U.S. economy stalls dramatically in first quarter

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/04/30/u-s-economy-stalls-dramatically-in-first-quarter/

According to the government data released Wednesday by The Commerce Department, U.S. economy didn't make any progress during the first months of year. The failing to the modest growth target brings up people's concern about the recovery of economy again.

Government expected 1.2 percent growth for nation's gross domestic product but it turned out to be merely 0.1 percent growth rate, which really disappointed people.

Althought Paul Ashworth, chief U.S. economist at Capital Economics, said "This is not a weak economy. This is an economy that had two bad months because of the weather and got back to normal in March." I don't really trust what he said. In my opinion, the economy is still sluggish and especially the job market is not as good as we expect.

The U.S. Government Lost $11.2 Billion Bailing Out GM

The government lost approximately 11.2 billion dollars in total when it bailed out General Motors. This loss came from multiple sources. The government lost $826 million when they wrote off old GM investment, and when the government originally bailed out GM it cost them approximately $50 billion. When GM went into bankruptcy in 2009, the governments original investment had been converted to a 61% equity stake, preferred shares and a loan. To make sure the governments investment in GM did not become overwhelming, the government sold stocks of it.  Even though this bail out cost the government a lot of money, it saved 1.5 million jobs domestically. 

http://www.huffingtonpost.com/2014/04/30/gm-bailout-cost_n_5240260.html?utm_hp_ref=business

The Best Deal, Watching Emerging Markets

"Four months into legal recreational marijuana in Colorado, the market for medical cannabis is still by far the most cost-effective way to purchase pot in the state, a FiveThirtyEight analysis has found."

It is interesting to note that medical is cheaper than recreational pot and the reason for this is an unexpected decrease in supply in the first few months. And along the five basic quantities that are sold in a given period of time, there are price fluctuations (toward the consumer’s favor) as the consumer climbs the ladder of quantities.

It seems as if the demand and supply have not met yet….I say that because the demand is abnormally high yet I predict within a year and a couple growing seasons, depending on strains, the market will change and stabilize, seeing a slow mirror of the medical market.

Another reason for a choppy beginning:

There was an ‘automated’ effect which contributed to a downgrade in product with the anticipation of legalization, thus we see these fluctuations occurring naturally in response.

Lastly, the consumer and state confidence for this product is so high that demonstrating legal cannabis as a revenue generating giant will happen but in due time. Growers, sellers, and advocates are just 'jumping the gun’ due to its recent legalization.

http://fivethirtyeight.com/features/medical-marijuana-is-still-the-best-deal-in-colorado/

Fertility Rates Drop Universally

Bye-Bye, Baby

Nearly half of the world's population lives in nations where women give birth to less than 2.1 babies on average, which is the number of children necessary to replace both parents over their lifetime. The decline in fertility and marriage rates are associated with higher levels of education and occupational achievement. As the number of children in a nation declines, there are more educational resources per child, increasing the overall education level of the nation. Also, countries with lower fertility rates tend to see higher productivity compared to societies with higher fertility rates. Middle-aged workers with experience have far greater productivity than children. Low fertility causes young adults to no longer be in surplus relative to the labor market demand so their economic value to employers increases.

These low fertility rates can also have a negative affect on the nation's economy. National leaders will have to decide whether the early retirement ages and high payout rates of their pension systems, created years ago under very different economic and demographic circumstances, can be sustained in the long run.

Japan retail sales surge on tax hike

http://www.bbc.com/news/business-27184185

          Japan increased its sales tax, also known as consumption tax, from 5% to 8% from 1 April, the first hike in 17 years. The rise stimulated consumers to make a large amount of purchase before the sales tax hike. 

         Japan has been suffering deflation for more than two decades, which not only hurts its domestic economy but also makes the whole country stuck. Deflation makes consumers and businesses incline to put off their purchases because they think they can get lower prices in the future. Many people think this rise in tax will help Japan achieve its 2% inflation target.

"Half of all Jobs will be automated in 20 years"

A recent article in the Economist cites that half of all jobs around the world will be automated. Their analysis of technology in the job market and prediction for the future is  extremely bleak. Around the world, many large sophisticated economies already have large unemployment numbers but automated jobs in the future will most certainly make unemployment rise. So what does it take to safeguard yourself to losing your job to a robot. Creativity and good social skills are very key. The introduction of robots have already taken jobs in manufacturing from low-skill workers. Twenty years from now robots will be more advanced and be able to carry out almost all low-skill labor. Another survey shows just how much the modern worker's job has changed. 72% of British workers believe that they can now work more efficiently from home. As of now, it remains unclear exactly what will happen in the jobs market and to wealth inequality 20 years from now, but it seems very clear that having a college degree, especially from a liberal arts school, is a huge asset to have in the jobs market of the future.

http://www.huffingtonpost.co.uk/2014/01/17/rise-of-the-machines-economist_n_4616931.html?just_reloaded=1

Attention Coffee Drinkers

This CNN article illustrate one of the phenomenons that we have encountered one and again during class, namely, a negative shock to supply. In theory, this would shift Supply curve to the left and change the equilibrium price of the commodity, in this case, coffee. According to the article:

"Coffee prices have doubled since last year, and drinkers of the black stuff may soon start to notice."

