Nivine Richie, Ph.D., CFA is an Associate Professor of Finance at the University of North Carolina Wilmington. She teaches courses in corporate financial management, derivatives, fixed income, and commercial bank management. Her research interests include cost of capital, banking, and derivatives. She has published studies in the Journal of Economics and Finance, Journal of Futures Markets, Review of Futures Markets, and Journal of Trading, among others.
From a recent Wall Street Journal article (Spindle, 30 Oct 2015):
Chevron Corp. CVX 1.10 % said it would cut up to 10% of its workforce and, along with Exxon Mobil Corp. XOM 0.62 % , cut its future capital spending further as the two oil giants try to weather a 50% drop in oil prices over the past year.
Both companies managed to make a profit during the third quarter, bolstered by refining operations and chemical divisions that are helped by low oil prices. But the two biggest U.S. energy companies were forced to slash costs to stay ahead of plunging revenues from their oil-and-gas production businesses.
This video produced by the CME Group explains the factors that determine the price of oil.
Based on the WSJ article and the CME video above, what factors explain the most recent price of oil? Who is impacted by the most recent price of oil?
Buffalo Wild Wings is the place to go to watch the game. Add great wings to the mix, and the customers keep coming back.
Unfortunately, with labor costs and the price of food rising, restaurants like Buffalo Wild Wings are forced to raise menu prices. But in a market that is highly competitive, higher prices could mean fewer customers.
If you were a member of the executive team for Buffalo Wild Wings, what would you do to improve profits?
Apple beat earnings estimates this week, helped in large part by strong demand for the iPhone in China.
From the LA Times (Pierson, 27 Oct 2015)
The Cupertino, Calif., tech giant said Tuesday that it sold 48 million iPhones during its fiscal fourth quarter ending Sept. 26, up 22% from a year ago. That spurred revenue of $51.5 billion for the world’s most profitable company, up from $42.14 billion a year earlier.
Analysts surveyed by Thomson Reuters predicted revenue of $51.11 billion. Apple also beat expectations with earnings per share of $1.96 versus a forecast of $1.88 a share in the Thomson Reuters survey. Profit stood at $11.12 billion, up from $8.47 billion a year ago.
This infographics shows the phenomenal growth that Apple has experienced over time.
You will find more statistics at Statista
What happened to the stock price of Apple once earnings were announced? Why did the stock price move the way it did?
What drives market capitalization? What factors can cause it to rise? to fall?
This CNBC talks about how to take financial control of your life, beginning with the decision to be an owner not a consumer. The message is save, save, save, especially using your 401k.
His top tips:
1. Change your spending habits and spend less
2. Save in a tax free environment like your 401k
3. Improve your skills in the competitive world
What are some tips you can add to be smart about your finances?
This infographics shows the world's most valuable startups.
A small startup firm may not be worth billions, but it is worth something. The question is how much. Finance gives us several tools to value assets. According to Entrepreneur magazine (Advani) a startup may be worth what the market says it's worth, or it may be what the owner says it's worth, but in the end it will only sell if it's a good business. From the article:
If you're not profitable, your business probably isn't worth very much. That is, it doesn't have as much liquidity as it would have if it were profitable. Many businesses cannot be sold, since there aren't enough business buyers for every seller. Almost all unprofitable businesses cannot be sold for the same reason.
What are the some tools used to determine the value of a startup?
Legos never get old, and no one ever gets too old for legos. In this CNBC video below, the Danish toy maker indicates that it may not be able to make enough of the plastic building blocks to keep kids happy this year. With demand growing, supply may not be able to keep up.
What is driving the demand for legos? What risks does a company face if it is not able to supply enough product to meet demand? What happens to the market place if supply can't keep pace with demand?
Square, the startup that makes the mobile phone attachment that allows you to accept credit card payments, filed to go public. From the Wall Street Journal (Bensinger, 14 Oct 2015):
Square said in Wednesday’s regulatory filing that it would offer up to $275 million in stock, a figure that could change leading up to the IPO.
The offering is seen as a harbinger for tech companies valued at $1 billion or more—Square was valued by investors last fall at about $6 billion.
Most of these highly valued companies have stayed away from the IPO market with ample private capital available—in fact, there have been just 22 tech IPOs through the third quarter this year, compared with 53 through the third quarter of 2014, according to Dealogic.
Find this infographic here
The CNN Fear and Greed index is currently sitting at neutral. According to CNN Money (16 Oct 2015):
[Fear] is quickly fading on Wall Street. The Dow is at a two-month high and the S&P 500has clawed its way back above the 2,000 threshold.
Furthermore, for the first time since early July investors have poured money back into both stock and bond funds globally, according to Bank of America Merrill Lynch research on weekly fund flow data.
It "signals a turn in risk-off sentiment," Michael Hartnett, chief investment strategist at BofA Merrill Lynch, wrote in the report.
The markets are betting "low" growth, earnings and interest rates are "here to stay, but no recession," he wrote.
That's why CNNMoney's Fear & Greed Index is now sitting comfortably in "neutral" territory. It's a huge improvement from just a month ago when it was flashing "extreme fear."
Goldman Sachs has taken a hard stance with 20 young analysts who were caught cheating. Each year, new recruits on Wall Street take training classes that come with tests. The culture at investment banking firms is that the new analysts help one another as they take the tests. But in a surprise move this week, Goldman Sachs has decided to put a stop to that behavior.
What do you think?
After watching this video, do you think the analysts should have been fired?
What qualifies as cheating, and what does not?
Do you think cheating is everywhere? If so, what should be done about it?
The Big Mac Index was created by the Economist as a way to determine whether the same goods have the same price in different countries. From the Economist:
THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in July 2015 was $4.79; in China it was only $2.74 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 43% at that time.
This infographic from Bestinfographics shows what different goods cost around the world.
Embedded from BestInfographics.co
The New York Stock Exchange has a long and fascinating history. From the Library of Congress website:
The history of the New York Stock Exchange begins with the signing of the Buttonwood Agreement by twenty-four New York City stockbrokers and merchants on May 17, 1792, outside at 68 Wall Street under a Buttonwood tree. In the beginning there were five securities traded in New York City with the first listed company on the NYSE being the Bank of New York.
Today, the NYSE is an entirely different venue. Most trading has moved to an electronic platform, and the floor has become a quieter place. This video gives us a tour of the NYSE trading floor and the path that a trade takes from the first call through execution.
In this historically low interest rate environment, bond funds are hard pressed to find investments that will earn decent returns. One way to boost profits is to borrow money, and then invest more than 100 percent of the bond fund assets at interest rates higher than the borrowing costs.
From a recent Bloomberg article (Alloway, 9 Oct 2015)
Leverage in the financial system, both through borrowings and the use of derivatives, spurred a dramatic banking collapse in 2008. Here the worries are not necessarily that bond funds will collapse as a group, but that the amplification of their returns through leverage will ripple through to debt prices. As the authors conclude: "The overall effect would be an increase in asset price volatility in stress situations, because leveraged holdings are more susceptible to fire-sale episodes."
The Bloomberg article builds on a recent study from the Bank of International Settlements (Avalos, Moreno, and Romero, Oct 2015):
Although only a minority of investment funds in our sample do use leverage, the amount of that leverage may be significant, and the funds which actually resort to leverage are typically much larger than their peers. And leveraged portfolios are more prevalent in EME-focused funds, and in fixed income markets.
What is the impact of leverage on a bond fund in a rising rate environment? What about in a falling rate environment?
Is it OK to open new credit cards and close old ones each time a good deal comes along? What if the borrower never misses a payment and has good credit?
This interview explains that good deals are not all they're cracked up to be. There's a dark side to all that credit.
Halloween is big business. The infographic below gives the economic impact of the $79 spending per person on average.
This video demonstrates how someone with a banking background has been successful in a tech start-up. His experience in banking came in handy when it came to funding the new game developer. Additionally, he brings an ability to evaluate risk as the firm makes decisions to expand or relocate offices.
What are some of the skills you learn in finance that would translate to any area of business you may end up working in one day?
Tax loss harvesting is the practice of selling investments that are down in value and using the losses to offset income in order to reduce your year-end tax bill. A popular practice among investors, it often leads to many investors selling stocks and bonds in December, causing prices to fall even further or causing volumes to dry up as buyers become scarce.
Experts recommend that you sell now, rather than wait until December. According to Forbes (Cahn, 1 Nov 2013):
The IRS does not approve of buying and selling an asset simply to lower your taxes. Called the wash-sale rule, a loss will be disallowed if the same asset/security is sold for a loss and re-purchased within 30 days (as you must report on Schedule D of the 1040 tax form). That 30 days can really be a total of 61 days or more in certain cases where you want to reinvest in the same security after declaring a loss: 30 days after the initial purchase date and then another 30 after the date of the sale.
This video explains a little more about tax loss harvesting:
What should you do if you like a stock or bond and want to keep it, but at the same time, would like to harvest the tax loss?
Interest rates affect borrowers and lenders, and are hedged to protect the counterparties from unwanted interest rate movement. Interest rate futures are often the instrument of choice by banks and others to hedge their interest rate risk.
What are interest rate futures?
How can borrowers use them to hedge their interest rate risk? How about lenders>
To invest in real estate, investors have several choices. First, they can buy property one by one and collect rental income or sell the property. Or, investors can buy real estate investment trusts (REITs) which are investment companies (like mutual funds) that invest in real estate.
This video interview describes how these two real estate markets respond differently to market forces. REITs in particular are trading at a discounted values.
How are real estate markets likely to respond to news that the Federal Reserve will change rates?
Finance careers involve decision making. This infographic shows top jobs in the financial industry.
Source: Parker + Lynch
This interesting interview with Warren Buffet talks about philanthropy--how and when to give. Giving too soon means having less to give later in life and giving up the power of compounding. However, given the needs in the world, perhaps waiting is not preferred.
A desire to give has implications for an individual or foundation's investment policy. It could mean a desire to earn a specific target return and it could affect the ability and willingness to take risk based on the investment horizon.
How does philanthropy impact investing practices for those who wish to give? What impact does the desire to give substantial amounts of money have on return requirements and risk tolerance for investors with wealth?