The low interest rates that we've seen over the last ten years were designed to get the economy back on its feet. To encourage consumers to borrow and spend, the Federal Reserve has been on a low interest rate path that has only recently begun its end.

This video explains the impact of low rates on stock and bond markets.

For discussion:

What has happened to corporate borrowing in this low interest rate environment?

How has the corporate debt market impacted the stock market?

What is the outlook for stocks going forward?

From the New York Stock Exchange, here are six signs that companies are ready to go public and issue an IPO or an "Initial Public Offering"

• The company is able to forecast financial performance accurately
• The right executive team is in place
• The financial statements are "audit-ready"
• The company owners have realistic valuation expectations
• The owners have a good business reason to go public
• There is a clear strategy in place

This infographic from the NYSE explains the steps to issuing stock for the first time

Infographic available from NYSE here

For discussion:

1. What is the Fed's goal with respect to inflation?

2. Why does inflation matter?

3. What factors might be causing the decline in inflation?

The trading pit depicted in the movie has long been replaced by electronic trading, and the shouting and hand waving is now a relic of the past. Back then, buyers and sellers were represented by brokers who met on the floor of the exchange at specific spots called "pits."Today, computers are used to match buyers and sellers.

This CNBC video shows that Alphabet (parent company of Google) is the new darling of hedge funds.

What are hedge funds anyway? The SEC describes them like this:

Hedge funds pool investors’ money and invest the money in an effort to make a positive return. Hedge funds typically have more flexible investment strategies than, for example, mutual funds. Many hedge funds seek to profit in all kinds of markets by using leverage (in other words, borrowing to increase investment exposure as well as risk), short-selling and other speculative investment practices that are not often used by mutual funds.

Walgreens' plan to buy RiteAid was canceled in June of this year. But now we see that they are taking another stab at the merger.

From TheStreet.com:

Walgreens Boots Alliance Inc. (WBA) and Rite Aid Corp. (RAD) are still hoping to avoid another lengthy go-round with the Federal Trade Commission as they seek antitrust approval for the "Plan B" they unveiled after canceling their merger on June 29.

On Thursday, Aug. 17, the pharmacy retail chains said they voluntarily pulled and refiled their antitrust notification with the FTC plans for Walgreens to buy 2,186 Rite Aid stores for $5.2 billion.

Mergers and acquisitions have always been controversial, both within the firms that are involved in the merger, and outside the firms in the constraints imposed by regulators and shareholders. Here are some pros and cons of a merger, and perhaps you can add to the list below:

Advantages of a Merger:

• Growth potential - buying a firm in the same industry can be a quick way to gain market share and grow the firm.
• Diversification - buying a firm in another industry can help the acquirer diversify the sources of revenues so that the firm is not relying on one specific source of profit
• Synergies - sometimes bringing firms together can result in improved processes that make the combined firm more efficient than the two firms were before the merger
• Cost savings - some acquirers can realize cost savings by buying suppliers 

Disadvantages of a Merger:

• Culture clash - just as a blended family can lead to friction, blended teams can experience friction in corporate culture where one group is used to certain practices and attitudes that are not common for the other group
• Higher costs - combining operations can lead to unexpected expenses
• Regulatory restrictions - fears that a combined firm will be large enough to control the market price and hurts consumers has led to regulatory restrictions. Such regulatory hurdles are usually accompanied by significant delays and legal fees.
• Limited managerial expertise - diversifying mergers can draw the acquiring firm into an industry where it has little managerial expertise leading to mistakes and costs.

For discussion:

What other advantages and disadvantages can you add to the list above? What about the advantages and disadvantages of remaining autonomous and avoiding all mergers and acquisitions? 

What is a rainy day fund? Do you have one?

Everyone needs to have a little cash set aside to cover unexpected repairs or medical expenses. From Bankrate.com:

"It's not for personal wants or desires for which you didn't save," he says. Like a new car, wardrobe, vacations or dinners out.

A rainy-day fund is also different from an emergency fund, says Bogosian. While your rainy-day fund may pay for things like unplanned repairs, medical deductibles, or unexpected medical or dental bills, the emergency fund is what keeps you afloat for a few months if you lose your job or can't work.

A rainy-day fund will typically be $1,000 to $5,000, while an emergency fund is more likely $10,000 to $15,000, says Bogosian.

Read more here:

This infographic says a little more about a rainy day fund:

©2017 FINRA. All rights reserved. FINRA is a registered trademark of the Financial Industry Regulatory Authority, Inc. Reprinted with permission from FINRA.