This is the result of a severe drought in Brazil, the origin of reportedly 1/3 of the world's coffee supply. The rise in price will affect cost of production and will accordingly rise the price of the end product at consumer's cost. However, this won't affect large coffee houses that lock in price a few years in advance in case situation like this happens.

The drought, on the bright side, allows coffee growers in Brazil to charge higher price for their product. And the price rise of this commodity also allows some hedge funds, traders and brokers to profit. It is not after all totally disastrous.

Feel free to leave your comments for discussion.
Source:  Coffee prices skyrocket after Brazil drought

APR accuses Glaucus of manipulation

http://www.taipeitimes.com/News/biz/archives/2014/04/28/2003589040


Glaucus Research Group of the California LLC was recently accused of allegedly manipulating share prices by Asia Plastic Recycling Holding Ltd. APR, a company that creates ethylene-vinyl acetate foam from recycled plastic, claimed that their stock plummeted after GRG made a statement saying that APR's share prices should be zero. APR retorted by saying that gossiping in order to intentionally influence securities currently being traded in Taiwan causes a violation of Article 155 of the Securities and Exchange Act.  After GRG's statement, the APR stock price plummeted over the daily maximum limit in two consecutive sessions before it closed.  It will be interesting to see what happens in the long run for APR's shares considering they are the only company in China to be able to transform plastic waste into ethylene-vinyl acetate foam (or rubber foam products).

http://money.cnn.com/2014/04/23/smallbusiness/minimum-wage-exemptions/index.html?iid=SF_E_River

Many low-wage workers not protected by minimum wage

President Obama and the federal government is seeking to raise the minimum wage by $10.10 an hour. Not every worker in the united states is forced to be payed the minumum wage under a complex set of rules. People such as disabled workers, those who work for very small businesses, teenage trainees, tipped workers, home care aides and some agricultural workers are all examples of these people. These people will now be protected under the new law that President Obama is seeking to pass making it easier to live on a small paycheck.

Netflix comes to your cable box

Netflix could soon be just another channel on your television.  They just signed a deal with TIVO cable box which was announced on the 25th.  TIVO cable box is not a big name cable company but this is a big step for the movie streaming company.  Being able to browse through the channels and run into Netflix next to channels such as ESPN or CBS could be a game changer.  Having to set up your computer to your television can be a pain in the butt, however channel surfing has just gotten easier with the Netflix channel.  The company says that one of the hardest parts of getting new customers or keeping old ones is just the fact of getting another bill from the company.  Now being included with the cable buyers will be less turned off by the extra cost because the extra fee will be included all on one bill.  This deal with TIVO could open up a whole new world to the streaming giant.


http://www.businessweek.com/articles/2014-04-25/netflix-finally-breaks-into-the-cable-box-dot-why-does-that-matter#r=nav-r-story

Fireball Whiskey: Selling a Brand Shot by Shot

http://www.businessweek.com/articles/2014-04-24/fireball-whisky-gains-on-jagermeister-via-social-media-bar-sales#r=rss

Fireball whiskey has become a popular beverage among young adults. It's spicy burn appeals to men, but also has a sweet taste which appeals to women. Over the last couple of years, fireball has exploded on the market. In 2011, fireball accounted for 1.9 million in sales in gas stations, convenience stores, and supermarkets. This number jumped to 61 million in 2013. Fireball has become the trend of late and looks to overtake jagermeister as the go to shot. Jagermeister accounted for 81 million dollars in sales in 2013, but hasn't experience the growth that Fireball exhibiting. It will be interesting to see whether Fireball will surpass Jager?

Banks Are Making It Easier to Get a Mortgage

http://www.mainstreet.com/article/real-estate/banks-are-making-it-easier-get-mortgage?puc=yahoo&cm_ven=YAHOO

According to this article, banks are loosing their "credit spigots" making it much easier for individuals to get mortgages during this economic recovery.  The article talks specifically about Wells Fargo and how they require mortgage applicants to make a 5% down payment, and this payment can be from someone else if the applicant cannot afford it themselves.  The bank also announced that they will be lowering the required FICO score for applicants.  This is interesting because I wonder if it could start another issue like we had before the recession.

