In this article, Alan Greenspan discusses how he would prefer a “modest” recession in order to lower the US deficit by raising taxes.

Finally! I am simply amazed at the fact that after many years the US government realizes that it must spend an amount equal to or less than its total revenues; it is a simple fact known by most elementary school students. As mentioned in the article, the US has been adding nearly a trillion dollars to its debt yearly, bringing the debt to be $16.1 trillion, which is unhealthy for the US economy in the long run. Yet, what Alan Greenspan proposes is completely ridiculous. Raise taxes? Risk another global recession? No thanks. One shouldn’t look so far ahead that they fall into a hole right in front of them. Raising taxes will increase unemployment which will lead the US’s economy back into a recession, and the rest of the world will follow suit.

The solution?

Firstly, giving tax breaks to corporations (and individuals) doesn’t always translate into higher rate of employment as firms simply pocket the profits and don’t raise production.  On the other hand, tax hikes always result in increased unemployment. Therefore, a viable solution would be to get rid of corporate subsides and tax breaks which will make firms more efficient and will lower major US government expenses at the same time.

References:

Carmichael, Kevin. “Greenspan: Recession a ‘cheap Price’ to Pay to Fix U.S. Debt.”Theglobeandmail.com. The Globe and Mail, 16 Nov. 2012. Web. 16 Nov. 2012. <http://www.theglobeandmail.com/report-on-business/economy/economy-lab/greenspan-recession-a-cheap-price-to-pay-to-fix-us-debt/article5369498/>.

Photo Credits:

Granlund, Dave. Fiscal Cliff Cartoon. N.d. Photograph. Www.davegranlund.com.Http://simple-politiks.com. SimplePolitiks, 28 Aug. 2012. Web. 18 Nov. 2012. <http://simple-politiks.com/2012/08/28/what-is-the-fiscal-cliff/>.

Fifty inch LCD TV? $400. Laptop? $300. PS3 bundle? Only $250!

Are you dreaming?

Nope, you’re in Wal-Mart.

In the past year alone, China’s corporate debt has risen from 108% to 122% of GDP, thus bringing the total debt up to 206% of GDP.

The problem with this is that majority of the companies and banks are state owned. Therefore, if companies were to default on their loans, it will really be the Chinese government who suffers along with its economy.

Additionally, this article brings to mind the 2008 rescission, which was primarily caused by the banks lending money to people who couldn’t afford a home, resulting in many homes being foreclosed. Now, it’s multiple firms who are now saddled with debt, and it’s just a matter of time before a couple of major firms default on their payments, which will cause a snowball effect. Firms will not be able to pay their debts because other firms who owe them money will not have paid them back yet. This will result in banks and firms being forced to write down billions of dollars in bad loans, in which case the government will pick up the bill, which would consequently bring the Chinese economy to a halt.

3 ways in which the Chinese government could limit its exposure include:

1) Changing banks and corporations from being state owned to privately owned, thus limiting any losses just to the corporate and financial entities and not to the government itself.

2) Slightly raising interest rates which will pressure firms to pay back loans.

3) Enforcing a stricter lending criteria.

References:

Roberts, Dexter. “Corporate China’s Black Hole of Debt.” Businessweek.com. BloombergBusinessweek, 15 Nov. 2012. Web. 15 Nov. 2012. <http://www.businessweek.com/articles/2012-11-15/corporate-chinas-black-hole-of-debt>.

In his blog post, Fredric Ho talked about Monsanto and how it obtained such a negative image through various situations such as not testing its products and using its patents to sue small farmers. As a closing statement, Ho wondered if the government should implement anti-GMO polices. I would say yes, for the following health and financial reasons:

1)      If we are just consuming GMOs, then our crops will be susceptible to the same disease as the GMOs have the same genetic engineering. If that’s the case, than humans as a whole will be venerable because of over reliance on a single type of seed. In traditional farming farmers use a variety of seeds thus preventing any single virus from ruining the whole crop yield.

2)      Big companies like Monsanto use their patents and sue family farms for processing of their patent seeds. Soon, all family farms will die off. Only behemoth corporations like Monsanto will be left in agriculture where they will use using their monopoly and charge high prices.

3)      We do not know any health complications that may result from consuming GMO products. This is due to the fact that companies do not want to invest the time and money to find out, as they are not legally required to do so. Moreover, I believe effects from GMO will not be felt in our generation but in our grandchildren’s because the full effects of the GMO products will not be felt until concentration of the GMO substances biomagnifies in our body.

Due to the above reasons, the US government should implement some measures to curb the number of GMO products in the United States.