This video is a series of snapshots of the financial crisis that shook the global financial markets in 2007. In it, you'll find sound bites of the failure of Northern Rock, the big British mortgage lender, Lehman Brothers, and more.

From USA Today

Ten years ago Wednesday, French bank BNP Paribas blocked withdrawals from hedge funds that specialized in U.S. mortgage debt. That Aug. 9, 2007, marked the beginning of a credit crisis that caused investment bank Lehman Brothers to collapse a year later and usher in the Great Recession of 2007-09.

"It's true that the subprime mortgage crisis in the U.S. started a little earlier, in February 2007, but the money markets did not notice until that day in August," said Alexis Stenfors, a former trader for Merrill Lynch who famously lost his company $450 million on currency bets. He is now a business professor at Britain's University of Portsmouth.

"We realized that this problem was going to be a lot bigger than American subprime mortgages and that it was going to spread to all markets — everywhere."

(Read the full article here)

For discussion:

What has changed in financial markets over the last 10 years?

From the Federal Reserve Bank of San Francisco:

The average U.S. consumer still carries cash, despite reports that Americans don’t carry cash anymore. Last year, the Cash Product Office’s (CPO) paper, “Who Holds Cash?”, found the answer to its title to be: quite a lot of people. The paper used data from the 2012 Diary of Consumer Payment Choice to show that the majority of Americans (89 percent) carried cash to some extent over their three-day Diary period, and nearly two-thirds held cash every day of the Diary. The paper also looked at how often U.S. consumers held and spent cash, identifying four types of cash holders:

1. “Cash Lovers” – consumers who held and spent cash every one of the three days of the Diary. 
2. “Just-in-Case Holders” – consumers who held cash every day of the Diary but didn’t use it during their three-day Diary. This group may view cash as a safety net or a contingency fund.
3. “Cash-Averse” – consumers who neither held nor used cash as a payment instrument during their three-day Diary.
4. “Limited Choice Spenders” – consumers who did not hold cash at the end of each Diary day but spent cash every Diary day.

So can we go completely cashless? In this Bloomberg video, the pros and cons of a cashless economy are listed.

What can you add to the list of pros and cons? Would you want to live in a world without cash?

Experts tell us that to figure out the value of fine art, the investor must take the following steps:

1. Examine the physical condition of the work to find any tears or damage
2. Authenticate by looking for the artist's signature
3. Compare the piece to other works that have sold at auction recently
4. Look at the back of the canvas for collector labels, auction numbers, or bits of information
5. Examine the painting's history or "provenance" to be sure it can indeed be sold
   

Valuing an investment, like a stock or bond or real estate, follows many of the same steps

Step 1. Check out the product

You wouldn’t buy a house without walking through the front door to see the condition of the house. Likewise, you shouldn’t buy the share of a company that makes a shabby product.

Step 2. Authenticate by reading the annual report

No one would hire someone without reading the candidate’s cover letter or resume, so why buy stock in a company without reading their list of accomplishments in the company’s own words? Reading the annual report doesn’t give you the full story, but it gives you a version of the story that you don’t want to miss.

Step 3. Determine value by comparing to other firms

In real estate, a professional appraiser will use other properties to determine the best price per square foot. Likewise, comparing “multiples” like the price to earnings ratio or P/E with those of other firms in the same industry can be a way to determine the “right” price relative to other comparable firms.

Step 4. Collect other public information

Read what others are saying about this investment. Are there any analyst reports that evaluate this company? Are there any news stories about the part of town where you’re considering buying real estate?

Step 5. Determine if the title is clear

In real estate, a title search will identify if anyone else holds legal claim to the property, which will prevent the new owner from holding a clear title. Buying title insurance ensures that no surprises become known after the transaction is completed

From FINRA:

Study Finds 1 in 3 Student Loan Holders With Payments Due Are Late With Payments and More Than Half Regret Their Borrowing
Data Shows Many Borrowers Don't Understand Loans They Obtain

Nearly half of young Americans start their working lives with student debt, and 43 million Americans carry student loans. A new study by the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business found that many borrowers are struggling to make student loan payments and regret their borrowing. Researchers used data from the FINRA Investor Education Foundation's 2015 National Financial Capability Study (NFCS) to issue the student loan brief summarizing key findings about student loan debt and its implications for the borrowers and for the economy as a whole.

(Read more here)

©2017 FINRA. All rights reserved. FINRA is a registered trademark of the Financial Industry Regulatory Authority, Inc. Reprinted with permission from FINRA.