Black Friday Analysis

Black Friday marks one of the most profitable days of the retail sector right behind Cyber Monday. Every year shoppers mark this day as a bargain festival with door buster deals from stores like Best Buy and Target. However consumer expectations change and consumers have more information on hand than before. More shoppers are switching to online marketplaces such as Amazon and Ebay for better deals and non-taxable purchases. We will identify the winners of the biggest holiday shopping weekend.



Of the brick and mortar stores, Wal Mart was king. It had the most sales compared to every other store. Best Buy came a far second while the rest lagged far behind. 

Analysts predicted that holiday sales would be only a 1.6% in holiday sales versus last year's 3.5%. The reasoning is that consumer confidence is lower and that the holiday environment is too intense and possibly violent. Gift spending is smaller per consumer, but that is due to the increase of holiday shoppers, both online and offline. 51% of those people polled said economic concerns would affect their holiday spending plans and 79.5% said they plan to spend less overall during the Holiday.

$12.3 billion was the overall brick-and mortar store sales for Thanksgiving and Black Friday 2013 - up 2.3% from 2012

$1.964 billion was the overall online sales for Thanksgiving and Black Friday - up over 18.5% from 2012


Also important to note is that social media does not correlate with sales. Although there is a high likelihood of indirect impacts such as viral marketing and referrals.

With the advent of smartphones and mobile devices, there is less asymmetrical information. Shoppers are information rich and can easily do arbitrage shopping with extreme convenience, defeating impulsive buying and panic sales.

Increase of 46% for Amazon and 20% for eBay compared to last year’s ‘Cyber Weekend’.

Mobile sales reached 21.8% of total online sales - that’s an increase of nearly 43% from last year.


Therefore the winners relative to last year are the online marketplaces which accounted for the most sales. Amazon and Ebay are responsible for the highest sales during Cyber Monday and will continue to do so with their cost-cutting prices and increased convenience (Same-day shipping, Sunday shipping).

Shanghai Free Trade Zone

Shanghai Free Trade Zone

by: Amanda Casey & Colin Whitaker 

Since the Chinese industrial revolution, the People's Bank of China has enforced strict expansionary monetary policy. Key features of this were capital controls which placed cash outflow and investment restrictions on individuals and corporations. Currently individuals cannot move more than $50,000 out of the country per year, and businesses need special permission to invest outside of China. These policies served to keep money cheap and depreciate the value of CNY in order to encourage growth and exports. However, China has started to move towards a more market driven economy.

China announced on 9/29/2013 that they would be establishing a 29 km free trade zone (FTZ). On 12/2/2013 a detailed report of economic reforms in the FTZ was released. In the FTZ, foreign companies will be allowed to sell yuan denominated bonds, foreigners can buy and sell Chinese bonds and equities directly, Chinese investors can buy overseas financial products without going through the QDII, and the capital account will be deregulated. Furthermore, restrictions on social media will be lifted and foreign communications companies will be allowed to get service licenses. All of this comes on top of news that Chinese IPO laws will also be reformed which will end the 13 month moratorium on IPO's and get rid of the restrictions on foreign investment. The announcement of the reform came with an 8.3% drop in the Shanghai Composite Index. This may have been caused by worries of oversupply amongst investors. Despite the short run drop, economists believe that the reform will cause enhanced long-run expectations.


The FTZ is an experiment by the Chinese and as such will most likely not have a major effect to the Chinese economy on a large scale. However, residency is not required to set up an account within FTZ and could therefore become used much more than authorities intended. But the expectations is that there will be large economic growth within the FTZ which after some time may spread to the surrounding areas. Despite this, there is still the possibility of macroeconomic effects.

China wants to continue expanding its economy, to do this they need to keep investment and exports high, seeing as they are an export economy. The negative outcomes of deregulation include a drop in the money supply, a drop in domestic investment, and then a reduction in GDP. There is also concern over what will happen to the value of the CNY. The Chinese want to keep the CNY depreciated to make Chinese goods cheaper to foreign consumers. If the value of the CNY increases, Chinese exports would drop. Despite these risks there is still good reason for China to open up its markets.