Photo Credits:

Gould, David. Genetically Modified Food Tomatoes. N.d. Photograph. Getty Images.Treehugger.com. Treehugger, 3 Dec. 2009. Web. 1 Nov. 2012. <http://www.treehugger.com/green-food/gmo-bans-laws-and-labels-from-around-the-world.html>.

Most of the growing trends in the world are revolving around sustainability and ethics, and the business realm reflects those principals. In Jim Yih’s blog, he mentions that over 50% of Canadians are interested in ethical mutual funds.

To me, this is very exciting news, as it shows how people are realizing that their choices have a very real impact on the way businesses are run and how they are taking advantage of that fact by investing responsibility. The financial sector has responded to that interest by creating the Jantz Social and Domini Social Indices, which both select companies based on social responsibility criteria, thus illustrating how sensitive the financial market is to investors’ tastes.

In essence, socially responsible investing has made it possible to “hit three birds with one stone”. That is, by buying into an ethical company, it accomplishes three goals:

1)      Social indices, funds, or companies give an approximately equal return in comparison to other financial products so it is unlikely that someone will suffer financially by purchasing a socially responsible index or mutual fund.

2)      Supports socially responsible companies financially thus enabling them to grow and expand.

3)      Helps the world by promoting companies who support labor rights, address environmental concerns, and fight animal testing.

To conclude, socially responsibly investing is a unique way in which individuals can change the world by their choices while at the same time be rewarded for it.

References:

Yih, Jim. “Socially Responsible Investing.” Retirehappyblog.ca. Retire Happy, n.d. Web. 25 Oct. 2012. <http://retirehappyblog.ca/socially-responsible-investing/>.

Related:

After hearing news about Vancouver’s housing market, I was deeply intrigued by the Gordon Feng’s blog post. However, after reading it, I disagree with his stance on renting over buying a house, because of three points:

1)      In his blog, Feng mentioned that he would rather pay rent instead of paying a high interest rate on the mortgage. However, the fact is that Canada’s prime rate is 3.00%, which is far lower than the historical average of 4.89% in the past years. Applying the law of large numbers it is certain that given time the prime rate will increase back to its historical average. Therefore, a 1.89% increase on a $630,000 mortgage will result in $11,907 of increased interest.

2)      Secondly, he mentioned high house prices as a reason to avoid buying a home. However, he failed to take into account the location factor. Vancouver is a world-class city filled with various amenities, which are highly valued, by families and investors, resulting in continuous growth in demand. Therefore, it is highly unlikely that a housing bubble exists in Vancouver.

3)      Lastly, renting is not cheaper than mortgage payments because the rent being paid by renters equals the mortgage payments paid by the homeowners when they rent their house.

Therefore, due to the above three reasons, it would be wiser to buy a house than to rent it.

 References:

“Prime Mortgage Rate History.” Ratehub.ca. Ratehub, n.d. Web. 18 Oct. 2012. <http://www.ratehub.ca/prime-mortgage-rate-history>.

“Prime Interest Rate Forecast.” Forecast-chart.com. Forecastchart.com, n.d. Web. 18 Oct. 2012. <http://www.forecast-chart.com/year-prime-interest.html>.

“Law Of Large Numbers.” Investopedia.com. Investopedia, n.d. Web. 18 Oct. 2012. <http://www.investopedia.com/terms/l/lawoflargenumbers.asp>.

In late 2009, another bubble had burst after the US housing market crash. This time it was in Europe. Specifically, Europe was beginning its ongoing three-year debt crisis, which was caused by rising household and government debt, trade deficits, and loss of confidence among other factors.

Fast forward to October 2012. Greece is considering leaving the Euro. Many European countries have undergone several elections on the sole basis that the previous parties had failed to remove them from the impending financial crisis. However how does this effect Canada? The short answer: badly. The fact is that since we live in a global economy, a recession will be felt by all countries that have economic ties with that country and so on until the whole global economy is severely crippled. As Europe struggles with its crisis, Europeans will spend less on imports and travel less to Canada, which will lower Canada’s GDP and ultimately its employment rate. Furthermore, as confidence in the euro falls, investors will look toward other currencies (ie. the Canadian dollar) as a safe haven. Therefore, the value of Canada’s dollar increases and people will not import Canadian goods due to them being expensive.

In order to counteract this problem, Canada should work with the IMF and the European Central Bank in order to avoid any European countries from defaulting on their loans.

References:

Kenny, Thomas. “What Is the European Debt Crisis?” About.com. About, n.d. Web. 9 Oct. 2012. <http://bonds.about.com/od/advancedbonds/a/What-Is-The-European-Debt-Crisis.htm>.

Related:

September 21, 2012.

