AYA Analytica financial health memo April 2019
As of April 2019, this regular podcast is available on our Andy Yeh Alpha fintech network platform.
IMF chief economist Gita Gopinath predicts no global recession with key downside risks at this delicate moment.
IMF chief economist Gita Gopinath predicts no global recession with many downside risks at this delicate moment.
First, trade tensions remain one of the major downside risks to the global economy, especially in the automobile and aircraft industries.
Trump trade envoys need to reach mutual agreement with the Chinese Xi administration with respect to U.S. bilateral trade deficit eradication and intellectual property protection and enforcement.
Second, slower economic growth poses another threat to continental economies such as Europe and China.
These economies represent the biggest victims of U.S. tariffs that the Trump administration unilaterally decides to impose due to American trade protectionism.
Third, a deterioration in stock market investor sentiment may rapidly tighten financial constraints and conditions in the broader context of perennial public debt accumulation in the U.S. and several other OECD countries.
This deterioration may inadvertently exacerbate sovereign bank doom-loop default risks.
Federal Reserve needs to halt the current interest rate hike to reinvigorate a smooth global financial cycle as the Chinese, European, and Japanese central banks and fiscal authorities coordinate their next macroeconomic stimulus programs.
Multinational monetary policy coordination continues to help maintain economic growth and stock market momentum via dovish monetary expansion and fiscal stimulus worldwide.
Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.
Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.
Most of our jobs and life experiences train us to be consumers but not investors or owners.
This memetic trend leads to a persistent investment shortfall in America.
As a recent BankRate survey suggests, only 40% of Americans are able to cover an unforeseen $1,000 expense with their deposits.
Many Americans choose not to save enough for retirement.
Also, a recent study by the Federal Reserve Bank of Saint Louis finds that only 27% of U.S. households have pension plans in place.
In light of this pervasive lack of financial discipline, Tony Robbins argues that the typical layman cannot earn his or her way into a fortune.
Robbins suggests that we need to make money while we sleep.
This personal finance tip shines fresh light on the importance of both passive income and compound interest.
For instance, if a 20-year-old adult invests $50 per week and compounds this interest on an average 10% annual return, he or she will accumulate about $2 million at the conventional retirement age of 65.
This long-term investment strategy wins throughout stock market fluctuations.
JPMorgan Chase CEO Jamie Dimon defends capitalism in his recent annual letter to shareholders.
JPMorgan Chase CEO Jamie Dimon defends capitalism in his recent annual letter to shareholders.
As Dimon suggests, socialism inevitably produces stagnation, corruption, and often worse.
When the government controls companies, people direct economic assets to further political interests as enormous favoritism, corruption, and other preferential treatment lead to inefficient market outcomes.
Dimon admits that capitalist countries need stronger social safety nets because there are some fundamental flaws with capitalism.
A good example is universal healthcare, and Dimon now collaborates with Jeff Bezos and Warren Buffett to initiate a cost-effective employee healthcare program for Amazon, Berkshire Hathaway, and JPMorgan Chase.
Dimon also defends capitalism because private enterprise is the true engine of economic growth in any country.
Although economic growth may inadvertently widen the income gap between the rich and the poor, most high-income countries arise with big businesses, tech titans, and successful innovators.
Dimon further observes that U.S. bank regulators now have fewer policy instruments to avert the next financial crisis.
Banks can maintain sufficient liquidity, credit supply, and procyclical capital in rare times of extreme financial stress.
Dimon emphasizes the importance of long-term business profitability in contrast to short-term gains such as one-year stock price performance and share buyback.
Bridgewater hedge fund founder Ray Dalio suggests that the current state of U.S. capitalism poses an existential threat for many Americans.
Bridgewater hedge fund founder Ray Dalio suggests that the current state of U.S. capitalism poses an existential threat for many Americans.
Dalio deems the current levels of U.S. economic inequality a national emergency that requires a complete reformation of capitalism in America.
The Pareto power law suggests that the upper echelon of top 20% income earners accounts for 80% of economic wealth in most U.S. states.
The rich can transfer their socioeconomic advantages from one generation to the next via elite education, political clout, and family ownership and control of public corporations.
This hereditary wealth concentration can persist over decades.
Firms need to fill the skill gap in talent retention; workers earn stagnant real wages over years; consumers face fewer choices in terms of products and services; and financial intermediaries encounter an inherent mismatch between savers and profitable stock market investments.
It is thus important for policymakers to help enhance the financial literacy, freedom, and inclusion of the global general public.
Americans, immigrants, and foreigners can learn more about stock market news, proprietary alpha signals, economic trends, and investment strategies on our AYA fintech network platform.
These endeavors help abate the existential threat that U.S. capitalism poses for many Americans.
Income and wealth concentration follows the ebbs and flows of the business cycle in America.
Income and wealth concentration follows the ebbs and flows of the real business cycle in Corporate America.
Economic inequality not only grows among people, but it also grows among companies.
A recent McKinsey study shows that only 10% of 5,750 public and private companies (each with over $1 billion in total revenue) account for 80% of their net profits.