Currently China is experiencing a credit crunch. Rapid growth has led to bad loans, white elephant projects, and large amounts of debt held by the government, companies, and lenders. Even with the large money supply, it has become very difficult in the last year to get loans from Chinese banks. The reforms may provide new and much needed financing options for Chinese companies.

References:
Chinese Credit Binge

Chinese IPO Reforms

South China Morning Post

New Geography Article on FTZ

Bloomberg FTZ analysis

BlackBerry

BlackBerry

By Simarjeet Kaur & Vafa Azadi

In our presentation, we discussed about BlackBerry’s current position in market. BlackBerry is Canadian Telecommination and wireless equipment company, which is started in 1984 as a known as Research in motion limited. It was founded by two people named Mike Lazaridis and Douglas Fregin. In 1999, they introduce their products name BlackBerry Enterprise Server and BlackBerry 850 pager. Those two devices were famous for giving access to emails, web browsing, and many other features  Most of the corporative people used those phones over period of the times. Then they introduce another blackberry wireless handset RIM 957. The primary functions of these devices are receiving or send email.

In later years, they introduce couple other models such as BlackBerry Pearl, Curve and Bold. Pearl includes a digital camera, audio and video playback, blackberry maps and voice activated dialing. These different models were specially designed for non corporative people and spread the BlackBerry all over the nation, but in 2007, apple released their first iphone which affected BlackBerry in market. Since apple’s iphone was only exclusive to AT&T network, Verizon wanted BlackBerry to come up something similar in order to gain customers’ interest back in BlackBerry so then BlackBerry released their new product BlackBerry Storm in late 2008, but it didn’t gain much attention from customers. In order to keep up with market, in 2010 blackberry released playbook which was very expensive in the beginning and they had almost 90% loss in sale.

In share market, in 1997, BlackBerry’s IPO price was $7.25 and there highest stock price $144 occurred in June, 2008. Now, there current stock price is $6. BlackBerry’s Market shares from 2008 through 2013 are constantly dropping down. In 2008, the market share was 16.6%, In 2009 the market share was 19.9%. There was gain of 3%. In 2010, the market share was 14.6%. In 2011, the market share was 8.8%. In 2012 the market share was 5.2% and in 2013 the market share is only 1.8%. By comparing to other companies like Apple and Android, there share market is increasing every year compare to the previous year, but in case of BlackBerry, there share dropped down every year. As the other companies are growing faster, the BlackBerry is keep going down.

In recent news, there are lots of things happened in BlackBerry. In past week, they replaced their old CEO name Thorsten Heins with new CEO John Chen. Chen was previously chairman and CEO with Sybase inc. in 1998. In his contract, Company also agreed to give him 13 million BlackBerry share units which are worth US$85 million based on last week’s closing stock price. There was other news about BlackBerry buyout. Companies like Google, Intel and Cisco were interested in buying BlackBerry and other partnerships are still possible with the conditions of new stock price deal with Fairfax. At Same time, the Smartphone maker announced that they aren’t selling itself for $4.7 billion to a group of companies led by Fairfax Financial Holding Limited, but they are agreed for $1billion stock purchase with that group. BlackBerry released their secret investors for $1 billion US dollar investments such as Canso Investment Counse LTE will invest $300 million, Fairfax Financial will invest $250 million, Mackenzie Financial Corporation with $200 million, Market Corporation and Qatar Holding LLC will invest $100 million each, and Brookfield Asset Management will invest $50 million. Most of these investors are Canadian investor.

 

References

¨  http://www.gartner.com/newsroom/id/2623415

¨  http://crackberry.com/evolution-blackberry

¨  http://rebecca-reeve.com/constant-connectivity/ch02.htm

¨  http://finance.yahoo.com/echarts?s=BBRY+Interactive#symbol=bbry;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

¨  http://www.cantechletter.com/2010/03/my-1996-investment-in-rim-adam-adamou-remembers/

¨  http://www.nextiphonenews.com/2013/11/blackberry-ltd-bbry-the-1-billion-struggle/

¨  http://kitchener.ctvnews.ca/hiring-agreement-could-net-new-blackberry-ceo-85-million-1.1532848

¨  http://finance.yahoo.com/news/blackberry-abandons-buyout-ceo-quits-200356685.html;_ylt=A2KJ3CWVTYZSXS4AYlKTmYlQ

Insider Trading

By Xiqian Chen & Jianing Lu 

In recent news, Steve Cohen of SAC Capital Advisors have agreed to plead guilty to insider trading. Although he claims he himself has not done anything wrong, he is convicted by the SEC of failing to supervise his employees. For many years the SEC has been tracking SAC Capital Advisors since many ex-employees have been convicted of insider trading.