The article continues on to talk about how some individuals are skeptical of banks lowering their requirements because they feel as though it could send us back into a similar situation as we were in before the recession.  However, analysts do not seem as worried because they feel as though it is a part of the business cycle and it needs to happen in order for the country to continue recovering.

3 risks from the Ukraine crisis

            A week ago in Geneva, the United States, Russia, Europe and Ukraine struck a deal that was supposed to help resolve the crisis in the East-West relations. The agreement has unraveled very quickly. Washington and Moscow are blaming each other for failures that have lead to violence between government forces and pro-Russian militants to escalate. As tensions rise, investors are very skeptical with events in Ukraine reaching far reaching consequences. Three things to keep an eye on include; Western sanctions, Russian gas and the European economy.

http://money.cnn.com/2014/04/25/investing/russia-ukraine-risks/index.html

http://www.nytimes.com/2014/04/23/upshot/the-american-middle-class-is-no-longer-the-worlds-richest.html?_r=0

This article is about how the United States middle class is earning much less than they have in the past couple decades. What we had seen as a steady rise since 1980, the average income of workers has been decreasing since 2010 in the middle class. Researchers at a LIS, a group that produces the Luxembourg Income Study Database has confirmed this and it could spell trouble for american workers. In other countries such as Canada, they are still seeing a steady increase which is causing there economies median income to be much closer to ours. What is even more worrying is the median income of the lower class compared to those in other developed countries, which are very low. These numbers could spell trouble for many Americans.

Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones

The recession of the recent years has unfortunately caused a large loss in the number of jobs, primarily in the middle and high wage bracket. According to a recent study the total level of employment has finally passed the pre-recession level. Unfortunately the majority of these jobs being created are lower level paying jobs such as those in the fast food industry. Once again the idea of raising the minimum wage is brought up in the argument that the average age of the minimum wage workers is 35 years old currently. Times are tough in our economy, high paying jobs do not just show up out of anywhere and many people have been forced to take large pay cuts, I still stand firm in my belief however that the minimum wage should not be lowered however. In time I believe this economy will sort itself out, and in my opinion the biggest factor in getting back to a good spot in the economy is consumer confidence. People need to have faith that the economy won't go back into recession and things will begin to move forward. http://www.nytimes.com/2014/04/28/business/economy/recovery-has-created-far-more-low-wage-jobs-than-better-paid-ones.html?ref=business&_r=0

Fed Recognized Change in Unemployment Goal Could Be Misunderstood

The unemployment rate for the past 4 months has remained fairly constant around 6.7%. Although the unemployment rate has been declining over the years, its fixed status is concerning for some. However, Janet Yellen and the Fed are not worried. They believe that although supply of labor is greater than demand for labor, it will soon be at the natural rate. The Fed is optimistic that the unemployment rate will decrease in future months. Therefore they are now using a policy by rule. The Fed has “confidence in the strength of the economic recovery” and will begin to contract. They are reducing “its monthly bond purchases by $10 billion, to $55 billion” and they plan on continuing.

Trickledown Economics - Whats the actual theory?

Lets try and sum up exactly what is the trickle down theory and why it is so inherently controversial?
Basically trickle down theory is the idea that if you give a tax break (essentially a tax cut) to the top earners within an economy, these top earners then save more of their already high income. because they save more of their income, these people are considered to be increasing savings that they would "sensibly" be investing it back within the economy. Either way, these activities will be inherently productive, reinvigorate economic growth and eventually generate more tax revenue from these earners and the supposed people that they will help. This boost in growth is theorized to ultimately help the lower income bracket and thus the whole economy.
What Do i feel is wrong with the trickle down theory?
One basic assumption that I feel is also very controversial when it comes to basic economic theory as well. The assumption that when people have higher savings, they will invest back into the economy. People do NOT have to reinvest. They do not have to put their money into interest bearing accounts within a bank, if there are tax cuts now people will expect higher taxes in the future and will hence save for the future. There are way too many loopholes to predict regarding peoples behaviors and that makes the whole theory subject to alot of controversy. Trickle down economics, Will the rich always share back?Doesnt seem like that to me. 