These top 10% superstar companies create almost as much firm value as the bottom 10% companies destroy on an annual basis.
The top 10% superstar wealth creation has grown 1.6 times over the past 20 years, whereas, the bottom 10% value erosion has risen only 1.5% in the same time frame.
One major root cause of this wealth divergence is the corporate focus on intangible assets and intellectual properties such as patents, trademarks, copyrights, databases, robots, cloud services, and software solutions etc.
These intangible assets and intellectual properties thus serve as affordable competitive moats for the top 10% superstar companies.
These top 10% superstar firms spend about 2 to 3 times more on R&D than their peers and hence account for 70% of all R&D expenditures in Corporate America as of early-2019.
However, the top 10% superstar companies are less likely to maintain their product market dominance because about half of these superstar companies lose their competitive advantages over the course of one single real business cycle (or about 7-9 years).
For this reason, tougher antitrust scrutiny may or may not be the panacea for addressing the socioeconomic implications of anti-competitive clout in tech titans (Apple, Amazon, Alibaba, Facebook, Google, Microsoft, Nvidia, and Twitter etc), big biotech bellwethers (Johnson & Johnson, Pfizer, Merck, Abbot, Amgen, and Bristol-Myers Squibb etc), telecoms (Verizon, AT&T, Sprint, and T-Mobile), and so forth.
Weaker product market competition may help explain why U.S. productivity growth, capital investment, and wage growth continue to stagnate in recent years.
This dilemma manifests in the 7%-8% increase in average markups over the marginal costs for more than 900,000 firms from 2000 to early-2019 in accordance with a recent IMF staff report.
These higher markups significantly correlate with lower capital investment, subpar wage growth, and less disposable income for the typical U.S. household.
In other words, these markups represent the inadvertent social price of market power.
On balance, it is important for regulators to help promote greater market competition in several sectors such as technology, energy, medicine, air transport, and telecommunication etc.
Central bank independence remains important for core inflation containment in the current age of political populism.
Central bank independence remains important for inflation containment in the current age of political populism.
In accordance with the dual mandate of price stability and maximum sustainable employment, most central banks seek to solve the dynamic consistency problem on the basis of a desire to insulate monetary policy decisions from political influence.
A landmark empirical study of cross-country comparisons by Alberto Alesina and Lawrence Summers confirms that countries with greater central bank independence experience lower inflation without suffering any economic output or labor force penalty.
Historical experience and economic theory teach us an informative lesson.
When monetary policy is subject to political control, people anticipate dovish expansionary interest rate adjustments and so expect higher wages and prices in response.
The undesirable economic outcome is stagflation (or the worst-case scenario of both high inflation and high unemployment).
It can cost prohibitive welfare losses for the central bank to bring down inflation with subsequent interest rate hikes.
Credible apolitical monetary policy decisions would thus promote price stability with minimal real impact on economic growth, employment, and capital investment.
An independent central bank can further enhance fiscal discipline by reducing the relative likelihood of fiscal dominance and monetization of perennial budget deficits.
Federal Reserve proposes to revamp post-crisis rules for U.S. banks.
Federal Reserve proposes to revamp the post-crisis rules for U.S. banks.
The current proposals would prescribe materially less stringent requirements for community banks and regional financial institutions with less systemic risk exposure, whereas, the most stringent requirements remain for big banks that pose the greatest risks to the U.S. financial system.
The most stringent requirements include the Dodd-Frank macroprudential stress tests that focus on the more vulnerable parts of the U.S. financial system such as residential mortgages, auto loans, and corporate credit lines.
The new rules would significantly reduce regulatory barriers for smaller community banks and regional financial institutions.
Specifically, the smaller deposit-takers operate within the reasonable range of $100 billion to $250 billion in total assets.
U.S. banks that operate with more than $250 billion total assets (or $75 billion cross-jurisdictional capital flows) would continue to meet the same prudential standards such as high liquidity coverage and sufficient core equity capital adequacy etc.
The U.S. globally systemically important banks (GSIBs) would continue to conduct the Federal Reserve macro stress tests each year, but these GSIBs would report the test results only once every 2 years.
These institutional arrangements help strike an equilibrium balance between macrofinancial stabilization and microprudential deregulation.
Amazon CEO Jeff Bezos admits the fact that antitrust scrutiny remains a primary imminent threat to his e-commerce business empire.
Amazon CEO Jeff Bezos admits the fact that antitrust scrutiny remains an imminent threat to his ecommerce empire.
In his annual letter to Amazon shareholders, Bezos points out the fact that the percentage of Amazon goods sold by independent third-parties has gone from 3% in 1999 to almost 60% in early-2019.
Also, Bezos emphasizes the essential need for Amazon to fail fast forward through numerous informative experiments.
In particular, the size of failures has to grow exponentially with the socioeconomic impact of revolutionary inventions such as artificial intelligence, robotic automation, the strategic heathcare venture with Berkshire Hathaway and JPMorgan Chase, and the recent acquisition of Whole Foods.