Actually over the last three years, the SEC has filed more insider trading actions (168 total) than in any three-year period in the agency's history with illicit profits or losses avoided totaling approximately $600 million.

What is insider trading? It is the trading of public stocks by individuals who has access to non-public information about the company. There are legal and illegal insider trading. The only legal action is that insiders trade their company’s shares inside their company and report to SEC about the trade. Others are illegal.

Why is it important? Because the holder of the private information can either sell or buy a stock first and so his risks is less than the average and his return will be greater than the average stockholder, which is unfair and so under law it is illegal. 

Although The Securities Exchange Act of 1934 was Act that made insider trading illegal after the stock market crash of 1929, Congress who passed the law didn't seem to think this applied to themselves. In 2012, 60 Minutes did a expose on Congress's inside trading. In response to this embarrassment, Congress passed the STOCK Act in April 2012, which required 28,000 government employees to disclose their financial transactions to the public via a online database, which could be easily accessed with a login. 

In April 2013, Obama signed a reversal of a key provision of the STOCK Act. Instead of 28,000 employees now only about 67 executive officials need to disclose their financial transaction but of these 67 executive officials, majority of them by law are not allowed to participate in stock market anyways. Not only the targeted persons have been decreased by a large percentage, Congress has also made it harder for financial transactions to be retrieved by taking it down from the online database. This reversal provision was passed by the house and senate in less than 30 seconds with unanimous consent. Although it was a unanimous consent, a large number of officials were not even aware that they gave a consent since they were not present at the time.  And so although inside trading is illegal to the public/private sector, the Congress still has its way around it.

http://en.wikipedia.org/wiki/Insider_trading

http://dealbook.nytimes.com/2013/11/03/sac-nears-an-insider-trading-guilty-plea-but-legal-cases-arent-shut/

http://www.cnbc.com/id/100647407

http://www.npr.org/blogs/itsallpolitics/2013/04/16/177496734/how-congress-quietly-overhauled-its-insider-trading-law

http://www.rollcall.com/news/congressional_insider_trading_revisited_but_dont_tell_anyone_commentary-224674-1.html

No Motor in Detroit

                  On July 18^th, Detroit filed for bankruptcy after being unable to pay back their debts.  In an effort to avoid any sort of bankruptcy, Emergency Manager Kevyn Orr tried to convince creditors to accept a tenth of their money in return, to which they declined.  Orr then tried to cut retiree benefits in an effort to reduce the city’s budget.  As a result, Detroit’s two largest pension funds filed lawsuits against Orr so that their benefits would not be cut.  The next day, Detroit filed Chapter 9 bankruptcy in an amount between $18 and $20 million.  On the 19^th of July, a judge named Aquilina found that the bankruptcy was unconstitutional.  According to the constitution of Michigan, no division of the state can default on pension loans.  Aquilina order Governor Snyder to withdraw his bankruptcy filing, but instead, he chose to appeal her decision.  This caused Detroit to be in and out of court with a final court date set on October 23^rd, to which no decision has yet been made. 

                  On November 8^th, the bankruptcy court had the final trial of the Detroit case regarding the eligibility of Detroit to file for bankruptcy. The case went to trial, as mentioned before, for being unconstituitional. Case Judge Steven Rhodes addressed the main allegations that the city of Detroit did not use bankruptcy as a last resort and rather, they were not able to conduct negotiations of good will to avoid filing Chapter 9. Lead Counsel, Bruce Bennett made the statement that filing for bankruptcy was not desired but rather inevitable because creditors were not willing for compromise. Kevyn Orr released a statement that despite negotiations failing he plans on introducing a new plan of payments to reduce the debt and eventually find the optimal way to pay off creditors. Rhodes has not made a decision on the eligibility yet and further review is underway.

