Finance Newsletter Issue 2 Final
- 1. Ascend Finance Mock Investment WinnersTable of Contents Information.......................1 News Rewind............2-4 Additional Information........4 Ascend Berkeley Chapter April 2016 1 Individual Winner: Jennifer Wongsosaputro Committee Winner: Marketing Committee We hope you enjoy reading the second Finance Newsletter. It is our pleasure to spend this amazing semster with you. If you have any questions, please do not hesistate to reach out to Finance Committee (ascendberkeley.fin@gmail.com) -- Ascend Spring 2016 Finance Committee Editor’s Note Finance 101 Workshop Stock 101 Workshop Finance Committee
- 2. April 2016 How Amazon Will Kill Your Local Grocer UnitedHealth Quitting Obamacare Markets in Georgia, Arkansas Original Author: Shelly Banjo Date: April 8th, 2016 Analysts: Archer Kiang Link: http://goo.gl/0W7yDP Amazon is the largest internet based retailer in the United States who has conquered the book and electronics sectors. Now, Amazon is aiming at ruling the grocery aisles, which is the Amazon Fresh program. There are only approximately 33 out of 795 billion dollars American spent on food and drinks online in 2015, which will possibly double in 2020. Amazon will benefit from this rapidly growing market with a lackluster profit, and local grocers are now facing a big challenge to keep the business alive. Amazon has been struggling with slow profit growth and high costs business model with the online grocery market. Amazon Fresh is able to develop a new profitable strategy that not only increases revenue but also lowers operating costs through internal delivery system. Therefore, it is possible for Amazon to reestablish its successful turnout in other sectors such as book and electronics. At this point, Amazon’s market share of online grocery is about 22%; the biggest competitors in the online grocery retailing sector are Instacart, Peapod, and Safeway; however with its 7 years of success on extensive online surface, Amazon still has a strong stand in the retailing market. Despite the seemly bright future ahead, Amazon needs to attract more potential customers to shop grocery through its platform, which is one of the biggest challenges that online grocery shopping is facing. Original Author: Zachary Tracer Date: April 8th, 2016 Analysts: Ben Ngan Link: http://goo.gl/i8gwXV UnitedHealth Group Inc., the largest U.S. health insurer, has decided to stop selling plan in Georgia and Arkansas next year. They have found difficulties to make profits in the new markets created by the 1 Affordable Care Act as individuals turned out to be more costly than the companies expected. As Ana Gupte, an analyst at Leerink Partners, mentioned in the research note, leaving some state exchanges could increase UnitedHealth’s profits next year. As a result, Georgia and Arkansas residents who are currently enrolled in UnitedHealth’s ACA plan will have to choose a new health insurance provider next year. After Affordable Care Act was enacted, many people who had insurance now switch to ACA marketplace. It seemed insurance companies would generate more profit as they have more clients, however it turned out that most new market insurers are in much poorer health condition than insurers had anticipated. At the same time, the increase of medicine demand led to many drug makers jacked up their products’ price. These two factors induces many insurers losing money from ACA policies. In 2015, UnitedHealth Group lost about $475 million on ACA-compliant plans in 2015 and expects to lose more than $500 million. Therefore, more insurance companies quit the unprofitable market and stop the unprofitable policies, the decrease of supply would increase the equilibrium price, which would definitely improve the financial status of the insurance industry. Furthermore, the stricter policy condition would discourage the insured using insurance unless they have serious sickness. This would then decrease the demand of normal drug and these drug makers’ stock would go down. Terminology: 1 Affordable Care Act – US healthcare reform law that expands and improves access to care and curbs spending through regulations and taxes. Ascend Berkeley Chapter
- 3. Getting a Student Loan With Collateral1 From a Future Job Original Author: Stacy Cowley Date: April 8th, 2016 Analysts: Arynn Kwan Link: http://goo.gl/Ve4Fmq According to Professor Banks at the Haas School of Business, 97% of youth hope to go to college, 63% enroll, and 30% receive bachelor degrees. By 2010, only 157 out of 167 million skilled jobs will be filled by qualified workers, which shows that there is a huge education gap within the current labor market. Purdue University introduces a new program to combat accumulated undergraduate student debt by requiring students to pledge to pay a percentage of their future incomes in return for funds today. One reason why this phenomenon occurred is because the recent trend of college graduates do not want to take on huge debt for a degree. As this is a fairly new program, there are only projected effects of the program. Purdue University foresees to reduce the gap of skilled to unskilled labor by 2.1%, Moreover, it is believed such program would entice a substantial amount of students to pursue higher education and earn the required skillset for the growing skilled labor demand in the market. At this point, the number of skilled jobs is increasing, and there are not enough well-educated workers in the labor force to fill in the technical positions. This would leads to labor outsourcing and higher unemployment rate. I believe this new program will encourage more people to pursue, rather than portraying higher education as a daunting debt. In turn, the program could potentially make the U.S. economy stronger in the long run with more talented and skilled workers in the labor force. Terminology: 1 Collateral: A property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses 3 Ascend Berkeley Chapter April 2016 Alibaba Expands in Southeast Asia With $1 Billion Lazada Deal Original Author: Lulu Yilun Chen, Selina Wang Date: April 11th, 2016 Analysts: David Zhou Link: http://goo.gl/n1JeqB Alibaba Group Holding Ltd. is making its largest overseas investment with a $1 billion deal for control of Lazada Group SA, an e-commerce company that operates in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. After making the acquisition Alibaba group will expand into 6 East Asian markets. Alibaba has already been the largest e-commerce company in the world, but its business is mostly restricted within Chinese market. It might be a good signal for investors that the company is actively seeking to expand its business into international market, especially markets where there’s not a dominant player yet. However, it is also a risky move for Alibaba and Yun Ma because the new markets require a significant increase in operational cost. Recently Alibaba has been very active in acquiring new companies, expanding beyond just e-commerce industry. However their share value hasn’t changed much since 2015, even when it acquired full control over the leading Chinese video service company Youku Tudou Inc. Besides, Alibaba values the entire stake in the Lazada at about 15 times of its total invested capital of $21 million. Although the stock price gained 2.3% in the past day, it is still doubtable how long the optimism would last.
