and private companies must hold them.Notification of the meeting's date and time is often accompanied by the meeting's agenda.Meetings are generally administrative sessions that follow a specific format set forth well in advance.While the meetings of Berkshire Hathaway and Wal-Mart have become lavish events, the majority are fairly run-of-the-mill.
What's the Point?
From the company's perspective, shareholder meetings are a regulatory requirement, so both private and public companies must hold these meetings. The rules governing these meetings depend on the state in which the company is incorporated. And public companies are held to a higher standard than private ones.
Technically, notification of the meeting date is not even required to be sent to shareholders because the meeting date is stated in the bylaws of each company and the annual meeting takes place on the same date each year. Despite that, formal notification of the meeting date and time is generally sent to investors, as it is unlikely that many shareholders have read the bylaws, and the media would have an opportunity to sensationalize the fact that a firm was acting in an unethical manner—one that could be construed as an attempt to hide the date and time of its meeting.
Your Invitation to Look Inside
Notification of the meeting's date and time will include a copy of the meeting's agenda, which is often centered around the election of members to the board of directors, approval of an accounting firm to review the company's financial records, and an opportunity to vote on any proposals that are put before the board, either by shareholders or by company management. The text of the invitation is often dry and formulaic. A typical notice is likely to read something like this:
ABC Corporation will conduct its Annual Meeting at 9 a.m. on Wednesday, July 19 at the XYZ Hotel located at 123 Main Street, New York, N.Y. Shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders above, including the election of the two directors named in the Proxy Statement, ratification of the selection of the Independent Registered Public Accounting Firm (the "Independent Auditors") of ABC Corporation and the consideration of any other matters that may come before the board.
The notification is a legal notice, with little fanfare attached. The meeting is held during working hours, making it inconvenient for shareholders who have full-time jobs to attend. Shareholders who cannot attend the meeting in person are encouraged to vote by proxy, which can be done online or by filling out and mailing a form.
Clearly, the event advertised by the official notice is not a party, but rather an administrative function based on regulatory requirements. Of course, shareholders have a legal right to attend annual meetings. It is, after all, the one time each year they have an opportunity to sit in the same room with representatives from the company.
At the Meeting
Shareholder meetings are generally administrative sessions that follow a specific format set forth well in advance of the meeting. The format dictates parliamentary procedure, the amount of time allocated for each speaker, and procedures for shareholders who wish to make statements. A corporate secretary, attorney, or another official often presides over the process. Even for a big, popular firm like Warren Buffett's Berkshire Hathaway, the business portion of the agenda takes only about 20 minutes. The election of directors and votes on shareholder proposals are handled in a largely scripted manner. At the conclusion of the meeting, the minutes are formally recorded.
In many cases, the publicity surrounding shareholder proposals is far more exciting than the actual meetings. The level of hoopla surrounding shareholder meetings generally has a direct correlation to how broadly the company's shares are held.
Large public companies such as Walt Disney (DIS) and General Electric (GE) attract the lion's share of attention. Shareholders often put forth protest votes against company policies. GE, for example, has faced protest votes seeking to get the firm to stop engaging in the manufacture of components that can be used to construct landmines. Other firms have faced votes designed to change their environmental policies, to eliminate benefits for same-sex partners, and for a host of other proposals.
Executive compensation has also become a hot topic in recent years. With workers' wages stagnating and CEO compensation soaring, companies are now required to seek non-binding shareholder votes approving executive compensation packages. While the compensation packages often involve astronomical numbers and lavish perks ranging from corporate jets to company-funded living quarters, the vote is nonbinding. This means executive compensation packages are nearly always approved, regardless of the results of the vote.
Special Considerations
It is important to keep in mind that mutual funds, hedge funds, and other investment vehicles controlled by financial services companies usually control the majority of a corporation's publicly traded stock. While individual investors may have opinions of various topics and are able to express those opinions by putting forth proposals, the biggest voting blocks are often the financial institutions, pension funds, and similar entities—all known as institutional investors—that hold large stakes in the firms.
Getting a handful of Wall Street firms to agree with the firm's positions, either for or against a given proposal, is usually more than enough support to squash any dissent.
The majority of shareholders in a public company are usually institutional investors who control mutual funds, hedge funds, and other investment vehicles.
The Other End of the Spectrum
Of course, there is an exception to every rule, and Berkshire Hathaway—the company run by legendary investor Warren Buffett—sets the benchmark standard for shareholder meetings against which all others are judged. The daylong, carnival-like atmosphere features comedy skits, disco balls, music, celebrities like Bill Gates, and even dancing characters from the various companies in the portfolio including the GEICO gecko.
Live online coverage of the proceedings provides real-time updates for those individuals who are interested in the event but unable to attend. Note that attendees who wish to join the party and hear the Oracle of Omaha speak are required to hold Class A shares, which have recently traded above $290,000 each.
While not at the level of a Berkshire bash, Wal-Mart (WMT) is no slouch in the shareholder meeting department. Under fire for a variety of labor practices, the retail giant has taken a page from Berkshire's playbook. To get a sense of the events, just ask yourself "What do mega-celebrities Will Smith, Taylor Swift, Ben Stiller, Miley Cyrus, Mariah Carey, and Tom Cruise all have in common?"
The answer is that they have all participated in Wal-Mart shareholder meetings, as the chain has turned its meetings into celebrity endorsements where star power works hard to endorse the firm's practice in a major league effort to overshadow the dissent.
The Bottom Line
For investors, it is reasonable to say that shareholder meetings provide little in the way of revelations. The Security and Exchange Commission's (SEC) enactment of Regulation FD on Aug. 15, 2000, effectively banned companies from selectively releasing material nonpublic information.
To remain in compliance with this mandate, companies release their quarterly earnings information in well-telegraphed events. This information is where investors look to gain insight into a company's health. That said, if you get a chance to attend the festivities at Berkshire or Wal-Mart, you will probably have a good time, even if you don't get any special insights.
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