Monthly Archives: October 2016

The stock market, on any given day, is in a constant state of fluctuation. Business news and quarterly reports fuel the ever-changing values of different firms, but sometimes things that are seemingly disconnected from the business world can have the greatest effect on the stock market. Last Friday (October 28, 2016), it was announced that the Federal Bureau of Investigation discovered a new “trove of emails” from one of Hillary Clinton’s top aides during her time as Secretary of State that could potentially provide evidence of a leak of state secrets.

Up until now, the feeling on Wall Street was that Hillary Clinton’s victory was almost guaranteed, and as such, the market showed consistent gains over the last couple of months. The thinking behind this being that Hillary Clinton, considered more predictable than Donald Trump, would be better for the market. Thus, more people invested in the market in anticipation of continuing growth. However, with the onset of a new scandal, markets have started to get nervous. According to Naeem Aslam, chief market analyst at Think Forex in a note to clients, “Hillary Clinton’s news has taken the wind out of the market rally. This certainly increases the chances and odds for Trump winning.” As people begin to lose faith in Hillary Clinton’s chances, and in anticipation of massive market losses at the hands of Trump’s unpredictability, people stop investing in the stock market and instead are buying gold. It is commonly known that in times of market uncertainty, people revert to buying gold and bonds in order to hedge their investments. This is causing fairly significant losses in some of the biggest markets indices on Wall Street. In fact, at one point the Dow was down 125 points from its highs of the day

Source: CNN Money

The important thing, at least in my eyes, is to acknowledge the strength and nature of the stock market. It’s easy for investors to get nervous when watching such a charged political debate; especially when so much of the business world seems to be riding on the decisions to be made in the coming week. However, from what I can tell, the stock market actually has more influence on the election than vice-versa. The stock market is a powerful entity, and historically, has been able to predict the outcome of the election. When the stock market is up in the three months before the election, most likely the incumbent party (the democrats in this case) will win, and losses in that period would indicate a change in party. In fact, there’s an 85% success rate when following that pattern since 1928. So perhaps investors should try to keep the market up if they are looking for a Clinton win this election.

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It’s been almost two months since the South Korean shipping giant, Hanjin, filed for bankruptcy. The fall of the company was not exactly surprising given the fact that according to the BBC, Hanjin has been unprofitable for four of the last five years, but what is surprising is that nobody caught wind of their downfall sooner. When a company runs out of cash like Hanjin did, it usually comes down to bad financial accounting. More specifically, in this case, Hanjin faces a cash shortage after failing to persuade key lenders to reschedule debt. Basically, Hanjin knew it wasn’t going to be able to pay off its debt by the time that had already been established, so when that deadline came around, there was no money to pay, forcing them to enter receivership (where a receiver is appointed to oversee the possession of and selling of assets in order to repay the outstanding debt). So what are they doing now, two months later?

Because Hanjin ran out of money, their ships, all the sailors they employ, and all their containers have been stranded outside of port waiting for a solution to be found within the upper echelons of Hanjin’s managment. No port wants to allow Hanjin’s ships into port because of their lack of cash. Without cash, Hanjin’s ships cannot pay the port fees needed to process the removal of their containers and allow them entry to dock. At the same time, these stranded ships and, more specifically, their crews cannot wait forever out at sea.

Thousands of Hanjin containers are stuck in port and at sea (Source: BBC)

Outside of the company itself, retailers are getting nervous. In the U.S. alone, Hanjin was responsible for eight percent of transpacific shipping. With the future of the company, and the containers they have on board their ships, hanging in the balance, U.S. retailers are worried about keeping their shelves stocked for the upcoming holiday season.  This case is a classic demonstration of the power of the Supply Chain and the importance of securing all the links in the chain. Much of the retail industry relies heavily on shipping companies such as Hanjin to distribute the goods to where demand presents itself. Because of this reliance on shipping companies, retail companies have a limited responsiveness to change (i.e. the bankruptcy of a key distributor) which increases the risk of shortages, additional costs, and certainly affects the reputation of these companies.

As it stands, many of Hanjin’s ships and their crew are still waiting for a deal to be made that could save the company. Meanwhile, all retailers can do is wait, watch, and hope that their shipments will arrive soon.

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Almost every major city in the world has invested in providing quality sports venues for its populace. Whether it’s a small minor league baseball field to seat 5,000 or arenas like Los Angeles’ Coliseum that seat close to 100,000, there are serious expenses that arise from their construction. The new and improved Yankee Stadium was built in 2009 and carried a whopping 2.5 billion dollar price tag (3.25 CAD). The Yankees took out loans and municipal bonds in order to help cover the huge costs of construction, totaling around 431 million dollars from the city of  New York.  The issue however lies in the fact that these bonds are federally-based and thus, totally tax-exempt. The end result is that the government is losing billions of dollars worth of tax revenue. The issuing of these municipal bonds has become extremely common within professional sports. The NFL has built a total of thirteen stadiums, Major League Baseball a total of 12, and another 11 stadiums have been constructed in the NHL and NBA. Through issuing these bonds, the government has lost over three billion dollars in tax breaks. At this point, the American government is basically subsidizing the construction of these projects using taxpayer dollars from across the country.

Advocates for this use of public financing use the argument that building these sport complexes provides huge economic growth at a local level in the surrounding area. However, in reality there is little evidence that this actually happens. According to studies by Brookings, there is no “discernible positive relationship between sports facilities and local economic development, income growth, or job creation.” Even more than this fact, it is hard to justify the use of federal bonds and federal tax-breaks to pay for projects in only a few select major cities across the country. As it stands, residents in states like Alaska, Wyoming, or Maine are helping pay for these stadiums with their own tax dollars. So even if a stadium were to bring in the economic growth that is often proposed, many of the people paying for its construction will never experience the economic prosperity that they are paying for.

I believe that this practice needs to be eliminated or at least regulated more closely on a nationwide level. The only groups that really benefit from public financing are the already rich owners of sport teams, much less the government. These bonds, when properly used, fund public works like highways, schools,  or hospitals. It seems obvious that the construction of a sports facility does not quite fit into this category of public expenditure. The government should start implementing policies that would limit federal involvement in any ventures that would be used primarily for “private business use.”

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Sources Cited:

https://www.brookings.edu/research/why-the-federal-government-should-stop-spending-billions-on-private-sports-stadiums/#federal-subsidy

http://money.cnn.com/2016/09/09/news/nfl-sports-stadiums-tax-breaks-taxpayers/?iid=EL

http://www.forbes.com/sites/jeffreydorfman/2015/01/31/publicly-financed-sports-stadiums-are-a-game-that-taxpayers-lose/#4f89afe56183