This article talks about Scottrade's improvements in its network. There is a plan to increase its branch offices to 500 over the next 2 years. The branches of Scottrade are its main line to its customer's and by supporting these branches with an MPLS WAN (multiprotocol label switching wide area network), which would link them to its headquarters in St. Louis. Qwest Communications is the IT company onboard with Scottrade for this project. This project has greatly increased Scottrade's service capabilities through the increased bandwith, quality of service, and diagnosis of data flow that Qwest has implemented for Scottrade. The customer service side of Scottrade is not the only internal benefit, but helping by leveraging wiki with experts in the branches, streaming monthly updates from the CEO, which would not be possible with their old network.
In recent news with the LSE outage there have been talks about disaster plans. With their new network Scottrade's own disaster backup plan is much stronger, which in turn means a more reliable company when it comes to trusting their technology. After implementing this new network with Qwest and also help from Cisco, Scottrade has had a 15% annual growth in its branches as well as moving 10 to 20 each year for better locations.
After the the outage at the London Stock Exchange many people have become aware of the possibility of huge loses through technological glitches. Scottrade has moved into an excellent direction through improving its network to better secure/prepare itself from these problems, which would make it look much better to an investor when looking for a place to invest their own capital. They not only are working to limit the damage that could occur through outages, but also have improved their customer service through the upgrade of their network with Qwest Communications. When investing money these are two key areas: limited technological glitches and customer service. They are able to connect to a local branch where they can become familiar with that person and have that representative have a faster workflow and better information.
http://www.wallstreetandtech.com/it-infrastructure/showArticle.jhtml;jsessionid=JBDDQZDW4210GQSNDLPCKH0CJUNN2JVN?articleID=210601060
Thursday, September 11, 2008
Wednesday, September 10, 2008
Blame Game: The ‘Uptick’ Rule Debate
In the Article Blame Game: The Uptick Rule Debate, both arguments of effect of the removal of the uptick rule in July 2007 on market volatility are presented. After extensive research and a pilot test in 2005, the Securities and Exchange Commission determined that the “uptick” rule was not necessary in preventing short selling. The uptick rule was initially implemented after the 1929 stock market crash. Its purpose was to hinder bearish traders, believing that a stock was overpriced, from short selling, consequently contributing to falling prices by flooding the market with shares. Under the uptick rule, shares could only be sold after the price had increased.
In July 2007 the SEC revoked the uptick rule, deeming that the rule was “hindering trading without protecting prices”. Many believe that this has contributed to the increased volatility of the market. Now stocks can be shorted even as prices fall. According to the article, some experts feel that the elimination of the rule has made it easier for bearish traders to short sell. The Volatility Index indicates that stock-price volatility has remained 70% higher after the rule was changed than before. The volatility of the market has caused investors to want higher returns, which leads to higher cost of capital for companies.
Others argue that the market’s problems are not due to the removal of the uptick rule, but rather, to much greater problems such as the debt crisis. One researcher notes that there have always been ways around the uptick rule, allowing traders to short sell, including simply breaking the rule and paying a small fine.
I agree with the head of one firm, who points out that the correlation between the market’s volatility and the removal of the uptick rule does not necessarily equal causation. There are too many contributing factors that the impact that the removal of the uptick rule cannot be isolated as a determining cause.
Blame Game: The ‘Uptick’ Rule Debate
Gregory Zuckerman
Wall Street Journal. April 1, 2008. pg. C.1
<http://proquest.umi.com/pqdweb?index=1&did=1454789041&SrchMode=1&sid=
10&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1220997338&clientId=
31806>
In July 2007 the SEC revoked the uptick rule, deeming that the rule was “hindering trading without protecting prices”. Many believe that this has contributed to the increased volatility of the market. Now stocks can be shorted even as prices fall. According to the article, some experts feel that the elimination of the rule has made it easier for bearish traders to short sell. The Volatility Index indicates that stock-price volatility has remained 70% higher after the rule was changed than before. The volatility of the market has caused investors to want higher returns, which leads to higher cost of capital for companies.
Others argue that the market’s problems are not due to the removal of the uptick rule, but rather, to much greater problems such as the debt crisis. One researcher notes that there have always been ways around the uptick rule, allowing traders to short sell, including simply breaking the rule and paying a small fine.
I agree with the head of one firm, who points out that the correlation between the market’s volatility and the removal of the uptick rule does not necessarily equal causation. There are too many contributing factors that the impact that the removal of the uptick rule cannot be isolated as a determining cause.
Blame Game: The ‘Uptick’ Rule Debate
Gregory Zuckerman
Wall Street Journal. April 1, 2008. pg. C.1
<http://proquest.umi.com/pqdweb?index=1&did=1454789041&SrchMode=1&sid=
10&Fmt=4&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1220997338&clientId=
31806>
Sign on the Digitally Dotted Line
The article “Sign on the Digitally Dotted Line” talks about the ever-increasing demand for and practicality of software for electronic authentication and e-signatures. The still-prevalent requirement of a physical signature on a physical page in important transactions is probably the last frontier that needs to be overcome before we can fully digitalize our business lives. However, while we as individuals can readily benefit from the convenience and security provided by such software, financial institutions may be facing a double-edged sword when it comes to e-signatures.
The article mentions that conservative financial institutions such as banks and securities markets are as usual being slow in the adoption of so-called “miracle solutions”. Nevertheless, there are undoubtedly major benefits in such software products, especially when they are adopted on a “first-mover” basis. For example, current market trends show unequivocally that in a competitive market, the business that offers the simplest, most hassle-free and least time-consuming method of completing a transaction will gain tremendous market share (as was the case of Amazon.com in online book sales a few years ago). For the financial institution that adopts software enabling said transactions, this would result in a competitive advantage that draws in more customers away from other businesses that still require written documents as proof of consent. Securities markets as a whole will also enjoy increased transaction volume from individuals who might have previously thought of the start-up process as too tedious. Finally, according to software providers such as ArticSoft and DocuSign, the possibility of fraud, identity theft and other security issues are minimized with the encryption and digital marking that accompanies e-signatures.
However, in my opinion there are some major downsides to all-out adoption of digital signatures, especially for securities markets and financial institutions. First and foremost, eliminating the need of physical interaction while signing a contract or completing a transaction could be paving the way towards the full automation of trading, possibly to a point where brokers and middle-men become obsolete. Another threat by such over-digitalization is that individuals might become more prone to making imprudent decisions due to their perceived lack of need for personal contact and consulting. “Rogue traders” seem more likely to emerge in front of a computer screen at home than on the phone with their brokers. Finally, there is the issue that in the initial stages of adoption, people might not take electronic signatures as seriously as they do physical ones – the article mentions that there have already been cases in which someone e-signed a document and simply did not do what the contract ordered them.
Whether or not this technology is coming is not the question – digital signatures have been growing in popularity ever since the Electronic Signature Act was passed in 2000. The issue at hand is whether we’re prepared to start eliminating personal contacts in business as we are eliminating physical paper.