- 4. Why the Dollar’s Weakness May Not Last Original Author: Gregor Stuart Hunter in Hong Kong Hiroyuki Kashi Nakamichi in Tokyo Date: April 8th, 2016 Analysts: Zihan Chen Link: http://goo.gl/96Wuek In spite of Bank of Japan’s aggressive monetary policy by setting negative interest rates, the yen is up 11% this year to ¥108.06, which is the highest since late October 2014. Yen has kept rising this year against the dollar because of powerful external factors that have outweighed the BOJ’s intentions. On the one hand, since China has gone through sharp drops in stock market and there is much fear about Europe’s banking sector, many investors consider Japan a safe haven at times of turbulence. Besides, dollar performs weakly recently because of the U.S. Federal Reserve’s more dovish action on interest rates, helping the yen rising. To address this situation, the Japanese policy makers could intervene by selling off the central bank’s yen holding so that in this way there will be more yen in the market circulation, making yen depreciates. However, since Japanese government already intervened in currency markets in the past, weakening the yen by direct action again might create a potential political conflict with U.S.. Terminology: “dovish”: Statements that suggest that inflation will have a minimal impact are called “dovish”. “Dovish action” means that there is great potential the government action will lead to currency inflation. Ascend Berkeley Chapter April 2016 U.S. Budget Deficit Expands In First Half of Fiscal Year Original Author: Jeffery Sparshott Date: April 12th, 2016 Analysts: Jennifer Lie Link: http://goo.gl/3hcDTA U.S. Budget deficit expands during the first half of the fiscal year as a result of faster rising in spending than tax revenue Congressional Budget Office (CBO) states the October 2015 - March 2016’s budget deficit of about $461.04 million, which is 5% higher than 2015’s budget deficit. Furthermore, CBO projects that budget deficit will keep increasing towards the end of 2016. Several reasons that underlying the surge in budget deficit are the on-going government funded programs, Affordable Care Act and Social Security program. Government continues to increasing its spending on ACA to provide more insurance for lower income individuals, which is about 13% jump in government budget expenditure. Furthermore, ACA also affects the social security funding for older population. As more people are receiving insurance, U.S. life expectancy improves each year and population aging increases, which is estimated to increase to 98 millions in 2060. Population aging makes the compensation from working population not enough to cover the old population expenditure, thus government has to cover the shortage. To solve this problem, government must start implementing new policies such as decreasing social security compensation for older population or increasing retirement age. In fact, there are different solutions that could be implemented to solve this on-going problem, however government must be stricter with their policies so that those funded programs can be efficiently carried on without taking too much of government budget.
- 5. Ascend Berkeley Chapter Wells Fargo admits deception in $1.2 billion U.S. mortgage accord Original Author: Jonathan Stempel Date: April 9th, 2016 Analysts: Tiffany Chin Link: http://goo.gl/mbok6P Wells Fargo and Company, one of the largest banks in the United States, recently finalized a $1.2 billion settlement with the federal government. According to Jonathan Stempel from Reuters, “its payment is the largest in FHA history over loan origination violations.” From 2001 to 2008, Wells Fargo had the Federal Housing Administration insure thousands of very risky mortgages, falsely claiming that these mortgages qualified for Federal Housing Administration insurance. In addition, from 2002 to 2010, Wells Fargo did not properly file reports on loans that were fully repaid. This negatively affected taxpayers, who had to pay additional taxes in order to make up for the money lost from these deficient loans. This settlement will decrease Wells Fargo’s reported profit in 2015 by $ 134 million. However, this settlement will ultimately not have much negative impact on Wells Fargo. Over the years, it has not had to pay much for legal settlements and fines from its relationship with the FHA, so it is not in a very rough financial situation. Additionally, it does not seem to have much effect on Wells Fargo’s stock price. Details about this loan incident were released earlier this year, yet Wells Fargo’s stock price has remained at an average price of about $48 over the past three months. In response to this incident, Wells Fargo may tighten its loan standards by raising the minimum credit score required on certain types of FHA loans. But, it hopes to continue serving homeowners by providing them with access to loans. April 2016 Wind and Solar Are Crushing Fossil Fuels Original Author: Tom Randall Date: April 6th, 2016 Analysts: Jennifer Cheng Link: http://goo.gl/BJkWD2 The alternatives for fossil fuels have made huge gains and investments since 2015. Both solar and wind power are becoming cheaper to produce and thus becoming more attractive for investors. Solar energy has fallen 1/150th in cost since the 1970s and installations of solar panels are increasing in proportion. And since the 2000s, global electricity produced by solar energy has doubled 7 times over. The International Energy Agency have increased their solar forecast 14 times and wind forecast 5 times. Even though coal and oil prices are falling, there isn’t a lot of demand to use fossil fuels anymore. Only developing countries with rapidly increasing demands for energy still use coal, but the rate of consumption is slowing down. Due to the lower cost to produce alternative energy, clean energy companies are increasing their potential investments and creating more fuel efficient cars such as electrical cars. As solar energy and wind power fall in cost by 24% and 19% respectively the global demand will be growing. But since hybrid vehicles are estimated to have only 10% of the market with fully electric cars only being 3%, there is ample room for the market to increase and for top electric car making companies like Nissan to push the price of electric cars down to compete with diesel running cars as soon as 2020.