The day that Apple and its fans have eagerly awaited for nearly a year. For what? The iPhone 5, the phone that would break all previous sales records of both the iPhone series and the rest of smartphone market. However, in the initial weekend only 5 million iPhone 5 were sold; a far cry from the 6-10 million proposed by some analysts. What was the crucial piece of information the analysts overlooked? Marketing done by Samsung. This type of marketing accomplished two objectives. First of all, despite what Samsung, claims, the ads stereotype iPhone users to be nerdy, old, or folks with no technological skills whatsoever. Secondly, it promoted the GS3 in both printed and commercial ads through heavy comparison with the iPhone 5.

The advertising methods utilized by Samsung in the ads were much like the ones the person from the video for the class 5 assessment showed. He stated that in order to gain market share in an industry that is dominated by a rival, a company should market their product in relation to the competitor’s product. In this ad, it systematically compares the iPhone and GS3 features, and shows how the GS3 has more features than the iPhone.

Overall, due to Samsung’s strategic marketing, not only did Apple lose some of its potential sales, but Samsung saw its GS3 sales rise as the iPhone was released. The outcome was much like a hypothetical Nash equilibrium in which Apple is competing against Samsung. As Apple did no advertising while Samsung did, Samsung gained sales and market share while Apple lost a bit of both. To conclude, this dilemma for Apple could have been avoided if Apple engaged in some of its own advertising by counterattacking Samsung’s.

References:

“Samsung Galaxy S3 Insults IPhone 5 (Again) in Facebook and YouTube Ads [PHOTOS and VIDEO].” Au.ibtimes.com. International Business Times, n.d. Web. 8 Oct. 2012. <http://au.ibtimes.com/articles/386181/20120920/samsung-galaxy-s3-vs-insults-iphone-5.htm>.

Photo Credits:

It Doesn’t Take A Genius. 2012. Photograph. Samsung. Gottabemobile.com. GottaBeMobile, 17 Sept. 2012. Web. 8 Oct. 2012. <http://www.gottabemobile.com/2012/09/17/it-doesnt-take-a-genius-samsung-goes-on-offensive-with-anti-iphone-5-campaign/>.

In May 2012 a first was made. For the first time, Facebook was offering its stock to the general public.

Fast forward to October. Facebook stocks hover around $21. How did the most highly anticipated IPO of the decade lose

45% of its initial price? This phenomenal drop was caused by factors in the stock specifics.

In the aftermath of the IPO, there were clear indications that the stock was about to fall.  During the IPO, Facebook’s total market cap was $81 billion. However, analyzing Facebook’s financial statement shows that its book value was only $11.87 billion, which leads the Facebook P/B ratio to be 6, which means the stock was overvalued. Secondly, the P/E ratio was too high; even now the P/E ratio is well over 100.  Furthermore, Facebook doesn’t have a history of paying dividends, so buying it was like a “ponzi scheme; the stock is only worth as much as the next person in line is willing to pay.”

Lastly, the fact that Facebook’s stock price fell after its IPO isn’t surprising once you see other IPOs and how they fared in the short term. IPOs typically occur when the company is traditionally doing very well, and the optimism about the company turns into unreasonably high expectations about the company’s future, resulting in an inflated stock price. Therefore IPOs are rightly defined by Benjamin Graham to be “Imaginary Profits Only”.

To conclude, investors would be better off ignoring the Facebook stock, or, “Defriending” the Facebook stock altogether.

In 2007, the big three rating agencies underwent huge changes. Traditionally the number of the “AAA rating” is reserved for corporations with strong balance sheets in developed countries. After the boom in structured finance; rating agencies found by becoming involved in the insurance process of issuing bonds they could increase profits. How? By issuing triple-A ratings to non-deserving bonds.

The problem is that the credit rating agencies are not really at fault when you see it from their perspective. The bottom line for the rating agency- or any business for that matter, is the amount of money you bring in at the end of the day. Yet, what Moody, Fitch, and the rest forgot was their social responsibility to the public. Though passing bogus bonds as AAA ratings, Moody alone made over a billion dollars a year. The general public? In the financial meltdown of 2008 investment funds, schools, and retirement homes lost all their money.

2012. As we saw the European Crisis unfold, a few countries had been downgraded. However, can we really trust the agencies that fueled the financial crisis of 2008 to value our countries fairly? Who should we now trust to rate bonds and countries appropriately? No one. Now, investors must valuate companies, bonds, and countries using their own abilities.

Careful. Danger lurks.

References:

Amery, Paul. “The Great Credit Rating Scandal.” Moneyweek.com. Moneyweek, 6 Feb. 2008. Web. 13 Sept. 2012. <http://www.moneyweek.com/investments/stock-markets/the-great-credit-rating-scandal>.

Related: