• Downgrade of EU Following Brexit

    The aftermath of Brexit continues. S&P cut the credit rating of the EU following the Brexit decision:

    According to Nasdaq.com:

    S&P Global Ratings cut the investment-grade credit rating of the European Union by a notch, saying the U.K.'s vote to leave the EU reduces its budget flexibility and reflects a loss of political solidarity.

    The move comes two days after Fitch Ratings said the Brexit vote was unlikely to have an effect on its ratings for the EU, the European Investment Bank and the European Investment Fund. However, Fitch, which has the EU at the top triple-A rating, said it planned to monitor the situation for signs of weakening support from other member nations.

    Read more here

    For discussion:

    What is a credit rating, and how does a change in credit rating affect the country?

  • The Impact of Brexit on Wimbledon

    Brexit has taken a toll on the U.K. and the British pound, and the impact will be felt by the winners of Wimbledon which begins on Monday. This year's Wimbledon prize money will be worth significantly less, now that the British pound is worth significantly less.

    From CNN (Garcia, 25 Jun 2016):

    The total purse at Wimbledon 2016, which starts Monday and runs until July 10, is 28.1 million pounds.

    The purse was set in April, when the pound was worth a lot more than it is now.

    Last year, when the total pot was 26.75 million pounds, the pound was valued at about $1.55. So the purse was worth $41.5 million.

    Had the pound not been whacked by Brexit, the 2016 purse would have been worth millions more.

  • British Pound Falls Following Brexit

    The historic decision by the U.K. to leave the EU had markets reeling this week, and one of the casualties was the British pound. This interview from CNBC explains that the adjustment mechanism is the currency, and that this decline in the value of the pound sterling relative to the US dollar may continue.

    The drop in the pound is likely to affect business. From the Wall Street Journal (Jervell, 25 Jun 2016)

    Britain won’t officially leave the European Union for at least two years, but European tourism officials already fear a British exit this summer.

    The reason: A fall of roughly 6.6% in the value of the British pound against the euro Friday, after Britons voted to leave the EU. Currency traders, who were surprised by the referendum’s outcome, dumped sterling on fear of looming U.K. economic troubles.

    For discussion:

    Why are European tourism officials concerned about the falling British pound against the euro?

    What other industries are likely to be affected by a falling British currency?

  • Dream Retirement

    The video interview describes the retirement of a couple who worked for the State of Michigan for many years, It describes the benefits of being wise with your money and saving more than you spend.

    For discussion:

    What is one of the primary ways that you can be ready financially for retirement?

  • The Excitement over Brexit

    We were sure it was just talk. Never in a million did we really think that the UK would leave the EU.


    You will find more statistics at Statista

    But it did. News wires were buzzing this morning with the news that the UK has voted to leave the EU.

    From the NY Times (Goodman, 23 June 2016)

    Of most immediate consequence, Britain’s vote to leave Europe sent global markets on a wild descent. Investors gaped at this major refashioning of the global landscape and decided it looked perilous — or at least so pockmarked with uncertainty that they preferred to pull their money out of riskier corners like stock markets.

    Few expect that Britain’s departure from Europe will set off a full financial crisis like the one seen after the collapse of the investment banking giant Lehman Brothers in 2008.

    But no one knows enough to rule that out, either. The world has never been here before.

  • The Internet of Things and Payment Systems

    Not long ago, we would have considered a handheld device that allows you to video conference with someone across the world nothing more than science fiction. Today, we think nothing of using a cell phone to pay a bill, check the weather, and monitor the number of steps you take in a day.

    According to Simona Jankowski of Goldman Sachs:

    We’re likely to see an incredible increase in the utilization of assets. Once you connect those to the Internet, you can really find a way to share the use of those assets, and extract an incredible amount of productivity.

    Our connected lives mean connected payments, and the infographic below describes some features of the brave new world where we live.

    Just think, five years from now, cell phones may be old technology...


    You will find more statistics at Statista

  • Does Checking Your Credit Affect Your Credit Score?

    Every time your credit score is checked by someone, even by you, it leaves a trace. The question is whether these credit checks can reduce your score.

    The answer is, "it depends."

    This video from Bank of America explains the difference between a "soft" credit check and a "hard" credit check. As you might imagine, hard credit checks can lower your credit score, but soft ones do not.

    For discussion:

    1. What are the different types of credit score inquiries? What's the difference between soft and hard credit checks?

    2. Why do some have a more negative impact on your credit score?

  • The Fed's Global View

    The Federal Reserve has the great responsibility of managing the monetary policy for the U.S. But to what extent are policy decisions affected by global financial conditions?

    This Financial Times video takes a look at Fed policy and how policy makers take global markets into consideration:

    For discussion:

    1. What factors explain why Fed policy has increasingly taken global markets into consideration?

    2. Should the Fed pay this much attention to global financial markets?

  • Investing in U.S. Cities


    You will find more statistics at Statista

    Investing in U.S. cities using municipal bonds comes with some risk of default. While cities have been known to default on their debt in the past, this article from MunicipalBond.com makes a case for investing in city bonds:

    General obligation bonds come in a variety of different flavors, including statewide bonds, county bonds, and city bonds. While statewide GO bonds may seem like the safer route due to their larger size, city bonds offer a number of unique advantages compared to these larger peers that investors may want to consider. And, only five of 12,000 city bonds rated by Moody’s have defaulted on GO bonds between 1970 and 2012.

    Cities have greater flexibility when it comes to increasing taxes to pay down debt, while unlimited tax GO bonds take priority over other types of debt. In general, cities have much more stable tax revenue than states since they are financed with property tax and include federal support. Property taxes tend to react more slowly to the economy than sales and income taxes, while property assessments themselves tend to lag the economy.

    The structure of debt for many cities is also more advantageous than state governments. Often times, city governments are required to operate a balanced budget that keeps liabilities at reasonable levels. Many city bonds are also structured like traditional loans that make interest payments and pay down a portion of the principal borrowed with every coupon payment rather than having to pay off a lump sum when the bond reaches maturity.

    For discussion:

    What are general obligation (GO) bonds? In what ways do GO bonds differ from revenue bonds?

  • Top 10 Most Valuable Brands

    According to this CNN Money article, the top 10 most valuable brands are:

    1. Google

    2. Apple

    3. Microsoft

    4. AT&T

    5. Facebook

    6. Visa

    7. Amazon

    8. Verizon

    9. McDonald's

    10. IBM

    Brand value and firm value (also known as market capitalization) are not the same thing. Brand value calculates the present value of cash flows associated with the brand, while firm value captures the present value of all future cash flows. The CNN Money article cites a brand value metric produced by one data provider, but other measures are available too.

    From Stanford University, Graduate School of Business:

    Srinivasan and his colleagues first developed an operational definition of exactly what "brand equity" is. "Having a better product or a larger sales force is not brand equity," he explains. "Brand equity is that incremental value that accrues to a product when it is branded." Simple brand awareness is one source of brand equity. "If you can get your name to pop up in people's minds when they think of the product category, you've won a big part of the battle," he says.

    Srinivasan and his colleagues also have identified two other sources of brand equity: a consumer's perception that a brand is better than it really is ("attribute-based" equity), and nonattribute-based equity, for instance, a consumer's preference for a brand based on the cachet of owning it. "If you're successful in these three aspects, an added benefit is that stores will feel a customer pull to carry your product, and so your availability—and hence sales—will increase," Srinivasan says.

    For discussion:

    How does one measure the value of a firm? How does brand value impact the value of the firm?

  • Euroscepticism and the Brexit Vote

    Coming soon, Britons will be voting on whether to remain in the European Union or venture out on their own. The British Exit (or "Brexit") has divided the country, but the U.K. is not the only nation with skeptics. This infographic shows that across Europe, many are negative about the EU from Greece to Poland to every country in between.

    For discussion:

    What are the arguments in favor of remaining in the EU?

    What are the arguments in favor of exiting the EU?

    Which arguments are more convincing, and why?


    You will find more statistics at Statista

  • Why Capex Matters

    Capital expenditures or CapEx is an indicator of companies' willingness to invest in long-term projects. The video from Goldman Sachs above describes why we are currently in a low CapEx environment.

    According to Gandevani (Seeking Alpha, 2 June 2016), in an article entitled, "What economic recovery? Earnings and CapEx still low":

    Liquidity has been one of the main policy tools executed by the Federal Reserve after the Great Recession of 2008-2009. The idea was to reignite the economy by saving banks and financial institutions by way of granting them more than $1 trillion so they would provide financing to businesses and consumers. However, in this article, I argue that despite massive liquidity injected by the Fed, US companies have not utilized the available capital to finance CapEx and expand their operations.