With respect to stakeholder value maximization, Bezos plans to pay Amazon employees, upstream suppliers, and downstream customers with better terms, wages, returns, and benefits.
Meanwhile, Amazon operates at least 10 brick-and-mortar stores in Chicago, San Francisco, and Seattle.
Bezos expects to open more Amazon Go brick-and-mortar stores and checkout lines.
In light of all these progressive milestones, Amazon may face inevitably closer antitrust scrutiny as the ecommerce tech titan continues to expand its operational scale and scope.
A plausible scenario may entail the strategic separation of Amazon cloud services from the retail business.
Chinese Belt-and-Road funds large international infrastructure investment projects primarily in East Asia, Central Asia, North Africa, and Italy.
Chinese Belt-and-Road finances large-scale international infrastructure investment projects primarily in East Asia, Central Asia, North Africa, and Italy.
Chinese Belt-and-Road aims to strengthen infrastructure, trade, transport, and investment links between China and 65 other countries that collectively account for more than 30% of global GDP, 62% of world population, and 75% of international energy.
In fact, East Asia, Pacific Basin, Central Asia, and some parts of Europe account for almost 80% of total exports from Belt-and-Road economies, and these Belt-and-Road economies account for 37%-43% of world exports and intermediate goods as of early-2019.
Belt-and-Road economies exhibit substantive integration into global value chains as China plays a more central role in this cross-border trade integration.
In recent years, the main economic engine of Belt-and-Road exports has been the global demand for consumer electronic appliances from iPhones and iPads to tablets, laptops, and other robotic products.
However, U.S. State Department continues to raise grave concerns about opaque financial practices, subpar governance standards, and less inclusive socioeconomic norms and principles in the Chinese Belt-and-Road program.
America remains a staunch opponent of this trans-continental infrastructure scheme.
This scheme serves as a new investment vehicle for China to spread its financial prowess and influence overseas.
Saudi Aramco unveils the financial secrets of the most profitable corporation in the world.
Saudi Aramco unveils the financial secrets of the most profitable corporation in the world.
In its recent public bond issuance prospectus, Aramco offers the first official view of its financial affairs.
The bottomline is about $111 billion for the fiscal year 2018-2019.
This annual profit is more than the sum of net profits from Apple and Alphabet.
As the sole controlling shareholder of the oil titan Aramco, the Saudi Arabia government receives $56 billion oil production royalties, $102 billion income taxes, and almost $107 billion cash dividends from Aramco as of the fiscal year 2018-2019.
This capital allocation is equivalent to more than 2.5 times the $100 billion SoftBank Vision Fund in Japan.
If the international stock investment community pays the equivalent market value of 16-18 times the $100+ billion net profit per annum, the forthcoming Aramco IPO can reach the astronomical stock market capitalization of almost $2 trillion.
The Saudi Arabia government can use the cash proceeds to buy equity stakes in multinational tech companies for better diversification and national economic security.
In the grand scheme, this stock investment strategy brings forward the future cash flows from Saudi Aramco for the middle-east government to diversify outside the energy sector.
European Central Bank designs its current monetary policy reaction function and interest rate forward guidance in response to low inflation.
European Central Bank designs its current monetary policy reaction function and interest rate forward guidance in response to further delays in inflation convergence.
ECB President Mario Draghi maintains this dovish monetary policy stance as the central bank downgrades economic growth projections for the E.U. trade bloc from 1.7% to 1.1% as of early-2019.
As the ECB pushes back the next interest rate hike, Draghi announces new expansionary monetary policy measures.
These measures include another financial stimulus program for banks to boost credit supply in the Eurozone.
Draghi continues to commit to the price stability mandate to ensure that inflation remains hovers below the 2% target threshold.
Due to weak capital investment, labor force participation, and economic growth in Europe, most stock market analysts expect a major delay in ECB interest rate adjustments until late-2019.
In addition to the subpar macroeconomic performance of the E.U. trade bloc, ECB senior policy advisors need to wait for the next resolution of economic policy uncertainty around Halloween Brexit.
As Halloween Brexit may come back to haunt the U.K. prime minister, Draghi has to be patient to learn more about what the May administration can deliver as a plausible alternative Brexit deal in October 2019.
The U.S. Treasury yield curve inverts for the first time since the Global Financial Crisis.
The U.S. Treasury yield curve inverts for the first time since the Global Financial Crisis.
The term spread between the 10-year and 3-month U.S. Treasury yields dives below nil (i.e. the latter now exceeds the former by a positive increment).
In response, Dow Jones tumbles 400 points as this yield curve inversion sparks recessionary concerns.
Treasury yield curve inversions have indeed preceded all of the 7 U.S. recessions since the 1970s.
From a fundamental perspective, these yield curve inversions reflect the pervasive fear that firms become reluctant to raise debt to fund positive net-present-value capital investment projects when households tend to fixate on near-term consumption with minimal leverage for longer-term investments in stocks, bonds, and real estate properties.
A flat or negative yield curve suggests that investors prefer to keep their money in short-term bonds as longer-term bonds exhibit greater reinvestment risk.
Whether the current yield curve inversion portends an economic recession in the next few years depends on the eventual resolution of economic policy uncertainty around Sino-U.S. trade compromises, domestic fiscal budget negotiations, and Federal Reserve interest rate adjustments from 2019 to 2020.
This inversion may signal a stark sign of major economic events from a typically emphatic bellwether.
CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.
CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.
Buffett explains the fact that book value fluctuations are a metric that has lost relevance for Berkshire Hathaway over time.
At least 3 circumstances lead to this outcome.
First, Berkshire has gradually morphed from a company whose assets concentrate in marketable stocks into a unique public corporation whose major value resides in operating businesses.
From a fundamental viewpoint, equity stakes represent parts of corporate stock ownership and control as investors favor liquidity over managerial rent protection.
Second, the new U.S. accounting rules require the current collection of operating companies to be part of book value at a dollar amount far below their current market value.
This gross undervaluation may mislead the typical retail investor.
Third, it is likely for Berkshire to consider significant share repurchases that take place at share prices well above book value (but below the Buffett estimate of intrinsic value).
Each share buyback boosts intrinsic value and also constrains the potential uptick of book value.
This combination of circumstances causes the book-value scorecard to become out of touch with economic reality.
Buffett focuses on the Berkshire market capitalization, and this alternative metric better reflects business performance in practice.
Warren Buffett places his $58 billion stock bets on Apple, American Express, and Goldman Sachs.
Warren Buffett places his $58 billion stock bets on Apple, Goldman Sachs, and American Express.
Berkshire Hathaway now owns $18 billion equity stakes in American Express and Goldman Sachs, and both stocks sharply trail S&P 500 in recent years.
Meanwhile, Berkshire Hathaway owns another $40 billion in Apple.
Buffett focuses not on Apple revenue growth from quarter to quarter, but rather the broad network of hundreds of millions of iPhone and iPad users worldwide.
Goldman experiences temporary stock undervaluation due to its notorious involvement in the 1MBD Malaysian bond scandal (which may result in fines up to several billions of dollars).
Also, American Express executes several strategic partnerships in ecommerce payments, and continues to face fierce competition from the other credit card bellwethers Visa and MasterCard.
Buffett views this unique collection of U.S. stocks as a set of public companies that Berkshire Hathaway partly owns over the long run.
Without excessive levels of debt, these stocks earn 15%-20% steady profits on the net tangible equity capital that Buffett requires to run the stock investment business.
Berkshire Hathaway experiences a healthy fundamental increase in the market value of common stock investments from $170 billion to almost $173 billion from 2017-2018 to early-2019.
A Florida fintech group Fidelity Information Services initiates the largest acquisition of the e-commerce payments processor Worldpay.
A Florida fintech group Fidelity Information Services initiates the largest $43 billion acquisition of the ecommerce payments processor Worldpay.
Fidelity Information Services (FIS) provides computational systems for processing payments to a rich network of 14,000 banks.
Upon deal closure, FIS shareholders own approximately 53% of the joint company, whereas, Worldpay shareholders retain 47% minority equity stakes.
FIS senior management plans to pay the enterprise value of $43 billion with both stock and cash finance.
FIS also expects to refinance residual debt after this strategic milestone.
As of April 2019, this acquisition is the largest deal in the fintech payments industry.
The mega merger advances the current race to the top of global payments powerhouses.
FIS and Worldpay can collaborate to offer a customer-centric combination of global scale with the bellwether broad range of both international fintech solutions and network effects for ecommerce payments.
Conservative estimates suggest an organic revenue growth rate of 6%-9% in the next 3 years.
Net profit synergies amount to about $700 million over the same time horizon.
Moreover, the global payments market is likely to double in size to $2 trillion from 2017 to 2027.
These favorable forecasts suggest a bright outlook for FIS and Worldpay.
OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.
OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.
OraSure extracts genetic information from microbiome saliva samples and then provides discreet DNA diagnostic test tubes and kits for liquid biopsy, hepatitis, cancer, and HIV etc.
In the meantime, OraSure and its subsidiary DNA Genotek serve as a quasi-monopoly with secure economic rent protection in the new biotech market for DNA spit tubes.
As there has been a substantial increase in international demand for cost-effective and affordable DNA tests over the past decade, OraSure gains much from its R&D-driven royalty revenue.
As of April 2019, the small-cap stock OraSure trades at a P/E ratio of 16.6x near most long-term average stock market benchmarks.
Also, the current stock market capitalization of OraSure is about 3.4x times total sales and 2.2x times total book assets.
From a fundamental perspective, OraSure enjoys juicy profit margins: the gross profit margin of 62.5% well exceeds most stock market benchmarks, and the net profit margin hovers in the healthy range of 11%-15% in recent times.
As its broad biotech patents and trademarks represent fundamental competitive moats and niches, OraSure continues to dominate in the specialty market for DNA diagnostic test tubes.
