Author Archives: josimon

Economic Outlook For the Summer

Our economy has gone through a whole lot. We have had our ups and downs since the recession. Some believe we are truly make are way through this time, while some believe there will never be a stable time and a height at which we will continue to plateau at. The recovery has been long and dismal at times, but it is truly shaping up to be one of the most enduring. Yet, according to the Wall Street Journal, “after almost five years, the recovery is proving to be one of the most lackluster in modern times. The nation’s 6.7% jobless rate is the highest on the record at this state of recent expansions. Gross domestic product has grown 1.8% a year on average since the recession, half the pace of the previous three expansions.”

Even though Republicans argue that the Obama administration and other Democrats have burdened the economy with tax increases, debt and regulations like the Affordable Care Act, and hiring, Democrats also turn that and blame Republicans for withholding support for stimulus spending especially when the economy needed the boost the most.

“Perhaps the very fact we’ve been growing slower means we haven’t burnt out all the fuel,” said Michael Feroli, chief U.S. economist at J.P. Morgan Chase. “By a lot of metrics, the expansion still has quite a bit of room to run.”

What could possibly be holding us back right now? Does the Fed need to step into play at a more rapid pace? I do not believe this would be the answer. Some believe that the economy is restrained by “secular stagnation” which claims that the labor force and productivity, growing more slowly than in the past, along with reduced consumption and increased savings, prevent the economy from returning to prior growth levels.

“The economy is rebounding from widespread inclement weather and the strengthening in the labor market is beginning to have positive impact on growth,” said Ken Goldstein, an economist at The Conference Board. “Overall, this is an optimistic report.”

Although many economists expect the overall growth rate in the January-March quarter will dip below 2 percent because of the weather disruptions, they are forecasting a rebound in the coming quarters to growth of around 3 percent.

Over the summer months, it will be interesting to see how hiring and consumption will improve, along with interest rates fueling. Our growth look strong in many areas and we should have a positive outlook in the future.

Supreme Court Could Decide TV Future

We could potentially face a new era of television in the years to come. As technology continues to develop in the nano field of play, it continues to do so in the television field as well. There have been many new developments over the years. Comcast has bought our Time Warner. Amazon (just in the past month) released its’ new Fire TV, trying to take market share of the streaming video opportunities as well. This next big development will be decided by the Supreme Court. Yes, the Supreme Court. Who would have thought that we would have issues within technology to have the Supreme Court have to decide on the viewing of our nation? I believe this is a terrible thing we are going through. Major television broadcasters and Aereo will argue before the Supreme Court Tuesday April 22 about the future of television, cloud computing, and the quality of wireless service.

According to the Hufffington Post, “Aereo is a 2-year-old startup that uses tiny antennas to capture broadcast airwaves and stream those signals to users who pay about $8 a month for the service. The company offers a handful of network TV offerings in several cities, and subscribers can watch and record the programming on their computers and mobile devices.”

Currently, networks like Fox, ABC, NBC and CBS are transmitted free of charge to anyone who has a television and an antenna. Cable companies like Comcast and Time Warner pay the broadcasters billions of dollars in fees for the right to re-broadcast the network TV channels. While Aereo, a new start-up, does not believe they need to pay those fees.

Broadcasters have sued because of this reason, if Aereo were to be decided by the Supreme Court as legal, there is nothing stopping the cable companies from copying Aereo to avoid paying the broadcasters billions of dollars in fees.

According to the Washington Post, chief executive of Aereo Chet Kanojia says that “Consumers have the legal ability to access the public airwaves and they have the right to have their own antennas, which is what we are supplying.”

But the Obama administration has said in a brief that Aereo “transmits copyrighted broadcast programs to the public, without the authorization of the copyright holders, and is therefore liable for infringement.”

This Supreme Court Case decision will be a major one in the TV era. It can change the way we watch sports, because the NFL and MLB have threatened to “stop broadcasting their games on basic channels and instead show them only on cable networks.” Cloud Companies could face legal risks. Also, new innovation could be blocked in the future.

We are at an interesting time for the TV era. Hopefully the Supreme Court has all the facts straight to make the best decision for today, and for the future of TV and its innovation.

(Revised) Facebook Continues to Make Moves

On Monday April 14th, Facebook announced that it wants to now become a money transfer business on top of everything else. Whether or not this has been in talks for over a year within the company, this is another move for Facebook to potentially take over the world. What’s next? Will Facebook attempt to create a new currency?