    In my recent conversation with Roger Berkowitz, president and CEO of Legal Sea Foods, a privately held company with 30 restaurants in north-east USA, pointed out that CEOs have become risk averse due to the 2008 financial crisis and ongoing market volatility. His remarks complemented what I'd heard from other CEOs in my investment banking and corporate finance consulting practice. Initially, Mr. Berkowitz's statement may seem to be at odds on the face of low interest capital as the result of the Fed's quantitative easing policy. However, a deeper look into corporate borrowings since 2008 confirms his assertion. Moreover, CEOs' risk-averse behavior may have contributed to the lackluster economic growth since 2008 despite massive liquidity injection by the Fed.

    For discussion:

    How is CapEx calculated? Why is CapEx so important to the health of an economy? What explanations exist for our currently level of CapEx?

  • Share Buybacks Boost Share Value...Or Do They?

    Share buybacks or repurchases are a "magical" way to boost the value of a company, and this video explains how they work.

    Unfortunately, share repurchases aren't all they're cracked up to be. According to this 2014 Wall Street Journal article, there are at least four reasons to beware share buybacks. From the article (Clements, 25 Oct 2014):

    Good news? Fans of buyback programs think so. They see this as evidence that corporations believe their own shares are undervalued. They like the fact that their claim on a company’s profits isn’t being diluted. They also view buybacks as a more tax-efficient way of returning money to shareholders. If, instead, companies use their spare cash to pay dividends, taxable shareholders are hit with an immediate tax bill.

    But there’s also a less rosy view of buybacks. Four reasons to question the enthusiasm for share repurchases:

    The article goes on to list the following four reasons to beware:

    1. It could be the sign of a market top

    2. Buybacks are often driven by executive compensation

    3. They aren't necessarily the best use of company money

    4. Even if companies buy back stock, shareholder claims on overall profits could still shrink

    For discussion:

    In your own words, what are the arguments for and against share repurchases?

    Find a company that recently announced a share repurchase. What impact did the repurchase have on the company's earnings per share (EPS), price-to-earnings ratio (PE) and stock price?

  • What is Money?

    Money has three purposes:

    1. It is a medium of exchange and can be traded for goods and services

    2. It is a unit of account and is used to measure value of goods and services

    3. It is a store of value and allows you to shift consumption from now to later


    The video above describes the six characteristics of money that make it a trustworthy medium of exchange and store of value. One of those characteristics is that it must be durable and not wear out easily. To that end, Great Britain has become one of the few countries issuing plastic currency when it introduced its new "fiver" recently.

    From CNN Money (Goldman, 02 June 2016)

    For plain old cash, the new five pound note is pretty snazzy. It's made of a flexible polymer material that resists dirt and lasts longer than paper. It also has some robust security features that are only possible with plastic money.

    ...Since the new note can last longer in circulation, it will allow the Bank of England to print fewer new bills.

    They will also be harder to counterfeit. The Elizabeth Tower featured on the bill's front and back will be made of foil -- gold on the front and silver on the back.

    It has a see-through window with a border that changes from purple to green when you move the bill around. The crown on the front appears 3-D, and the note even displays a message under a black light.

    For discussion:

    How does the U.S. dollar meet the six criteria that make it a reliable currency?

  • High Frequency Trading Heartburn

    High frequency trading has been the rebel of financial markets for several years now. Recently, the financial regulator in India passed rules to curb high-frequency trading:

    From Bloomberg (Chakrabory and Ghosh, 25 May 2016):

    Among the proposals being considered include separation of co-location orders and adoption of auction system that blunts the edge of the fastest traders. Broadcast of order-book information is being looked into to ensure there’s no preferential treatment, Sinha said. The measures will be released in the next three to four months, he said.

    “We need to see whether the changes ultimately bring a level-playing field or impede the market’s growth,” Manoj Nagpal, chief executive officer at Mumbai-based Outlook Asia Capital Pvt., an investment consulting and wealth management firm, said by phone. “Markets globally are grappling with ways to regulate HFT without disrupting the system.”

    Regulators the world over have focused their efforts on preventing spoofing, an attempt by traders to move prices by placing bogus orders, as they grapple with the most effective ways to police computer-driven markets. For every 27 orders placed on U.S. exchanges, about one is filled, data from the U.S. Securities and Exchange Commission show. In other words, approximately 96 percent of all orders sent to U.S. equity markets are canceled.

    For discussion:

    What are some of the high-frequency trading techniques that are considered unfair to other market participants?

    What are the arguments in favor of curbing HFT? What are the arguments in favor of allowing HFT to continue unchecked?