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IMF chief economist Gita Gopinath predicts no global recession with key downside risks at this delicate moment.
IMF chief economist Gita Gopinath predicts no global recession with many downside risks at this delicate moment.
First, trade tensions remain one of the major downside risks to the global economy, especially in the automobile and aircraft industries.
Trump trade envoys need to reach mutual agreement with the Chinese Xi administration with respect to U.S. bilateral trade deficit eradication and intellectual property protection and enforcement.
Second, slower economic growth poses another threat to continental economies such as Europe and China.
These economies represent the biggest victims of U.S. tariffs that the Trump administration unilaterally decides to impose due to American trade protectionism.
Third, a deterioration in stock market investor sentiment may rapidly tighten financial constraints and conditions in the broader context of perennial public debt accumulation in the U.S. and several other OECD countries.
This deterioration may inadvertently exacerbate sovereign bank doom-loop default risks.
Federal Reserve needs to halt the current interest rate hike to reinvigorate a smooth global financial cycle as the Chinese, European, and Japanese central banks and fiscal authorities coordinate their next macroeconomic stimulus programs.
Multinational monetary policy coordination continues to help maintain economic growth and stock market momentum via dovish monetary expansion and fiscal stimulus worldwide.
Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.
Tony Robbins suggests that one has to be able to make money during sleep hours in order to reach financial freedom.
Most of our jobs and life experiences train us to be consumers but not investors or owners.
This memetic trend leads to a persistent investment shortfall in America.
As a recent BankRate survey suggests, only 40% of Americans are able to cover an unforeseen $1,000 expense with their deposits.
Many Americans choose not to save enough for retirement.
Also, a recent study by the Federal Reserve Bank of Saint Louis finds that only 27% of U.S. households have pension plans in place.
In light of this pervasive lack of financial discipline, Tony Robbins argues that the typical layman cannot earn his or her way into a fortune.
Robbins suggests that we need to make money while we sleep.
This personal finance tip shines fresh light on the importance of both passive income and compound interest.
For instance, if a 20-year-old adult invests $50 per week and compounds this interest on an average 10% annual return, he or she will accumulate about $2 million at the conventional retirement age of 65.
This long-term investment strategy wins throughout stock market fluctuations.
JPMorgan Chase CEO Jamie Dimon defends capitalism in his recent annual letter to shareholders.
JPMorgan Chase CEO Jamie Dimon defends capitalism in his recent annual letter to shareholders.
As Dimon suggests, socialism inevitably produces stagnation, corruption, and often worse.
When the government controls companies, people direct economic assets to further political interests as enormous favoritism, corruption, and other preferential treatment lead to inefficient market outcomes.
Dimon admits that capitalist countries need stronger social safety nets because there are some fundamental flaws with capitalism.
A good example is universal healthcare, and Dimon now collaborates with Jeff Bezos and Warren Buffett to initiate a cost-effective employee healthcare program for Amazon, Berkshire Hathaway, and JPMorgan Chase.
Dimon also defends capitalism because private enterprise is the true engine of economic growth in any country.
Although economic growth may inadvertently widen the income gap between the rich and the poor, most high-income countries arise with big businesses, tech titans, and successful innovators.
Dimon further observes that U.S. bank regulators now have fewer policy instruments to avert the next financial crisis.
Banks can maintain sufficient liquidity, credit supply, and procyclical capital in rare times of extreme financial stress.
Dimon emphasizes the importance of long-term business profitability in contrast to short-term gains such as one-year stock price performance and share buyback.
Bridgewater hedge fund founder Ray Dalio suggests that the current state of U.S. capitalism poses an existential threat for many Americans.
Bridgewater hedge fund founder Ray Dalio suggests that the current state of U.S. capitalism poses an existential threat for many Americans.
Dalio deems the current levels of U.S. economic inequality a national emergency that requires a complete reformation of capitalism in America.
The Pareto power law suggests that the upper echelon of top 20% income earners accounts for 80% of economic wealth in most U.S. states.
The rich can transfer their socioeconomic advantages from one generation to the next via elite education, political clout, and family ownership and control of public corporations.
This hereditary wealth concentration can persist over decades.
Firms need to fill the skill gap in talent retention; workers earn stagnant real wages over years; consumers face fewer choices in terms of products and services; and financial intermediaries encounter an inherent mismatch between savers and profitable stock market investments.
It is thus important for policymakers to help enhance the financial literacy, freedom, and inclusion of the global general public.
Americans, immigrants, and foreigners can learn more about stock market news, proprietary alpha signals, economic trends, and investment strategies on our AYA fintech network platform.
These endeavors help abate the existential threat that U.S. capitalism poses for many Americans.
Income and wealth concentration follows the ebbs and flows of the business cycle in America.
Income and wealth concentration follows the ebbs and flows of the real business cycle in Corporate America.
Economic inequality not only grows among people, but it also grows among companies.
A recent McKinsey study shows that only 10% of 5,750 public and private companies (each with over $1 billion in total revenue) account for 80% of their net profits.
These top 10% superstar companies create almost as much firm value as the bottom 10% companies destroy on an annual basis.
The top 10% superstar wealth creation has grown 1.6 times over the past 20 years, whereas, the bottom 10% value erosion has risen only 1.5% in the same time frame.
One major root cause of this wealth divergence is the corporate focus on intangible assets and intellectual properties such as patents, trademarks, copyrights, databases, robots, cloud services, and software solutions etc.
These intangible assets and intellectual properties thus serve as affordable competitive moats for the top 10% superstar companies.
These top 10% superstar firms spend about 2 to 3 times more on R&D than their peers and hence account for 70% of all R&D expenditures in Corporate America as of early-2019.
However, the top 10% superstar companies are less likely to maintain their product market dominance because about half of these superstar companies lose their competitive advantages over the course of one single real business cycle (or about 7-9 years).
For this reason, tougher antitrust scrutiny may or may not be the panacea for addressing the socioeconomic implications of anti-competitive clout in tech titans (Apple, Amazon, Alibaba, Facebook, Google, Microsoft, Nvidia, and Twitter etc), big biotech bellwethers (Johnson & Johnson, Pfizer, Merck, Abbot, Amgen, and Bristol-Myers Squibb etc), telecoms (Verizon, AT&T, Sprint, and T-Mobile), and so forth.
Weaker product market competition may help explain why U.S. productivity growth, capital investment, and wage growth continue to stagnate in recent years.
This dilemma manifests in the 7%-8% increase in average markups over the marginal costs for more than 900,000 firms from 2000 to early-2019 in accordance with a recent IMF staff report.
These higher markups significantly correlate with lower capital investment, subpar wage growth, and less disposable income for the typical U.S. household.
In other words, these markups represent the inadvertent social price of market power.
On balance, it is important for regulators to help promote greater market competition in several sectors such as technology, energy, medicine, air transport, and telecommunication etc.
Central bank independence remains important for core inflation containment in the current age of political populism.
Central bank independence remains important for inflation containment in the current age of political populism.
In accordance with the dual mandate of price stability and maximum sustainable employment, most central banks seek to solve the dynamic consistency problem on the basis of a desire to insulate monetary policy decisions from political influence.
A landmark empirical study of cross-country comparisons by Alberto Alesina and Lawrence Summers confirms that countries with greater central bank independence experience lower inflation without suffering any economic output or labor force penalty.
Historical experience and economic theory teach us an informative lesson.
When monetary policy is subject to political control, people anticipate dovish expansionary interest rate adjustments and so expect higher wages and prices in response.
The undesirable economic outcome is stagflation (or the worst-case scenario of both high inflation and high unemployment).
It can cost prohibitive welfare losses for the central bank to bring down inflation with subsequent interest rate hikes.
Credible apolitical monetary policy decisions would thus promote price stability with minimal real impact on economic growth, employment, and capital investment.
An independent central bank can further enhance fiscal discipline by reducing the relative likelihood of fiscal dominance and monetization of perennial budget deficits.
Federal Reserve proposes to revamp post-crisis rules for U.S. banks.
Federal Reserve proposes to revamp the post-crisis rules for U.S. banks.
The current proposals would prescribe materially less stringent requirements for community banks and regional financial institutions with less systemic risk exposure, whereas, the most stringent requirements remain for big banks that pose the greatest risks to the U.S. financial system.
The most stringent requirements include the Dodd-Frank macroprudential stress tests that focus on the more vulnerable parts of the U.S. financial system such as residential mortgages, auto loans, and corporate credit lines.
The new rules would significantly reduce regulatory barriers for smaller community banks and regional financial institutions.
Specifically, the smaller deposit-takers operate within the reasonable range of $100 billion to $250 billion in total assets.
U.S. banks that operate with more than $250 billion total assets (or $75 billion cross-jurisdictional capital flows) would continue to meet the same prudential standards such as high liquidity coverage and sufficient core equity capital adequacy etc.
The U.S. globally systemically important banks (GSIBs) would continue to conduct the Federal Reserve macro stress tests each year, but these GSIBs would report the test results only once every 2 years.
These institutional arrangements help strike an equilibrium balance between macrofinancial stabilization and microprudential deregulation.
Amazon CEO Jeff Bezos admits the fact that antitrust scrutiny remains a primary imminent threat to his e-commerce business empire.
Amazon CEO Jeff Bezos admits the fact that antitrust scrutiny remains an imminent threat to his ecommerce empire.
In his annual letter to Amazon shareholders, Bezos points out the fact that the percentage of Amazon goods sold by independent third-parties has gone from 3% in 1999 to almost 60% in early-2019.
Also, Bezos emphasizes the essential need for Amazon to fail fast forward through numerous informative experiments.
In particular, the size of failures has to grow exponentially with the socioeconomic impact of revolutionary inventions such as artificial intelligence, robotic automation, the strategic heathcare venture with Berkshire Hathaway and JPMorgan Chase, and the recent acquisition of Whole Foods.