“Such a business would draw on Facebook’s extensive user base and existing mobile reach, but analysts are warning that success could depend on establishing a new level of user trust. Launching such a service extends what is perceived as the normal reach of social network companies and furthers the business concept of a ‘one-stop shop’ for online money and communication needs,” proclaims a Forbes article.

Companies like PayPal, Western Union and Moneygram are leaning on the support that they have always had as a trusted operation with millions of customers already. However, this move by Facebook makes a lot of business sense. They can eventually become a reliable financial utility and it would only help Facebook’s profits grow even more. With the advantage of its user base, Facebook will still need to gain trust in order to make this new plunge a success.

According to the Huffington Post, “the company is close to obtaining approval from the Central Bank of Ireland to start a service that would allow users to store money on Facebook and use it to pay and exchange with others.”

Facebook has also talked with companies like TransferWise, Moni Technologies, and Azimo, three London start-ups that offer online and mobile international money transfer services.  While there does not seem to be much more information out to the public, it will be interesting to see the different traits Facebook will have with their money system compared to what Google has to offer with Google Wallet, which is mentioned to be in a revamping stage. Apple has also said in January that their interest in mobile payments was a reason for creating the Touch ID fingerprint sensor in the new iPhone 5s.

Should we be concerned about these new markets that are being broken in to? The answer is yes. The reason for this is because “global mobile transactions are expected to grow at an average 35 percent per year between 2012 and 2017, according to a report by research firm Gartner. The June 2013 report forecast a $721 billion market with more than 450 million users by 2017.” As Google Wallet has been in the picture, Facebook’s commitment to expand by creating their money transfer service is a great possibility at this point.

An article on venture beat talks about how Facebook shows it will take over the rest of the world in 2014. Along with many other aspects within the company, they wanted to become the world leader in the mobile market. “The company now considers itself a 100 percent mobile platform—and it’s paving the way for 100 percent mobile revenue, too,” and “watch the entire mobile web achieve rapid acceleration as Facebook open-sources more tools for building perfect mobile websites.”

With Facebook’s own perfect mobile website, this may give them an edge to gain consumers to use their financial utilites in the future. Facebook is truly changing the rules of the game. While Google may have their search engine power, they lack the social media aspect with Google+. As the number of mobile active users continues to increase for Facebook, they are really taking a chance to break the barrier with this service. But with the advantage in this situation, Facebook will potentially allow the money service to be a common use among everyone in the world one day.

Facebook Continues to Make Moves

Just this afternoon (Monday, April 14th), Facebook announced that it wants to make its own money now. Whether or not this has been in talks for over a year within the company, this is just another move for Facebook to potentially take over the world. What’s next? Will Google, Apple, and Amazon create their own currency too?

According to the Huffington Post, “the company is close to obtaining approval from the Central Bank of Ireland to start a service that would allow users to store money on Facebook and use it to pay and exchange with others.”

Facebook has also talked with companies like TransferWise, Moni Technologies, and Azimo, three London start-ups that offer online and mobile international money transfer services.  While there does not seem to be much more information out to the public, it will be interesting to see the different traits Facebook will have with their money system compared to what Google has to offer with Google Wallet, which is mentioned to be in a revamping stage. Apple has also said in January that their interest in mobile payments was a reason for creating the Touch ID fingerprint sensor in the new iPhone 5s.

Should we be concerned about these new markets that are being broken in to? The answer is yes. The reason for this is because “global mobile transactions are expected to grow at an average 35 percent per year between 2012 and 2017, according to a report by research firm Gartner. The June 2013 report forecast a $721 billion market with more than 450 million users by 2017.” As Google Wallet has been in the picture, Facebook’s commitment to expand by creating their own money is a great possibility at this point.

An article on venture beat talks about how Facebook shows it will take over the rest of the world in 2014. Along with many other aspects within the company, they wanted to become the world leader in the mobile market. “The company now considers itself a 100 percent mobile platform—and it’s paving the way for 100 percent mobile revenue, too.” And “watch the entire mobile web achieve rapid acceleration as Facebook open-sources more tools for building perfect mobile websites.”

With Facebook’s own perfect mobile website, this may give them an edge to gain consumers to use their money in the future. Facebook is truly changing the rules of the game. While Google may have their search engine power, they lack the social media aspect with Google+. As the number of mobile active users continues to increase for Facebook, they are really taking a chance to break the barrier with its’ own money. But with the advantage in this situation, Facebook will potentially allow their own money to be a common use among everyone in the world one day.