Main Article: Sign on the Digitally Dotted Line
Author: McClure, Marji
Source: EContent; May 2008, Vol. 31 Issue 4, p40-44, 5p
Company/Entity: GARTNER Inc. DUNS Number: 097220180
ISSN: 15252531
Database: Academic Search Premier
(the article can be located by logging into Aladin and searching "Sign on the Digitally Dotted Line" in Academic Search Premier EBSCO)
Also cited:
http://www.articsoft.com/finance_security.htm
The article mentions that conservative financial institutions such as banks and securities markets are as usual being slow in the adoption of so-called “miracle solutions”. Nevertheless, there are undoubtedly major benefits in such software products, especially when they are adopted on a “first-mover” basis. For example, current market trends show unequivocally that in a competitive market, the business that offers the simplest, most hassle-free and least time-consuming method of completing a transaction will gain tremendous market share (as was the case of Amazon.com in online book sales a few years ago). For the financial institution that adopts software enabling said transactions, this would result in a competitive advantage that draws in more customers away from other businesses that still require written documents as proof of consent. Securities markets as a whole will also enjoy increased transaction volume from individuals who might have previously thought of the start-up process as too tedious. Finally, according to software providers such as ArticSoft and DocuSign, the possibility of fraud, identity theft and other security issues are minimized with the encryption and digital marking that accompanies e-signatures.
However, in my opinion there are some major downsides to all-out adoption of digital signatures, especially for securities markets and financial institutions. First and foremost, eliminating the need of physical interaction while signing a contract or completing a transaction could be paving the way towards the full automation of trading, possibly to a point where brokers and middle-men become obsolete. Another threat by such over-digitalization is that individuals might become more prone to making imprudent decisions due to their perceived lack of need for personal contact and consulting. “Rogue traders” seem more likely to emerge in front of a computer screen at home than on the phone with their brokers. Finally, there is the issue that in the initial stages of adoption, people might not take electronic signatures as seriously as they do physical ones – the article mentions that there have already been cases in which someone e-signed a document and simply did not do what the contract ordered them.
Whether or not this technology is coming is not the question – digital signatures have been growing in popularity ever since the Electronic Signature Act was passed in 2000. The issue at hand is whether we’re prepared to start eliminating personal contacts in business as we are eliminating physical paper.
Main Article: Sign on the Digitally Dotted Line
Author: McClure, Marji
Source: EContent; May 2008, Vol. 31 Issue 4, p40-44, 5p
Company/Entity: GARTNER Inc. DUNS Number: 097220180
ISSN: 15252531
Database: Academic Search Premier
(the article can be located by logging into Aladin and searching "Sign on the Digitally Dotted Line" in Academic Search Premier EBSCO)
Also cited:
http://www.articsoft.com/finance_security.htm
Is the London Stock Exchange in trouble?
Ryan Van Parys
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
The good old days of traders enjoying robust fees may soon be over for the people of the London Stock Exchange. For years, the London Stock Exchange, or better known as the “LSE” has survived the threat of rival tech based exchanges due in large part to surging high worth investments like hedge funds. However, the latest threat of lightening fast trading and substantially cheaper fees brought on by a multitude of trading platforms may be too much for the LSE to handle. For instance, Wachman cites Project Turquoise, Chi-X, Nasdaq OMX, and Bats Trading as all viable threats to the LSE’s market share. Apparently, Wachman is not the only one who thinks this isn’t true: the London Stock Exchange’s share price has fallen by over half of its original price 18 months ago. The article points to a few quotes by the president of the new Nasdaq OMX who credits cheaper fees, faster electronic trading, and access to trade across Europe instantaneously as a reason for why the best days of the LSE are over. Others disagree, stating that the steady flow from revenues earned due to listing services, expansion of alternative investing markets, and prestige of having money in the LSE will keep the Exchange prosperous.
While this article is not entirely technical by any stretch of the imagination, I found the issue to be particularly engaging because we talked about how technology affects the securities market extensively in class last week. The article mentions how the NYSE has lost 50 percent of its market share due to increasing competition from other exchanges that provided customers with faster services through the advantage of technology. While the LSE’s market share numbers are bound to narrow due to natural maturation of financial markets, it is interesting to note how the attitude towards trading seems to have really changed since the invention of e-trading and/or e-platforms. Many investors seem to be more interested in the lowest fee possible and doing their own research, rather than trading on a notable but expensive exchange. I think this can be attributed to a number of technological advances such as the open access to all of the corporate and market research that the internet has to offer, and the easy ability to now essentially perform a trade with one click. Additionally, I think (some) investors are backing down from name recognition for every day trades and are focusing on exchanges like the LSE only when they want to invest in an alternative security. However, the article does admit that the prestige of the LSE still is a very big deal. I would even suggest that if it wasn’t for its name recognition and its ability to monopolize the English market on the listing fee business, I don’t think the LSE would be nearly as competitive as it still is today.
I found the part of the article which discussed how the LSE is staying alive to be particularly interesting. In addition to its alternative securities and name recognition, it also is receiving, ironically, what the article mentions as a “tariff” by the British government. It seems very strange to me that the British government would implement a tariff to a market driven aspect of the economy, especially against exchanges that may bring more efficiency and growth to Britain’s markets, or encourage investment. I think it would be interesting to research other European exchanges and see if their governments are practicing the same type of protectionism in their own financial markets. If so, it certainly poses quite a contrast to the US approach.
http://www.guardian.co.uk/business/2008/sep/07/londonstockexchangegroup.stockmarkets
In search of a floor: Is America’s house price crash at last bottoming out?
http://www.ft.com/cms/s/0/91dd4430-7ea0-11dd-b1af-000077b07658.html
Though these signs point to the Housing market finally starting to, if not rebound, at least starting to stabilize, there are many very worrying signs that suggest that the market will not bottom out until well into 2009. The biggest worry is the rising foreclosure rate, which is up 183% in 2008 alone. Until this rate plateaus, it will be exceedingly difficult for Banks to predict the bottom of this crisis. A major concern came last week when the Fitch Rating announced that 92 billion in flexible payment loans would be subject to more stringent policies, thus making in harder on those borrowers and likely causing more foreclosures. This trend has been a common one as banks are desperate to sure up their capital with their borrowers. Amongst internal problems, the housing market is also facing serious external economic problems, the first of which being unemployment.
With eight consecutive months of job losses, the U.S. unemployment rate has jumped from 4.9% to 6.1%. Compound this with higher gas prices and the rising cost of foods, and it is not hard to see how the housing market could continue its downward spiral. Gas prices are hitting especially hard, as many of the foreclosures are coming from rural residential suburbs, where commuting via cars is much more common. OPEC isn’t helping the situation either as they just cut production as crude finally dropped below 100 dollars a barrel. As it stands now almost 1 in every 400 homes are being foreclosed.
The road ahead, though less rocky than what has already been traversed, seems to be long and enduring. Alan Greenspan said last month that housing prices could continue to slide through 2009 and some predict that we should be looking at a 2010 stabilization point. Either way we can only hope that what traction financial institutions have gained will be enough to hold them. Should unemployment continue to rise with inflation, the housing market could be in for a much-prolonged battle.
Since the crash of the housing market 18 months ago, financial institutions have been falling left and right with Washington Mutual looking to be the next victim. It has turned into a waiting game of the most epic proportions. Just trying to stay afloat at this point, banks are waiting for some kind of inclination as to where the bottom of this market is. Once a stabilization point is established Banks can get a firmer grip on their total losses and start once again to build credit. In this article from Tuesday’s Financial Times, things seems to be pointing up as Americans are perceived to be getting back into the housing markets. Price declines have fallen from 2.2% in February to .5% in June. In addition, the recent government backing of Fannie Mae and Freddie Mac has given markets a boost, and should help keep mortgage prices down and encourage Americans to purchase homes. All this however is but a small bright spot on what is an ugly U.S. housing market.
Though these signs point to the Housing market finally starting to, if not rebound, at least starting to stabilize, there are many very worrying signs that suggest that the market will not bottom out until well into 2009. The biggest worry is the rising foreclosure rate, which is up 183% in 2008 alone. Until this rate plateaus, it will be exceedingly difficult for Banks to predict the bottom of this crisis. A major concern came last week when the Fitch Rating announced that 92 billion in flexible payment loans would be subject to more stringent policies, thus making in harder on those borrowers and likely causing more foreclosures. This trend has been a common one as banks are desperate to sure up their capital with their borrowers. Amongst internal problems, the housing market is also facing serious external economic problems, the first of which being unemployment.
With eight consecutive months of job losses, the U.S. unemployment rate has jumped from 4.9% to 6.1%. Compound this with higher gas prices and the rising cost of foods, and it is not hard to see how the housing market could continue its downward spiral. Gas prices are hitting especially hard, as many of the foreclosures are coming from rural residential suburbs, where commuting via cars is much more common. OPEC isn’t helping the situation either as they just cut production as crude finally dropped below 100 dollars a barrel. As it stands now almost 1 in every 400 homes are being foreclosed.
The road ahead, though less rocky than what has already been traversed, seems to be long and enduring. Alan Greenspan said last month that housing prices could continue to slide through 2009 and some predict that we should be looking at a 2010 stabilization point. Either way we can only hope that what traction financial institutions have gained will be enough to hold them. Should unemployment continue to rise with inflation, the housing market could be in for a much-prolonged battle.
Government Bailout = Pimco Strikes Gold
Recent news of the US government's takeover of Freddie Mac and Fannie May catapulted the Pimco fund to a $1.7 billion gain on Monday. This is the highest one-day gain against its benchmark index. This is in sharp contrast with the investors of Fannie May and Freddie Mac, who suffered massive losses as a result of the news.
Fund manager Bill Gross' shift to agency bonds over the last year is largely responsible for the gain, dumping US T-bills and corporate bonds in order to compensate for his predicted US takeover of the two organizations. Pimco's took a huge calculated risk in this move, but had they not taken these steps, Pimco would be in a similar predicament that Freddie and Fannie investors faced on Monday. Morningstar reported that for the 12 months before August 1, Pimco had beaten all of its peers, gaining 9.2 percent.
Right now, Gross and other investors on the Pimco team must be thinking of what they're going to turn their newly minted $1.7 billion into. Judging by Gross' history, he seems to favor short term investments. Look for changes in the near future.
Brewster, Deborah. "Bail-out wins Pimco $1.7bn." Financial Times.
Fund manager Bill Gross' shift to agency bonds over the last year is largely responsible for the gain, dumping US T-bills and corporate bonds in order to compensate for his predicted US takeover of the two organizations. Pimco's took a huge calculated risk in this move, but had they not taken these steps, Pimco would be in a similar predicament that Freddie and Fannie investors faced on Monday. Morningstar reported that for the 12 months before August 1, Pimco had beaten all of its peers, gaining 9.2 percent.
Right now, Gross and other investors on the Pimco team must be thinking of what they're going to turn their newly minted $1.7 billion into. Judging by Gross' history, he seems to favor short term investments. Look for changes in the near future.
Brewster, Deborah. "Bail-out wins Pimco $1.7bn." Financial Times.
Tuesday, September 9, 2008
Primary Market Performance in a weak economy
History, as they say, repeats itself. The cyclical nature of the stock market and its corollary markets means that the economy will undeniably face some periods of “highs” and some periods of “lows”. We are currently experiencing a low period in the primary market. This assertion comes in the face of numerous firms tending towards insolvency, individuals increasingly declaring for bankruptcy, plummeting stock prices and a generally unhealthy financial industry. However, initial public offering deals (conversion of private limited liability company to a public limited liability company) seem to pass unnoticed.
In the article, “For IPO’s in August, a Sound Silence” Lynn Cowan talks about the small number of IPO deals that occurred during the month of August 2008. Even though the month of August is a time when a lot of people are on holidays, which will concurrently result to fewer deals being carried out, it is no excuse for the lowest number of deals since data providers started tracking the number and value of IPOs worldwide in 1995. Cross sectional data analysis reveals that August 2008 brought about twenty-five IPO deals worldwide as opposed to twenty-nine in January 1995, thirty-two in January 1998, and thirty-five in August 2003. Although the number of deals may not vary significantly, the monetary value in billions of dollars makes for a substantial difference. The article also talks about the August value of IPOs worldwide summing up to $1.25b, which is an 84.72% drop from the value of August 2007 IPO capital raising. This shows that not only are firms being majorly hit by a huge decline in company value, but raising capital is also a difficult task.
The world experienced an IPO boom for the last few years that provided companies with huge amounts of capital and also an optimistic stock market. With the huge declines in company valuations and one of the worst years of IPOs for companies and investment banks, one may wonder if the IPO bubble has come to an end. I believe it is too early to correctly assess this claim, especially because there has traditionally been an incumbent “recoil” period following periods of economic sluggishness. For instance, after the 9/11 attacks (Sept 9, 2001), the American economy experienced slow growth rates and thousands of layoffs, but was able to regenerate itself fairly well by 2004. I believe certain events such as the presidential election and the encouraging price of oil, will help the economy. It is only a matter of time before the economy experiences some stimulation in the form of investments, purchasing of government bonds and securities, reduction of the required reserve ratio, and positive fiscal and monetary policies. The chairman of the Federal Reserve – Dr. Ben Bernanke – is among those who can help to revitalize the economy. The big question though, is how soon will this be?
Lynn Cowan, “For IPO’s in August, a sound of silence”, Wall Street Journal, September 2, 2008.
In the article, “For IPO’s in August, a Sound Silence” Lynn Cowan talks about the small number of IPO deals that occurred during the month of August 2008. Even though the month of August is a time when a lot of people are on holidays, which will concurrently result to fewer deals being carried out, it is no excuse for the lowest number of deals since data providers started tracking the number and value of IPOs worldwide in 1995. Cross sectional data analysis reveals that August 2008 brought about twenty-five IPO deals worldwide as opposed to twenty-nine in January 1995, thirty-two in January 1998, and thirty-five in August 2003. Although the number of deals may not vary significantly, the monetary value in billions of dollars makes for a substantial difference. The article also talks about the August value of IPOs worldwide summing up to $1.25b, which is an 84.72% drop from the value of August 2007 IPO capital raising. This shows that not only are firms being majorly hit by a huge decline in company value, but raising capital is also a difficult task.
The world experienced an IPO boom for the last few years that provided companies with huge amounts of capital and also an optimistic stock market. With the huge declines in company valuations and one of the worst years of IPOs for companies and investment banks, one may wonder if the IPO bubble has come to an end. I believe it is too early to correctly assess this claim, especially because there has traditionally been an incumbent “recoil” period following periods of economic sluggishness. For instance, after the 9/11 attacks (Sept 9, 2001), the American economy experienced slow growth rates and thousands of layoffs, but was able to regenerate itself fairly well by 2004. I believe certain events such as the presidential election and the encouraging price of oil, will help the economy. It is only a matter of time before the economy experiences some stimulation in the form of investments, purchasing of government bonds and securities, reduction of the required reserve ratio, and positive fiscal and monetary policies. The chairman of the Federal Reserve – Dr. Ben Bernanke – is among those who can help to revitalize the economy. The big question though, is how soon will this be?
Lynn Cowan, “For IPO’s in August, a sound of silence”, Wall Street Journal, September 2, 2008.
Competitive Approach Taken to Outsourcing
This article talks about how companies, such as General Motors, are outsourcing jobs to multiple IT-service companies rather than just one. They are also shortening the length of the contracts they are making with the companies. By doing this they are increasing competition among the IT-service companies which is helping to lower their expenses. The IT-service companies are able to offer lower prices because with the shorter contracts they are able to perform services remotely using their own employees and equipment rather than those provided by the contractor. One example that is given is how Allstate hired one company to write a code for its software and hired another to analyze it for errors.
While multiple outsourcing and shorter contracts may be good for the companies making the contracts, I feel as though it is also making it more confusing for investors. When looking at financial data provided by the company, investors may be confused as to why there is an ever increasing number of companies that work is being outsourced to. All of the extra information that will be included on financial statements will make it more confusing to follow the activities of the company. The article talked about the benefits of multiple outsourcing for both the contractor and company accepting the contract, but it overlooked possible concerns of the investors. This is a very important issue that I felt should have been addressed within the article. There has been much talk about Sarbanes-Oxley because financial data has not been transparent enough for investors and I feel such a policy would hinder the transparency provided by the law. By overlooking this piece of information the article seemed to take on a one-sided view of multiple outsourcing.
The one negative issue that the article did address is the increased tension between companies that are competing for contracts. This plays a big role in the relations among IT-service companies and between IT-service companies and contracting companies. Some of the IT-service companies may become irritated at having shorter contracts and only being assigned a small part of the overall product. With the shorter contracts they have less security in future profits because they are not guaranteed to have work for as long as they used to. Multiple contracting does however bring about the possible growth of specialized IT-service companies.
Companies must take into consideration both the positives and negatives of multiple contracting and analyze individually whether it will help to earn them more profits or if it will harm their business relations and end up hurting them. Also, the IT-service companies may need to decide if they want to become more specialized at a certain task in order to provide higher quality service more efficiently.
Speculative Investing and the Oil Markets
The Commodity Futures Trading Commission will soon make final a report on the impact that financial speculation can have on commodity markets. The focus of the article I looked at (linked here from the Wall Street Journal) is the potential of the report to shed light on the substantial fluctuations we’ve seen within oil markets in the past several months. Three senators who will be releasing the report advocate for the implementation of stronger controls for speculative investing, especially for institutional investors selling futures contracts.
Government controls have been threatening oil markets in past months since laws were passed in the senate to limit investments in the industry that were said to drive the price of oil higher. Market analysts, on the other hand, condemned such laws sighting special interests of politicians as the source for the debate rather than the concern for higher oil prices. The laws in themselves brought on shifts in the market that they were enacted to avoid as investors pulled out.
If the results of the report confirm that futures markets are a leading cause for the vast fluctuation of oil prices, I think that to some extent changes should be made to curb their impact. Because the price of oil influences nearly every industry to such an extent, it seems that by limiting fluctuations we could bring some stability into the economy. When traders representing institutions with impressive investment power invest in energy indexes, they have the potential to alter the market.
My speculation is that the Commodity Futures Trading Commission will not release a report in which they do not minimize the supposed impact that futures contracts has on the price of oil. This is because of a July 2008 report from the Interagency Task Force on Commodity Markets stating that the fluctuations are due to “fundamental supply and demand factors” rather than speculative investment practices (report also cited above). Because they don’t want to contradict this finding, they will limit the supposed impact that investor speculation has on the price of oil.
Politics has a central role in the debate. The spin that the three senators put on the results of the Commodity Futures Trading Commission report has the potential to mix opinions. The article brings up the often-questioned intentions of Mr. Masters, a forerunner in the “antispeculation movement,” and whether his position on the issue is dictated by his own portfolio or a sincere interest in rising oil prices.
Private Equity Firms: The Sharks of the Financial Aquarium
It has always been a challenge for proverbial watchdog to assume that all financial dealings in the markets are adhering to the same standards set by the government. With private equity playing an integral part in a financial credit cycle crisis, its trigger happy ways of using cut-rate financing to buy out companies, overloading the businesses with so much that they eventually go under, leaves the industry in humiliation, yet private equity returns year after year, yearning for more.
In today’s financial downpour, private equity assumes it is the right answer. Buy-out firms select from an array of companies eager for investment. Private equity’s strategy reveals that they are hunting for funds before they strike two-faced double deals amid the financial wreck yard of dilapidated balance sheets. In fact, you observe such firms including Carlyle and Texas Pacific Group, with close to $450 billion in war chests to invest; hiring people to run the banks they wish to take over, specializing in deceitful management picking off the weak establishments.
These buy-out firms come to the rescue with fixed aspirations of wanting a better deal than the last. With soaring fixed costs, private equity firms sink themselves into the top ranks of the company with a dictum of whatever it takes, will be done quota.
For the sharks of private equity, thinking that they are appealing to the more sophisticated investors, these vigilantes need to be put to serious review. Regulation needs to level the playing field that will not offer leverage as incentive without assessing a risk that society has to bear. These firms need to pay for both the upside and the downside of their financial buy-outs. If more regulation were put into place then it would allow for a fresh start to private firm buy-outs, truly putting these firms to the test, instead of watching them tote the thought of being “masters of the financial universe”. Let the private equity firms expose the ingenious ways of making corporations to roll over and drain them dry.
There needs to be a guarantee that when it boils down to it, private equity abides to a set standards of buyout practice so that it won’t come down to a complete disaster. The way it should be seen is that American needs this ownership regulation to prevent all the private equity firms rising to the top of the credit cycle. The companies bought out are left burnt badly by such an overturn. They have no means but to rely on private equity to act as the lone ranger and come to the rescue since they cannot increase equity in their market. In my mind, this is not remotely and idea of speculation where any leeway for interpretation could exist. Rules are necessary to ease and prevent crisis that are generated by such firms already. Until the federal government realizes this gray area needs regulation, the only barrier between these two thresholds is a holding act that cannot play big brother and watch over every company vicariously.
"Loan Rangers." The Economist. 28 Aug. 2008. www.economist.com/finance/displaystory.cfm?story_id=12007269>
In today’s financial downpour, private equity assumes it is the right answer. Buy-out firms select from an array of companies eager for investment. Private equity’s strategy reveals that they are hunting for funds before they strike two-faced double deals amid the financial wreck yard of dilapidated balance sheets. In fact, you observe such firms including Carlyle and Texas Pacific Group, with close to $450 billion in war chests to invest; hiring people to run the banks they wish to take over, specializing in deceitful management picking off the weak establishments.
These buy-out firms come to the rescue with fixed aspirations of wanting a better deal than the last. With soaring fixed costs, private equity firms sink themselves into the top ranks of the company with a dictum of whatever it takes, will be done quota.
For the sharks of private equity, thinking that they are appealing to the more sophisticated investors, these vigilantes need to be put to serious review. Regulation needs to level the playing field that will not offer leverage as incentive without assessing a risk that society has to bear. These firms need to pay for both the upside and the downside of their financial buy-outs. If more regulation were put into place then it would allow for a fresh start to private firm buy-outs, truly putting these firms to the test, instead of watching them tote the thought of being “masters of the financial universe”. Let the private equity firms expose the ingenious ways of making corporations to roll over and drain them dry.
There needs to be a guarantee that when it boils down to it, private equity abides to a set standards of buyout practice so that it won’t come down to a complete disaster. The way it should be seen is that American needs this ownership regulation to prevent all the private equity firms rising to the top of the credit cycle. The companies bought out are left burnt badly by such an overturn. They have no means but to rely on private equity to act as the lone ranger and come to the rescue since they cannot increase equity in their market. In my mind, this is not remotely and idea of speculation where any leeway for interpretation could exist. Rules are necessary to ease and prevent crisis that are generated by such firms already. Until the federal government realizes this gray area needs regulation, the only barrier between these two thresholds is a holding act that cannot play big brother and watch over every company vicariously.
"Loan Rangers." The Economist. 28 Aug. 2008. www.economist.com/finance/displaystory.cfm?story_id=12007269>
You are not entitled for any compensation for investing with false information on the market.
Today, it is safe a safe bet that information technology has shrunk the financial markets and securities exchange into our fingertips. Most of the trading is taking place with the help of computers, and financial information of companies is readily available on the internet at any given time. As a matter of fact, today, we make most of our investing decisions on the information available on the internet.
It is surprising to see how long it takes for a company’s stock price to fluctuate once the information about the company is published on the internet. They all have the same speed to reach investors and same potential to change the investing decisions. On September 8 2008, Bloomberg terminals across the world published a headline declaring the parent company of United Airlines had filed for bankruptcy protection. Within minutes, United Airline’s shares started to collapse in Nasdaq. The airline’s shares fell 76 per cent to $3 by 11 AM after opening at $12.16. In fact, this information was false and published with an error. United Airlines’ bankruptcy information was 6 years old and was interpreted as up to date by the investors. The trading started to take place until Nasdaq Stock Exchange had to halt the trading of United Airline’s shares. United Airlines immediately issued a press release to clarify error and the share price was returning to back to normal.
This is a very good example to show how fast the information is transferred in today’s world with the help of computers. Of course, this is a huge advantage for investors, but not always. It is a good lesson that we can learn as a responsible investor to validate the accuracy of the information before making any financial decisions. According to Robert Fusfeld, a securities investigator in Denver who spent 31 years as a Securities Exchange Commission enforcement, “Trades could only be undone if someone planted false information with the intention of manipulating the market”. As a matter of fact, Nasdaq has reviewed the transactions executed between that short period of time and has determined that all trades are valid. The investors who sold their shares were losing money and were not entitled for any kind of compensation for the false information.
ReportonBusiness. (2008). Old news is bad news for airline's stock. Retrieved Sep. 9, 2008, from http://www.theglobeandmail.com/servlet/story/LAC.20080909.RUAL09/TPStory/Business
What has happened and will happen to Nokia
As the report said, the stock price of Nokia went down by 13% to €14.03 ($20.10), a near three-year low. It reflects the fact that since March 13th 2007, when secondary mortgage crisis in U.S exploded, it has resulted in the weak global economic till today. As a result, almost all the stock markets over the world plunged into a corner. Set Dow Jones Industrial Average Index as an example. Its index has fallen from 14164.54 to 11185.63(the open price in Sep 5th). The industry of communication equipment also is not an exception. Set Motorola Inc. as an example, its stock price fell from 18.42 to 9.06(Sep 5th).
According to the report, what sent its shares down by 13% was Nokia’s reduced outlook. In my opinion, in one hand, it is quite normal for a corporation to adjust its outlook, as both of the economic circumstance and its own operating stiuation are changing. In the other hand, informing investors of latest and real corporate information in time just shows the communication equipment Giant’s reponsibility for investors. There is also a fact that cannot be ignored that Nokia holds almost 40% share of market and it predicted that its sale will increase 10%. However, under such circumstancem, its adjustion of outlook still caused the investors to send its stock price to pludge down such a lot. The fact sufficiently showed that investors had been influenced greatly in their investing activities by the world-wide lackluster economy. The investors are losing confidence in market and the market is losing its trust of investors.
As for its price policy, I think that there may be a couple of reasons. First of all, Nokia holds the largest share of market, and it has a large amount of loyal consumers. Depite the weak economy, these consumers will continue to buy its production with an acceptalbe price. So it is not very necessary for Nokia to cut price to attract consumers. Secondly, if Nokia let its production price go down, it is very difficult to raise the price when the economy reverts. Nokia decides to maintain its long-term profit instead of shor-term profit. Addtionally, although most of its rivals have cut prices, Nokia still try to make its price remain unchanged. It shows the company’s strength and confidence in its products and sales, which will leave investors, who are struggling during the weak economy, a positive signal. Also I think Nokia is trying to make consumers believe that they bought the right products, whose value will not decrease in spite of weak economy.
In conclusion, it is obviously to see that Nokia has adopted a totally different method on price decision. Although its stock price has fallen 13% after its claim of reduced outlook, which can be explained by the special economic environment, Nokia, which has a world-wide reputation, will keep moving forward and maitain more success.
The article is available at: http://online.wsj.com/article/SB122061885061003671.html?mod=todays_us_money_and_investing
According to the report, what sent its shares down by 13% was Nokia’s reduced outlook. In my opinion, in one hand, it is quite normal for a corporation to adjust its outlook, as both of the economic circumstance and its own operating stiuation are changing. In the other hand, informing investors of latest and real corporate information in time just shows the communication equipment Giant’s reponsibility for investors. There is also a fact that cannot be ignored that Nokia holds almost 40% share of market and it predicted that its sale will increase 10%. However, under such circumstancem, its adjustion of outlook still caused the investors to send its stock price to pludge down such a lot. The fact sufficiently showed that investors had been influenced greatly in their investing activities by the world-wide lackluster economy. The investors are losing confidence in market and the market is losing its trust of investors.
As for its price policy, I think that there may be a couple of reasons. First of all, Nokia holds the largest share of market, and it has a large amount of loyal consumers. Depite the weak economy, these consumers will continue to buy its production with an acceptalbe price. So it is not very necessary for Nokia to cut price to attract consumers. Secondly, if Nokia let its production price go down, it is very difficult to raise the price when the economy reverts. Nokia decides to maintain its long-term profit instead of shor-term profit. Addtionally, although most of its rivals have cut prices, Nokia still try to make its price remain unchanged. It shows the company’s strength and confidence in its products and sales, which will leave investors, who are struggling during the weak economy, a positive signal. Also I think Nokia is trying to make consumers believe that they bought the right products, whose value will not decrease in spite of weak economy.
In conclusion, it is obviously to see that Nokia has adopted a totally different method on price decision. Although its stock price has fallen 13% after its claim of reduced outlook, which can be explained by the special economic environment, Nokia, which has a world-wide reputation, will keep moving forward and maitain more success.
The article is available at: http://online.wsj.com/article/SB122061885061003671.html?mod=todays_us_money_and_investing
Exchangeable bonds to be issued
Picture one:Shanghai Stock index from Apr. 1st to Sept. 5th during 2008
As the article discussed above, the China Securities Regulatory Commission (CSRC) published a draft regulation of finance tool. Let's first get to the background of this oversupply in the Chinese stock market. When China government first established its own security market, the CSRC set up some non-tradable share in fear of losing the control of some State-owned property. The non-tradable share always takes a large percentage of the whole shares, sometimes even more than 60%. The non-tradable shareholders include shareholders with over 5% non-tradable share and shareholders with less than 5% non-tradable share. The former shareholders are always strategic investors, and the latter are speculators. However, with the development of China capital market, some abuses have been emerged just like the non-tradable share holder doesn't care about the operational performance of the company, sometimes do something jeopardize the company but gain their own profit like impropriate the asset of company. So since the 1998, the China government tried many times to make the non-tradable shares tradable and finally they got a final version for that at 2005. But when the non-tradable begin to trade, too many shares were emerged at the market at a same time, the stock market slumps which shows at the followed picture. The shock index slumps from 6000 to 2424 during seven months and the CSRC just published a new draft about allow shareholders of listed companies to issue exchangeable bonds.
As the spokesman of CSRC said, the exchange bond could help the non-tradable shares could be sold at a much more slow rate than before, remodel the expectation of the market and also the exchange bond could serve as a new financial tool which could reduce the risk and provide more choices for the investor. However, as far as I am concerned, this new exchanged bond could hardly serve as a tool for shore up the market. Firstly, the shareholders with over 5% non tradable share, who could afford the exchange bond trade fee, are always strategy investors. What they want is control the State-owned company and only they need to do is sell few shares of their own to cash in( in addition, the cost of non-tradable shares are always very cheap for they were the product of 2 decade ago, which almost one cents per share). And, almost every shareholders with less than 5% non-tradable shares could not afford the threshold of the standard to publish the exchangeable bonds and even if they could reach the standard, the highly cost of the issuing would stop them to do so.
Even if the non-tradable share holder would follow the plan to issue the so-called exchangeable share, what will happen? An assumption seted by the CSRC is that the share sellers are in trouble get enough money so they want to simply dump their holdings. However, this is even not the truth. Due to the cost of the non-tradable shares and the reality that almost every non-tradable shareholders dumping their holding right at the time when the non-tradable shares could trade legally, it is ridicule to think that so many State-owned property shareholders relapse into financial crisis. The truth is that they all need cash in to earn excess profit.
For the reasons I provide above, I hold a negative view about the new plan and I think it fail catch the essence of this slumps of the Chinese Stock market so it could not serve as a useful tool to shore up the market.
Article drawn from the ChinaDaily:
http://www.chinadaily.com.cn/bizchina/2008-09/06/content_7004705.htm
picture from:
http://finance.sina.com.cn/stock/jsy/20080906/08425279417.shtml
As the article discussed above, the China Securities Regulatory Commission (CSRC) published a draft regulation of finance tool. Let's first get to the background of this oversupply in the Chinese stock market. When China government first established its own security market, the CSRC set up some non-tradable share in fear of losing the control of some State-owned property. The non-tradable share always takes a large percentage of the whole shares, sometimes even more than 60%. The non-tradable shareholders include shareholders with over 5% non-tradable share and shareholders with less than 5% non-tradable share. The former shareholders are always strategic investors, and the latter are speculators. However, with the development of China capital market, some abuses have been emerged just like the non-tradable share holder doesn't care about the operational performance of the company, sometimes do something jeopardize the company but gain their own profit like impropriate the asset of company. So since the 1998, the China government tried many times to make the non-tradable shares tradable and finally they got a final version for that at 2005. But when the non-tradable begin to trade, too many shares were emerged at the market at a same time, the stock market slumps which shows at the followed picture. The shock index slumps from 6000 to 2424 during seven months and the CSRC just published a new draft about allow shareholders of listed companies to issue exchangeable bonds.
As the spokesman of CSRC said, the exchange bond could help the non-tradable shares could be sold at a much more slow rate than before, remodel the expectation of the market and also the exchange bond could serve as a new financial tool which could reduce the risk and provide more choices for the investor. However, as far as I am concerned, this new exchanged bond could hardly serve as a tool for shore up the market. Firstly, the shareholders with over 5% non tradable share, who could afford the exchange bond trade fee, are always strategy investors. What they want is control the State-owned company and only they need to do is sell few shares of their own to cash in( in addition, the cost of non-tradable shares are always very cheap for they were the product of 2 decade ago, which almost one cents per share). And, almost every shareholders with less than 5% non-tradable shares could not afford the threshold of the standard to publish the exchangeable bonds and even if they could reach the standard, the highly cost of the issuing would stop them to do so.
Even if the non-tradable share holder would follow the plan to issue the so-called exchangeable share, what will happen? An assumption seted by the CSRC is that the share sellers are in trouble get enough money so they want to simply dump their holdings. However, this is even not the truth. Due to the cost of the non-tradable shares and the reality that almost every non-tradable shareholders dumping their holding right at the time when the non-tradable shares could trade legally, it is ridicule to think that so many State-owned property shareholders relapse into financial crisis. The truth is that they all need cash in to earn excess profit.
For the reasons I provide above, I hold a negative view about the new plan and I think it fail catch the essence of this slumps of the Chinese Stock market so it could not serve as a useful tool to shore up the market.
Article drawn from the ChinaDaily:
http://www.chinadaily.com.cn/bizchina/2008-09/06/content_7004705.htm
picture from:
http://finance.sina.com.cn/stock/jsy/20080906/08425279417.shtml
The Impact of Technology on Securities Markets Around the World
We spoke in class about how important technology is to the financial markets and securities trading. Rather than men and women running around physical stock exchange floors yelling buy and sell prices, the computer has enabled us to eliminate the need for physical interaction implementing technology at almost every step of the process. We can all look back and realize how much technology has impacted and innovated the securities market. The London Stock Exchange currently boasts that with their advanced technology, a single stock trade can occur over 30 times faster than the blink of an eye. Wow. With that said, I think most are blinded by how amazing technology is today and fail to realize that within that same blink of an eye, and entire stock exchange can be shut down for hours. According to the Wall Street Journal article, “London Exchange Paralyzed By Glitch,” just yesterday, trading in shares of some of the United States’ and Europe’s largest companies were cut off for over seven hours as a glitch in the technology behind the scenes caused a system failure. Not only was the London Stock Exchange itself paralyzed by the technological failure, but other exchanges throughout the world such as Johannesburg Stock Exchange were also suspended due to their reliance on London’s TradElect and other parent software systems.
Yesterday was not just an average day across world markets; it was one where the US Government had officially decided to bail out mortgage lenders Fannie Mae and Freddie Mac. With that said, the New York Stock Exchange (NYSE) experienced its third highest trading day EVER while at the same time those who relied on the London Stock Exchange for trading simply sat at their computers both losing money and causing login jams on the LSE system servers. Luckily, some investors turned to alternate trading floors to conduct pertinent and time-sensitive trades with LSE’s smaller competitors such as Chi-X Ltd.
While the article goes in to further detail regarding yesterday’s importance and more details on how other European markets fared in response to LSE’s failure, it is important to note that while technology provides advanced efficiency, speed, and capability regardless of physical location it also allows for added risk in securities trading when money and success are both at stake. As major exchanges involved with the securities market look to pinch pennies and squeeze the maximum profits from their operations, they look to save money, sometimes on their technology and equipment. In an effort to keep costs low an exchange may choose a less expensive system providing fewer maintenance and support technicians. However, in an effort to be competitive and lower costs such failures as seen yesterday could end up costing millions to an exchange and those involved in the securities markets affected. While the monetary effects of yesterdays incident has not yet been calculated we can be assured they will hurt the LSE’s reputation and could force traders to rely on other exchanges throughout the world.
System failures such as the one yesterday force us as technologically oriented people to take a step back and realize the damage that can be done with such a heavy reliance on technology. Keeping this in mind it is imperative that proper technological maintenance and security be practiced in the information technology world as the economies and structures throughout the world rely on it.
Article drawn from the WSJ: http://online.wsj.com/article/SB122088611707510173.html?mod=hps_us_pageone
Yesterday was not just an average day across world markets; it was one where the US Government had officially decided to bail out mortgage lenders Fannie Mae and Freddie Mac. With that said, the New York Stock Exchange (NYSE) experienced its third highest trading day EVER while at the same time those who relied on the London Stock Exchange for trading simply sat at their computers both losing money and causing login jams on the LSE system servers. Luckily, some investors turned to alternate trading floors to conduct pertinent and time-sensitive trades with LSE’s smaller competitors such as Chi-X Ltd.
While the article goes in to further detail regarding yesterday’s importance and more details on how other European markets fared in response to LSE’s failure, it is important to note that while technology provides advanced efficiency, speed, and capability regardless of physical location it also allows for added risk in securities trading when money and success are both at stake. As major exchanges involved with the securities market look to pinch pennies and squeeze the maximum profits from their operations, they look to save money, sometimes on their technology and equipment. In an effort to keep costs low an exchange may choose a less expensive system providing fewer maintenance and support technicians. However, in an effort to be competitive and lower costs such failures as seen yesterday could end up costing millions to an exchange and those involved in the securities markets affected. While the monetary effects of yesterdays incident has not yet been calculated we can be assured they will hurt the LSE’s reputation and could force traders to rely on other exchanges throughout the world.
System failures such as the one yesterday force us as technologically oriented people to take a step back and realize the damage that can be done with such a heavy reliance on technology. Keeping this in mind it is imperative that proper technological maintenance and security be practiced in the information technology world as the economies and structures throughout the world rely on it.
Article drawn from the WSJ: http://online.wsj.com/article/SB122088611707510173.html?mod=hps_us_pageone
Bill Gross Wants Treasury to Buy Assets to Prevent Tsunami
Bill Gross Wants Treasury to Buy Assets to Prevent Tsunami
By, Mike "Mish" Shedlockhttp://globaleconomicanalysis.blogspot.com/2008/09/bill-gross-wants-treasury-to-buy-assets.html September 4, 2008.
The Article discusses what Bill Gross, co-chief executive officer of PIMCO, wants the U.S. Government to bailout companies/private investors and allow lenders to forgive some of homeowners' debt. The author Mike "Mish" Shedlock replies to Bill Gross’s ideas.
In essence, what is better for our economy for the United States Government to bailout distraught companies and possibly recreated the problems we are trying to fix by actually trying to fix our economy with what caused these hardships in the first place or to just leave everything as is and let the economy fix its self.
The last few years have been fraught with great money making opportunities along with several economic bubbles bursting, from the dotcom bubble to the recent housing bubble, According to author bailing out private investors was tried many times and it has failed every time. And that the bubbles where in direct cause of the bailouts by Chairman Greenspan.
Personally, I cannot see direct a correlation between bailouts and harm to the U.S. economy. Bailouts are not used every time a company fails, nor should they be. The question is when Government intervention should happen and to what extent should they happen. Should some minor finical help be given or should the Government take control and run the company. Suggesting that the Government shouldn’t do anything doesn’t help out because the bailout will always fail is a copout. And just because in the past mistakes where made it doesn’t mean the Government shouldn’t try again.
And should homeowners’ debt be forgiven and should the market be propped up by the government and more importantly our tax dollars? Allowing the debt of homeowners be forgiven because of the harm it has caused is a double edge sword. On one hand it helps out the people that are in need. And on the other hand it could give the impression to people that they not need to worry about debt because they can be bailed out. If severe harm is caused by their actions, people and companies must be held accountable for what they have done. They shouldn’t be given a free ride by the government.
The harm that has been caused cannot just be whitewashed away because there is harm that has been caused to the American/World Economy. Banks and Corporation must be allowed to fail. Not everything should be bailed out. On the same thought just sitting by and doing nothing will not help us out of the self dug hole. There are times for bailouts and there are times for laissez-faire economics. The key is to not believing that each are the only way to react to a damaged economy. The both must be used and neither one is greater than the other.
By, Mike "Mish" Shedlockhttp://globaleconomicanalysis.blogspot.com/2008/09/bill-gross-wants-treasury-to-buy-assets.html September 4, 2008.
The Article discusses what Bill Gross, co-chief executive officer of PIMCO, wants the U.S. Government to bailout companies/private investors and allow lenders to forgive some of homeowners' debt. The author Mike "Mish" Shedlock replies to Bill Gross’s ideas.
In essence, what is better for our economy for the United States Government to bailout distraught companies and possibly recreated the problems we are trying to fix by actually trying to fix our economy with what caused these hardships in the first place or to just leave everything as is and let the economy fix its self.
The last few years have been fraught with great money making opportunities along with several economic bubbles bursting, from the dotcom bubble to the recent housing bubble, According to author bailing out private investors was tried many times and it has failed every time. And that the bubbles where in direct cause of the bailouts by Chairman Greenspan.
Personally, I cannot see direct a correlation between bailouts and harm to the U.S. economy. Bailouts are not used every time a company fails, nor should they be. The question is when Government intervention should happen and to what extent should they happen. Should some minor finical help be given or should the Government take control and run the company. Suggesting that the Government shouldn’t do anything doesn’t help out because the bailout will always fail is a copout. And just because in the past mistakes where made it doesn’t mean the Government shouldn’t try again.
And should homeowners’ debt be forgiven and should the market be propped up by the government and more importantly our tax dollars? Allowing the debt of homeowners be forgiven because of the harm it has caused is a double edge sword. On one hand it helps out the people that are in need. And on the other hand it could give the impression to people that they not need to worry about debt because they can be bailed out. If severe harm is caused by their actions, people and companies must be held accountable for what they have done. They shouldn’t be given a free ride by the government.
The harm that has been caused cannot just be whitewashed away because there is harm that has been caused to the American/World Economy. Banks and Corporation must be allowed to fail. Not everything should be bailed out. On the same thought just sitting by and doing nothing will not help us out of the self dug hole. There are times for bailouts and there are times for laissez-faire economics. The key is to not believing that each are the only way to react to a damaged economy. The both must be used and neither one is greater than the other.
Monday, September 8, 2008
Lies in the Age of Information
With the rise of data warehouses and increasingly sophisticated information networks, keeping a secret is becoming increasingly difficult. Hedge funds use financial brokers to act as a proxy to keep other investors from knowing about certain financial trades. While this is great for competitive business this is not terribly comforting for the consumer and for good reason.
As a kid I remember watching the people on the news who lost money because they invested their life savings into Enron and thinking: "how could anyone be so stupid"? But the answer it turns out was pretty clear: they didn't know any better. And to be perfectly honest I bet no one could have predicted the kind of mess that Enron would get into. Even an informed investor, while able to minimize his losses, would not have been able to predict the internal actions of the executive board.
I had class that visited Fannie Mae just as the whole sub-prime mortgage crisis was going on and when one of the students asked about how such a crisis would affect the company, they said that the matter was unrelated to their business. Several months later Fannie Mae is under government control. My simple question is how healthy is it for companies to withhold information when investors decisions rely so much on consumer confidence?
There seems to be a catch 22 when it comes to building up capital and building up investor confidence. Individuals will only invest in a company that they think is going to succeed but in order to get to a successful place one must have a successful product. Either way, there is a good chance that a barely successful venture will have to oversell itself to raise the funds necessary to "make it" in today's market.
In the past investors had less access to instantaneous information as they did in the modern times. As a result there was less oversight and more independence/innovation. With more access to information, investors can make more calculated decisions and the pressure to succeed is even higher than before. In some cases this is great while in other cases I feel as if this is a harmful for the overall equilibrium in the marketplace.
Successful companies do very well while failures crash and burn harder than ever before. One example of this phenomenon can be spotted in the startup industry in Silicon Valley. Investors often have little knowledge of new web 2.0 business strategies. What little information is often exaggerated in the blogosphere and thus companies who are looking for investment money will often have to display a high amount of confidence to pull off a successful sell.
As a result, many of the companies that started off failed outright and lost investors a good deal of money. These risky expenditures could have been possibly reduced if companies were more realistic about their expectations not unlike the housing market debacle.
While I don't see any quick solution to this problem, I can say that this problem will be solved through a change in business culture. There needs to be a less of a "winner-take-all" mentality when it comes to investing and people will take appropriate risks when necessary.
http://www.istockanalyst.com/article/viewarticle+articleid_2500051.html
http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm
Saturday, September 6, 2008
Digital Upgrading
The development of the internet generated an insatiable demand for instant information that led modern society to seek to understand more than just their immediate surroundings. With every generation’s evolvement comes a stronger dependency on innovation to be the leading driver behind this globalization.
Based on the subsequent information, it is not surprising that almost all business related information is disclosed on the internet. According to an article posted on Lawfuel.com, one of the largest law news sites on the Net, the SEC modified one of its previous mandates by eliminating its requirement for “foreign companies without SEC registered securities to submit paper disclosures.” At this time investors can directly find company disclosures on the internet.
I believe that the SEC’s amendment illustrates society’s growing dependency on information technology, specifically their need to access information instantaneously, and the government’s growing desire to accommodate. Their act is progressive in nature, as it promotes the elimination of paper transactions and utilizes information technology to facilitate information exchange; and in my opinion, this will help to satisfy our society’s need for immediate information. The increased ease of accessing information will promote engagement in foreign transactions and will better equip US investors participating in foreign markets. Ultimately, the SEC’s amendment illustrates the government’s innovative advances in information technology and their eagerness to modernize the business world.
Although the government is attempting to modernize by presenting the public with more instantaneous access to information, some opponents feel it is beyond their capabilities. According to “Government Data and the Invisible Hand,” a scholarly article written in the Yale Journal of Law and Technology, the government should continue to grant open access to government information and modify their infrastructure; however, they should allow private companies to take over the communication of this information.
It is easy to agree with the authors’ standpoint on this issue. They are correct in stating that the government is unable to keep up with the “evolving power of the internet,” and that private companies are better equipped to deliver information. They propose that the government should redirect their focus to just providing reusable information and maintaining current infrastructure. Accordingly, this should lead to the evolution of third parties, who will step in and utilize the latest IT tools to convey information to the public. The taxpayer will cover the IT cost in cases where third parties fail to evolve. However, the authors anticipate former instances to surpass the latter.
My concern is that the author is placing too much emphasis on the emergence of a third party. It is not guaranteed that a third party will evolve to communicate information to the public. Alternatively, complete dependency on third party providers could become costly or limiting to the public. If fees are charged to employ the websites that disclose the information, then access will be limited to those able and willing to pay. Furthermore, giving a third party the ability to access information before the general public could create bigger issues; the third part might be tempted to use the information to their advantage before publishing it. Although government websites tend to be outdated and lagging behind private company sites, it is comforting to know that they are accessible and accurate. Ultimately, the government should identify a median, such as contracting individuals to help modernize the existing infrastructures and identify the optimum way to present information.
Robinson, David, Yu, Harlan, Zeller, William P. and Felten, Edward W.,Government Data and the Invisible Hand. Yale Journal of Law & Technology, Vol. 11, 2008
Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1138083
"SEC Votes to Modernize Disclosure Requirements to Help U.S. Investors in Foreign Companies." Lawfuel 27 Aug 2008. 6 Sep 2008
http://www.lawfuel.com/show-release.asp?ID=19148
Based on the subsequent information, it is not surprising that almost all business related information is disclosed on the internet. According to an article posted on Lawfuel.com, one of the largest law news sites on the Net, the SEC modified one of its previous mandates by eliminating its requirement for “foreign companies without SEC registered securities to submit paper disclosures.” At this time investors can directly find company disclosures on the internet.
I believe that the SEC’s amendment illustrates society’s growing dependency on information technology, specifically their need to access information instantaneously, and the government’s growing desire to accommodate. Their act is progressive in nature, as it promotes the elimination of paper transactions and utilizes information technology to facilitate information exchange; and in my opinion, this will help to satisfy our society’s need for immediate information. The increased ease of accessing information will promote engagement in foreign transactions and will better equip US investors participating in foreign markets. Ultimately, the SEC’s amendment illustrates the government’s innovative advances in information technology and their eagerness to modernize the business world.
Although the government is attempting to modernize by presenting the public with more instantaneous access to information, some opponents feel it is beyond their capabilities. According to “Government Data and the Invisible Hand,” a scholarly article written in the Yale Journal of Law and Technology, the government should continue to grant open access to government information and modify their infrastructure; however, they should allow private companies to take over the communication of this information.
It is easy to agree with the authors’ standpoint on this issue. They are correct in stating that the government is unable to keep up with the “evolving power of the internet,” and that private companies are better equipped to deliver information. They propose that the government should redirect their focus to just providing reusable information and maintaining current infrastructure. Accordingly, this should lead to the evolution of third parties, who will step in and utilize the latest IT tools to convey information to the public. The taxpayer will cover the IT cost in cases where third parties fail to evolve. However, the authors anticipate former instances to surpass the latter.
My concern is that the author is placing too much emphasis on the emergence of a third party. It is not guaranteed that a third party will evolve to communicate information to the public. Alternatively, complete dependency on third party providers could become costly or limiting to the public. If fees are charged to employ the websites that disclose the information, then access will be limited to those able and willing to pay. Furthermore, giving a third party the ability to access information before the general public could create bigger issues; the third part might be tempted to use the information to their advantage before publishing it. Although government websites tend to be outdated and lagging behind private company sites, it is comforting to know that they are accessible and accurate. Ultimately, the government should identify a median, such as contracting individuals to help modernize the existing infrastructures and identify the optimum way to present information.
Robinson, David, Yu, Harlan, Zeller, William P. and Felten, Edward W.,Government Data and the Invisible Hand. Yale Journal of Law & Technology, Vol. 11, 2008
Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1138083
"SEC Votes to Modernize Disclosure Requirements to Help U.S. Investors in Foreign Companies." Lawfuel 27 Aug 2008. 6 Sep 2008
http://www.lawfuel.com/show-release.asp?ID=19148
Subscribe to:
Posts (Atom)