                  A common source of income for Detroit is through filming.  As a short-term attempt to help with the bankruptcy, Detroit offered the new Superman movie about $35million in tax incentives to film there.  According to Zack Snyder, “Detroit is the quintessential example of an American City”.  It is anticipated that movie will hire about 420 new full time employees; the crew will use about 500 vendors and about $5million on hotel bills for the cast and crew.  Detroit will also make money from the cast and crew who will have to use their paychecks while staying in the city for an extended period of time.  Detroit commonly uses various films to make their money, but because of their situation, they were forced to offer incentives to Zack Snyder to encourage him to film in the city. 

                  Detroit, like New York and Chicago, has been recognized as one of the “true” American cities of the United States. It is very important for the Motor City to once again flourish. It’s not going to be easy and as you can see, there are very few options to start this rehabilitation, or revival of sorts. One of the possibilities is do what the city did with movies and other industries. The movies create jobs; market the city and potential increase income flow into the city.  Chapter 9 perhaps isn’t the most ideal scenario but it was one that really opened the eyes of Detroit and of the United States to find an economic plan that will help conserve and progress the economy of the United States.

Jay Hirpara & Kayla Rhodes

Works Cited

http://abcnews.go.com/Business/judge-detroit-bankruptcy-unconstitutional/story?id=19716119

http://www.myfoxdetroit.com/link/647187/orr-chapter-9-recommendation

http://www.usatoday.com/story/news/nation/2013/11/05/detroit-bankruptcy-borrowing/3448411/

http://www.latimes.com/nation/la-na-detroit-bankruptcy-race-20131110,0,1560272.story#axzz2kNEkzhIa

http://www.usatoday.com/story/news/nation/2013/11/08/detroit-bankruptcy-trial/3479621/

Financial Report on Recent FOMC Meeting & SAC Advisor Plea Bargain

By Jeni Merino & Ellen Yu

For our in-class financial presentation, we reported the overall effect of the Federal Open Market Committee on the S&P 500 index and the Dow Jones Industrial Average index. Before their meeting, the returns for S&P 500 and DJI indexes increased. However, after the results of the meeting were given, there was a decrease in returns for the two indexes, which may be because many expectations that the Fed would not taper with quantitative easing were not met. Also the Federal Reserve decided to limit monthly bond purchases to $85 billion until they observe that the economy continues to improve.

One major result of the government shutdown is that many institutions that evaluate the performance of the financial markets were not able to produce data, which is necessary in order to determine proper changes from the last FOMC meeting. Also the central bank left unchanged their decision, from September, to hold target interest rates near zero, so long as overall expectations for inflation do not increase higher than 2.5 percent.

The results of the FOMC meeting changes the behavior of other investments, who may now start to questions how effective the economy has been at recovering after the government shutdown. Also the answers needed to resolve the questioning of the market traders may not be dependable due to miscalculations given as a result of the government shutdown.

Later in the week, on Monday, the company SAC Capital Advisors, L.P., made a plea bargain of $1.2 billion due to prosecutions of five counts of insider trading. Even the founder of the company, Steven Cohen, faces criminal charges of failing to properly manage his employees, or “turning a blind eye,” according to some of his prosecutors. The company also agreed to terminate their business of managing outsider investments.

Currently the present value of the SAC hedge fund is $15 billion. And since SAC is no longer able to manage outsider investment, there is a $6 billion cut in the company’s value. This leaves $9 billion of manageable investments that belong to Cohen. However if he is found guilty of encouraging insider trading in the company, it will result in a loss of the company’s only investment that it manages. Essentially this could lead to a shutdown of the hedge fund.

Some of the major effects of  the penalties SAC faces is that other hedge fund companies will be discouraged from insider trading. Moreover, the government is showing that it’s getting better at prosecuting those who practice insider trading. This is especially true since JP Morgan Chase, another major company on Wall Street, has also recently been forced to make a plea bargain deal due to some of their questionable mortgage practices.

This leads to another question about the government seeking to bring down these major companies. Can they be too large to jail? In other words if the penalties that these companies face leads to their shutdown, will it affect the economy negatively? Also, if other current major hedge funds allow insider trading practices, they may choose to refrain from using this strategy, leading to a change in the investment game. This leads to a final question, how might the strategy change in investments influence our economy? This is definitely something that many people worry about and can lead to even further insecurities amongst traders.