Amazon’s New Smartphone, Apple’s Conern

In the second half of 2014, Amazon plans on releasing a smartphone. Yes, a smartphone. We all could have expected it at one point, but with all the other new releases Amazon has pushed out, like the Fire TV and the drones for delivery, I was definitely not expecting a smartphone release this soon. This launch would jump into the market dominated by Apple and Samsung as well. How big of a concern should this be for Apple?

According to Chief Executive Jeff Bezos, “he prefers Amazon to profit from customers buying services through Amazon hardware, rather than profit from the devices themselves.” As Amazon claims to seek to boost sales of digital content, Apple should still be very concerned. This is more or less of a judo strategy by using the puppy dog ploy. Amazon will be looking to keep a low profile and avoid the head-to-head battle based on product alone. But I believe that once Amazon is capable of gaining some market share, they will be able to define the competitive space and follow through fast. A very interesting feature on the new Amazon smartphone will be its screen capable of displaying 3-D images without special glasses.

What does Apple have to lose? Although Apple focuses on creating products that delight customers, there is more to it. An article in Forbes written by an employee at Apple states, “ I’ve come to realize that Apple’s future depends not on its ability to make elegant products, but rather its ability to create a platform for the 10,000 best developers to reach and serve customers via apps.” The employer also mentions that “future blockbusters will come in the form of new platforms through which developers can touch our lives.”

Will this be Apple’s only chance to stay on top? Is Amazon just trying to increase their product sales online? According to The Wall Street Journal, “Amazon has been inviting select app and software developers to hotels to demonstrate the handset in suites protected by security guards.”

Amazon is truly looking to expand in every direction. From their online store, to new products such as the Fire TV and potential smartphone, Amazon is looking to test the waters and reach out to customers in a variety of ways. The key asset they have is their online store where it all began. They have the power to reach consumers at a physical level. It seems that Amazon will want to be the only online store customers should go to. And the new smartphone is one way to help the process. If Amazon can then dominate their own app platform, Apple better look out.

Bank Lending Break Through?

Bank lending seems to be back in action again. Banks all around have been on a stand still waiting for loan growth to pick up. Although the winter provoked a minor drawback, loan growth is what banks need to get the ball rolling. Without these loans, banks have had to try “to bolster earnings through repeated rounds of cost cutting and reversals of loan-loss reserves.” While loan growth seen in the first quarter isn’t a clear indication that we are back on track, it does provide signs that the lending environment is in fact improving. Although all the results have not been accounted for yet, the latest data has shown that overall bank loans grew from a year earlier at an average of 2.5%.

This pace is very similar to what occurred in the final quarter of 2013. As you can see in the FRED graph, there was a strong increase in the total value of loans towards the end of 2013.

While this may look rather attractive, but there is still room for improvement. These rates and values can decrease very quickly, especially if lenders are holding too much collateral. This means that our economy needs to continue to move forward and it all depends on how the Fed decides to solve the problem for banks. Michael Ivanovitch writes, in a CNBC article, that he believes the Fed is aware of the situation we are currently in; currently there is still weak bank lending, which is stalling our growth in the U.S.

“Monthly asset purchases—on top of a virtually zero percent interest rate—have been a relatively easy part of a sweeping crisis management. The verdict on that policy is given by America’s demand, output and employment. It is perhaps time to adjust policy instruments and intermediation techniques to address some apparently structural issues whose solution does not seem to be in the wall of money thrown at the U.S. economy.”

While we at least have seen a stabilization following a long period of declining rates of loan growth, this is something we must still be aware of. The FRED graph has been allowed a number of interpretations to be good for the economy, but there are still weaknesses. Housing has begun to cool is recent pace and we are nowhere near enough to offset the losses already incurred. What I believe will keep our economy stable for the summer months will be a couple key decisions made by the Fed and how investors will respond to all the recent buzz. If nobody gets too anxious and jumps the gun, banks will be confident in lending allowing for an increased pace in our economy.

(Revised) What The Jobs’ Report Means in the Short Run

After a rapid three months to start off 2014, we can finally look back to analyze where we might be headed for the rest of the year. According to The New York Times, there was an “addition of 192,000 jobs last month, all from private employers.” The weather did not seem to slow down the rise in jobs. However, it is also true that the level is still far below what is needed to fully accommodate the millions of people who have joined the work force since the recession and those who still have been jobless as well. Will the number of jobs added in April slow down? I believe our government can play a key role in aiding our economy and its’ job growth. However, they are currently doing very little in attacking fiscal policy changes to keep a steady pace for the coming months.