With respect to stakeholder value maximization, Bezos plans to pay Amazon employees, upstream suppliers, and downstream customers with better terms, wages, returns, and benefits.
Meanwhile, Amazon operates at least 10 brick-and-mortar stores in Chicago, San Francisco, and Seattle.
Bezos expects to open more Amazon Go brick-and-mortar stores and checkout lines.
In light of all these progressive milestones, Amazon may face inevitably closer antitrust scrutiny as the ecommerce tech titan continues to expand its operational scale and scope.
A plausible scenario may entail the strategic separation of Amazon cloud services from the retail business.
Chinese Belt-and-Road funds large international infrastructure investment projects primarily in East Asia, Central Asia, North Africa, and Italy.
Chinese Belt-and-Road finances large-scale international infrastructure investment projects primarily in East Asia, Central Asia, North Africa, and Italy.
Chinese Belt-and-Road aims to strengthen infrastructure, trade, transport, and investment links between China and 65 other countries that collectively account for more than 30% of global GDP, 62% of world population, and 75% of international energy.
In fact, East Asia, Pacific Basin, Central Asia, and some parts of Europe account for almost 80% of total exports from Belt-and-Road economies, and these Belt-and-Road economies account for 37%-43% of world exports and intermediate goods as of early-2019.
Belt-and-Road economies exhibit substantive integration into global value chains as China plays a more central role in this cross-border trade integration.
In recent years, the main economic engine of Belt-and-Road exports has been the global demand for consumer electronic appliances from iPhones and iPads to tablets, laptops, and other robotic products.
However, U.S. State Department continues to raise grave concerns about opaque financial practices, subpar governance standards, and less inclusive socioeconomic norms and principles in the Chinese Belt-and-Road program.
America remains a staunch opponent of this trans-continental infrastructure scheme.
This scheme serves as a new investment vehicle for China to spread its financial prowess and influence overseas.
Saudi Aramco unveils the financial secrets of the most profitable corporation in the world.
Saudi Aramco unveils the financial secrets of the most profitable corporation in the world.
In its recent public bond issuance prospectus, Aramco offers the first official view of its financial affairs.
The bottomline is about $111 billion for the fiscal year 2018-2019.
This annual profit is more than the sum of net profits from Apple and Alphabet.
As the sole controlling shareholder of the oil titan Aramco, the Saudi Arabia government receives $56 billion oil production royalties, $102 billion income taxes, and almost $107 billion cash dividends from Aramco as of the fiscal year 2018-2019.
This capital allocation is equivalent to more than 2.5 times the $100 billion SoftBank Vision Fund in Japan.
If the international stock investment community pays the equivalent market value of 16-18 times the $100+ billion net profit per annum, the forthcoming Aramco IPO can reach the astronomical stock market capitalization of almost $2 trillion.
The Saudi Arabia government can use the cash proceeds to buy equity stakes in multinational tech companies for better diversification and national economic security.
In the grand scheme, this stock investment strategy brings forward the future cash flows from Saudi Aramco for the middle-east government to diversify outside the energy sector.
European Central Bank designs its current monetary policy reaction function and interest rate forward guidance in response to low inflation.
European Central Bank designs its current monetary policy reaction function and interest rate forward guidance in response to further delays in inflation convergence.
ECB President Mario Draghi maintains this dovish monetary policy stance as the central bank downgrades economic growth projections for the E.U. trade bloc from 1.7% to 1.1% as of early-2019.
As the ECB pushes back the next interest rate hike, Draghi announces new expansionary monetary policy measures.
These measures include another financial stimulus program for banks to boost credit supply in the Eurozone.
Draghi continues to commit to the price stability mandate to ensure that inflation remains hovers below the 2% target threshold.
Due to weak capital investment, labor force participation, and economic growth in Europe, most stock market analysts expect a major delay in ECB interest rate adjustments until late-2019.
In addition to the subpar macroeconomic performance of the E.U. trade bloc, ECB senior policy advisors need to wait for the next resolution of economic policy uncertainty around Halloween Brexit.
As Halloween Brexit may come back to haunt the U.K. prime minister, Draghi has to be patient to learn more about what the May administration can deliver as a plausible alternative Brexit deal in October 2019.
The U.S. Treasury yield curve inverts for the first time since the Global Financial Crisis.
The U.S. Treasury yield curve inverts for the first time since the Global Financial Crisis.
The term spread between the 10-year and 3-month U.S. Treasury yields dives below nil (i.e. the latter now exceeds the former by a positive increment).
In response, Dow Jones tumbles 400 points as this yield curve inversion sparks recessionary concerns.
Treasury yield curve inversions have indeed preceded all of the 7 U.S. recessions since the 1970s.
From a fundamental perspective, these yield curve inversions reflect the pervasive fear that firms become reluctant to raise debt to fund positive net-present-value capital investment projects when households tend to fixate on near-term consumption with minimal leverage for longer-term investments in stocks, bonds, and real estate properties.
A flat or negative yield curve suggests that investors prefer to keep their money in short-term bonds as longer-term bonds exhibit greater reinvestment risk.