Although individuals like chief economist Jed Kolko at Trulia, mentions in The Wall Street Journal that there were improvements in jobs like construction and that young-adult employment is slowly making its way back to ‘normal’ levels, many others are convinced that the areas like the housing market may be cooling down  and that we aren’t being led in the right direction.

Throughout the beginning of 2014, we have been continuing to approach the employment level the economy was at when the down turn of jobs started to fall in 2008. However, our government cannot slow down its work and needs to “step on the accelerator” to continue to keep moving the economy. With this in mind, the market it still sensitive to the economy and our government needs to increase their activity and work together. Our government seems to be sitting back on work that’s already been completed.

Dallas Federal Reserve Bank President Richard Fisher accused U.S. politicians on Friday about their inability to cooperate and “accused them of impeding jobs growth.” Fisher added, “If the U.S. had the right fiscal policy, the country would have an ‘incredibly fast-moving economy.’”

Has U.S. stepped on the brakes and let the economy play out?

Fisher backed himself up adding that “the U.S. Federal Reserve must avoid being locked into calendar-based policy commitments and instead ensure its forward guidance is flexible enough to allow it to respond to changing conditions.”

I believe that we, in fact, should be worried that predictable commitments are unsound policy. This in turn would lead to false complacency and market instability. Our economy cannot afford to take this extra weight.

Some, like Fed Chair Janet Yellen, found the market’s sensitivity to be true when proclaiming an interest rate hike could follow around six months after the central bank ends its bond-buying stimulus. This time period was earlier than investors had expected causing stock, bond, and currency markets to take a hit from this very instance. I believe we are witnessing a pause on our economy from here on out. With our government lacking the ability to be able to work together, we may find ourselves at a standstill throughout the summer months. Our government cannot implement a plan and expect it will work everything out for the next couple years. They must continue activity and working to build the economy even as we still grow today. Otherwise volatility might be the theme for the coming months in the markets and I don’t believe last year’s rally will occur again this year.

Is Our Economy Really Moving Foward?

After a rapid three months to start off 2014, we can finally look back to analyze where we might be headed for the rest of the year. According to The New York Times, there was an “addition of 192,000 jobs last month, all from private employers.” The weather did not seem to slow down the rise in jobs. However, it is also true that the level is still far below what is needed to fully accommodate the millions of people who have joined the work force since the recession. Those who still have been jobless must be accounted for as well. Does this mean that there is still room for a lot of improvement? Or will the number of jobs added in April slow down?

Jed Kolko, chief economist at Trulia, mentions in The Wall Street Journal that there were improvements in construction jobs and that young-adult employment is slowly making its way back to ‘normal’ levels.

That’s it? All I have heard is that there is little doubt the housing market has cooled yet, but I am not very convinced that we are being led in the right direction.

Although we are reaching the point we were at when the down turn of jobs began during the Great Recession, our government needs to step on the accelerator and move the economy forward. Dallas Federal Reserve Bank President Richard Fisher accused U.S. politicians on Friday about their inability to cooperate and “accused them of impeding jobs growth.”

“If the U.S. had the right fiscal policy,” Fisher added, “the country would have an ‘incredibly fast-moving economy.’”

Has U.S. stepped on the brakes and let the economy play out?

Fisher backed himself up adding that “the U.S. Federal Reserve must avoid being locked into calendar-based policy commitments and instead ensure its forward guidance is flexible enough to allow it to respond to changing conditions.”

I believe that we, in fact, should be worried that predictable commitments are unsound policy, which can lead to false complacency and market instability.

We even found the market’s sensitivity to be true when Fed Chair Janet Yellen commented that an interest rate hike could follow six months after the central bank ends its bond-buying stimulus. Stock, bond, and currency markets took a hit from this very instance. I believe we are witnessing a pause on our economy from here on out. We cannot afford any time wasted moving forward, but with our government lacking the ability to be able to work together, we may find ourselves at a standstill throughout the summer months. Our government cannot implement one plan and think it will work everything out for the next couple years. They have to work with the present times and implement plans while the economy improves as well.

 

Amazon’s New Fire TV

Today, Wednesday April 2nd, Amazon unveiled a new set-top box to stream video and other media to your T.V. How could Amazon possibly gain market share in this market? Is this move too risky? According to The Wall Street Journal, “The new device, dubbed ‘Fire TV,’ will provide access to Amazon’s streaming video service that is tied  to membership in its Prime shipping program, as well as a range of apps from companies such as Netflix, Hulu, and ESPN.” The device costs $99 and is ready to be sold and shipped as of today.

Amazon is also propping Fire TV to be a gaming device. According to Amazon, thousands of games will be available through the device by next month. This device is also Amazon’s first all-new hardware line since the first Kindle Fire tablet in 2011.

Before Fire TV, Amazon relied on other companies’ devices to distribute the Prime video service. Now, Amazon will have a large control over its video offerings. Their new product takes away the complexity consumers have had in the past. It combines the concept of Google’s Chromecast and other expensive gaming consoles or Internet-connected TV for consumers’ streaming needs. Can Amazon’s new device actually do it all?

Well according to the journal, “Traditional distributors including large cable companies are also racing to develop more advanced set-top boxes to satisfy consumers who are frustrated with clunky and outdated equipment that comes with pay-TV service.”

Cable companies such as Comcast have dominated this industry for the past years with services like On Demand. But they have also found every way to make it complex for users to not have access to a variety of episodes and also make it expensive at the same time. Cable companies have realized they are falling behind in many aspects. They have not offered a large catalog of TV shows and movies, and they are also beginning to fall behind with original programming. These cable companies should have been the first to create a product like Fire TV; they had all the resources to do so. But they only cared about limiting access and did not think about simplicity for consumers.

Fire TV literally does it all.

According to the HuffingtonPost, “Along with Hulu and Netflix, Amazon Fire TV also plays content from apps like YouTube, Vimeo, the NBA and the MLB. That’s a lot of content, especially considering that Prime Instant Video already has around 40,000 movies, TV episodes and exclusives.”

Other features include a voice search Peter Larsen assures viewers “actually works,” and special settings for parents such as setting “time limits” for children.

With Amazon being the first to create this type of product, will they be the brand name that consumers will rely on in this market? Or will the cable companies step up their research and build something better? Or will Google or Apple even come into play and try to fight for space in this industry? Overall, Amazon is the first to find a way to target almost every type of consumer by allowing Fire TV to combine different aspects into one and be the only product needed.

Our Complex Behavior Effects Every Financial Decision

The brain is the most awe-striking part of the human body. Humans have continuously been able to grow and innovate bringing us to our present day. However, everyone is unique in very different ways. We make all types of decisions throughout our lives, some may be rational and some may be irrational decisions. In our economy, many studies on the topics like behavioral finance have taken place. In the stock-market, behavioralists believe that most investors are far from fully rational.

According to Burton Malkiel in A Random Walk Down Wall Street, psychologists Daniel Kahneman and Amos Tversky argue that people are not as rational as economic models assume. Over the past years, even decades, economists used the term “as a whole” to represent that stock-market investors are rational because they make reasonable estimates of the present value of stocks, and their buying a selling ensures that the prices of stocks fairly represent their future prospects. Economists were able to escape the irrational aspect saying that the trades of irrational investors will be random and cancel each other out without effecting prices.

However, Kahneman and Tversky were able to bring the bigger picture of behavioral finance in to play.

“Behavioralists believe that market prices are highly imprecise. Moreover, people deviate in systematic ways from rationality, and the irrational trades of investors tend to be correlated. Behavioral finance then takes that statement further by asserting that it is possible to quantify or classify such irrational behavior. Basically, there are four factors that create irrational market behavior: over-confidence, biased judgments, herd mentality, and loss aversion” (236-237).

Although I will not dive deep into the four factors, these types of irrational behaviors tend to lead the so-called growths of stocks to be overvalued or become a lost cause.

Malkiel also mentions that the distortions caused by such factors are countered by the work of arbitrageurs. “The word ‘arbitrage’ means profiting from prices of the same good that differ in two markets”(237). Arbitrageurs tend to buy stocks that appear undervalued and sell those that have gotten too high. These same people can also help smoothen out irrational fluctuations in stock prices and create an efficiently priced market.

So what are we truly dealing with here? We can single different types of investors out, but when it comes back down to it, our individual brain is the deciding factor. The most important factor here is dealing with loss-aversion bias, which according to the Wall Street Journal, “leads them to avoid risk when gains are at stake but seek risk when losses are at stake.” The article also states that “decision fatigue” and “the self-serving attribution bias” are attributes that cannot be coached. Luck plays a part in success while at the same time, our physical and mental health is just as important.

Although the most recent findings of behavioral finance help us understand what type of people making financial decisions, we must also understand that rational and irrational decisions are a deep part of our psychology. Stock-market investors might know how to play the game better than everybody else, but it is more than being rational or irrational when making a financial decision.