Whether the current yield curve inversion portends an economic recession in the next few years depends on the eventual resolution of economic policy uncertainty around Sino-U.S. trade compromises, domestic fiscal budget negotiations, and Federal Reserve interest rate adjustments from 2019 to 2020.
This inversion may signal a stark sign of major economic events from a typically emphatic bellwether.
CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.
CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.
Buffett explains the fact that book value fluctuations are a metric that has lost relevance for Berkshire Hathaway over time.
At least 3 circumstances lead to this outcome.
First, Berkshire has gradually morphed from a company whose assets concentrate in marketable stocks into a unique public corporation whose major value resides in operating businesses.
From a fundamental viewpoint, equity stakes represent parts of corporate stock ownership and control as investors favor liquidity over managerial rent protection.
Second, the new U.S. accounting rules require the current collection of operating companies to be part of book value at a dollar amount far below their current market value.
This gross undervaluation may mislead the typical retail investor.
Third, it is likely for Berkshire to consider significant share repurchases that take place at share prices well above book value (but below the Buffett estimate of intrinsic value).
Each share buyback boosts intrinsic value and also constrains the potential uptick of book value.
This combination of circumstances causes the book-value scorecard to become out of touch with economic reality.
Buffett focuses on the Berkshire market capitalization, and this alternative metric better reflects business performance in practice.
Warren Buffett places his $58 billion stock bets on Apple, American Express, and Goldman Sachs.
Warren Buffett places his $58 billion stock bets on Apple, Goldman Sachs, and American Express.
Berkshire Hathaway now owns $18 billion equity stakes in American Express and Goldman Sachs, and both stocks sharply trail S&P 500 in recent years.
Meanwhile, Berkshire Hathaway owns another $40 billion in Apple.
Buffett focuses not on Apple revenue growth from quarter to quarter, but rather the broad network of hundreds of millions of iPhone and iPad users worldwide.
Goldman experiences temporary stock undervaluation due to its notorious involvement in the 1MBD Malaysian bond scandal (which may result in fines up to several billions of dollars).
Also, American Express executes several strategic partnerships in ecommerce payments, and continues to face fierce competition from the other credit card bellwethers Visa and MasterCard.
Buffett views this unique collection of U.S. stocks as a set of public companies that Berkshire Hathaway partly owns over the long run.
Without excessive levels of debt, these stocks earn 15%-20% steady profits on the net tangible equity capital that Buffett requires to run the stock investment business.
Berkshire Hathaway experiences a healthy fundamental increase in the market value of common stock investments from $170 billion to almost $173 billion from 2017-2018 to early-2019.
A Florida fintech group Fidelity Information Services initiates the largest acquisition of the e-commerce payments processor Worldpay.
A Florida fintech group Fidelity Information Services initiates the largest $43 billion acquisition of the ecommerce payments processor Worldpay.
Fidelity Information Services (FIS) provides computational systems for processing payments to a rich network of 14,000 banks.
Upon deal closure, FIS shareholders own approximately 53% of the joint company, whereas, Worldpay shareholders retain 47% minority equity stakes.
FIS senior management plans to pay the enterprise value of $43 billion with both stock and cash finance.
FIS also expects to refinance residual debt after this strategic milestone.
As of April 2019, this acquisition is the largest deal in the fintech payments industry.
The mega merger advances the current race to the top of global payments powerhouses.
FIS and Worldpay can collaborate to offer a customer-centric combination of global scale with the bellwether broad range of both international fintech solutions and network effects for ecommerce payments.
Conservative estimates suggest an organic revenue growth rate of 6%-9% in the next 3 years.
Net profit synergies amount to about $700 million over the same time horizon.
Moreover, the global payments market is likely to double in size to $2 trillion from 2017 to 2027.
These favorable forecasts suggest a bright outlook for FIS and Worldpay.
OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.
OraSure and its subsidiary DNA Genotek specialize in the lean production of home DNA spit tubes.
OraSure extracts genetic information from microbiome saliva samples and then provides discreet DNA diagnostic test tubes and kits for liquid biopsy, hepatitis, cancer, and HIV etc.
In the meantime, OraSure and its subsidiary DNA Genotek serve as a quasi-monopoly with secure economic rent protection in the new biotech market for DNA spit tubes.
As there has been a substantial increase in international demand for cost-effective and affordable DNA tests over the past decade, OraSure gains much from its R&D-driven royalty revenue.
As of April 2019, the small-cap stock OraSure trades at a P/E ratio of 16.6x near most long-term average stock market benchmarks.
Also, the current stock market capitalization of OraSure is about 3.4x times total sales and 2.2x times total book assets.
From a fundamental perspective, OraSure enjoys juicy profit margins: the gross profit margin of 62.5% well exceeds most stock market benchmarks, and the net profit margin hovers in the healthy range of 11%-15% in recent times.
As its broad biotech patents and trademarks represent fundamental competitive moats and niches, OraSure continues to dominate in the specialty market for DNA diagnostic test tubes.
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