Total Debt to GDP or Trajectory to predict Growth

In 2010 two Harvard Economists published a paper arguing that countries that had public debt to GDP ratios of over 90% experienced a sharp slowdown in growth. However, a recently published IMF paper that analyzed data from 1821 to 2012 paints a different picture. The paper explains that usually the slowdowns in growth are from factors unrelated to debt levels. If you look at average debt levels over a 15 year period, there is no evidence that countries with over 90% public debt to GDP ratios experience less growth. Countries such as post-war Britain maintained solid growth with over 200% debt to GDP. A more important indicator of growth is the debt trajectory. Countries that had rising debt ratios experienced slower growth than did countries with decreasing ratios. In addition, a new study claims that countries with rising private debt levels also experience less growth. A 2008 paper written at The University of Virginia found that the biggest predictor of financial crisis from 1870 to 2008 was rapid total credit growth. If this is true, it's good news for Europe after their debt levels stabilized in 2013. However, for China, it could spell disaster due to their credit to GDP ratio increase of over 95% from 2007 to now.

http://www.economist.com/news/finance-and-economics/21597933-new-research-suggests-debts-trajectory-affects-growth-more-its-level-breaking

"Obamacare: One more reason to quit your job"

According to the Congressional Budget Office in February workers will clock in 1.5% - 2% fewer hours from 2017 to 2024, this is equal to about 2 million jobs. The Congressional Budget office estimated based on health reform. Workers putting in less hours is not due to the fact that companies are forcing employees out but rather that employees are opting to work less. People that are choosing to work less will earn less but qualify for a larger subsidy. Since start ups and part-time workers are guaranteed individual coverage some may take jobs without benefits. Costs such as $362 a month for single coverage are encouraging  40-54 year old to exit earlier.

Obamacare: One more reason to quit your job

Cities where home prices are hitting new highs

http://money.cnn.com/gallery/real_estate/2014/04/22/housing-market-prices/index.html

This article talks about five cities where the housing market is hitting new highs.  Going through what is making those cities hit those knew highs.  With the economic downturn recently, and the housing being one of the biggest things that led to that, do you think that this housing market increase will lead to other cities being more confident in the housing or start getting back to was it before the recession?

UK unemployment keeps falling amid recovery

The United Kingdom's unemployment rate has fallen below 7% for the first time in five years. Unemployment fell from 7.2% in the previous quarter to 6.9%. This drop in unemployment puts pressure on the Bank of England to raise its record low .5% interest rate. The plan was to raise the interest rate once unemployment fell below 7%. However, because the unemployment rate fell faster than expected, bank governor Mark Carney broadened the forward guidance policy to include other economic indicators such as wage growth and productivity. 
Earnings growth narrowly exceeded inflation for the first time since 2010.  Although he's encouraged by the fall in unemployment and wage growth, David Kern, chief economist at the British Chambers of Commerce was skeptical of the high youth unemployment rate of 19.1%. 

http://www.washingtonpost.com/business/uk-unemployment-down-to-69-percent/2014/04/16/e74caf30-c546-11e3-b708-471bae3cb10c_story.html

Obama Pressures GOP on Unemployment Extension, Minimum Wage

http://www.rollcall.com/news/218_obama_pressures_gop_on_unemployment_extension_minimum_wage-232434-1.html

President Obama is working diligently to raise the minimum wage to $10.10 an hour.  The impact of this move has the potential to create quite a mess in the economy.  Although many on Obama's side will argue the opposite, it is likely that raising the minimum wage would also raise the unemployment level.   Minimum wage is currently at $7.25--so the move to $10.10 would be an increase of 39% which is rather steep and seemingly unattractive to employers.

Breaking the threshold

Previous studies had argued that countries with public debt-to-GDP of 90% or higher would lead to  a slowdown in GDP growth. A new study suggests that the level of GDP may not be the determining factor, but rather its "trajectory." The more interesting metric in my opinion is the level of total credit, or the amount of total private and public debt outstanding. As we have seen in class, private debt can easily bring down the economy. 

http://www.economist.com/news/finance-and-economics/21597933-new-research-suggests-debts-trajectory-affects-growth-more-its-level-breaking

Even Without Sanctions, Russia's Economy Is Looking Sicklier Than Ever

Signs of Russia’s growing economic distress became even clearer today, as the central bank unexpectedly raised interest rates for the second time since March, while Standard & Poor’s cut the country’s debt rating to one notch above junk.  In lifting the benchmark borrowing rate from 7 percent to 7.5 percent, the bank said it was acting to cool inflation that’s now running above 7 percent. But, says economist Tim Ash of Standard Bank in London, “it has nothing to do with inflation. It’s all about signaling that the central bank is shoring up its defenses” to strengthen the ruble and stem the flight of capital from the country. With Russian companies and consumers facing higher borrowing costs, the rate hike will depress an economy that’s already in danger of tipping into recession. And continuing political uncertainty over Ukraine means that foreign companies “will not invest in Russia’s real economy, they’ll just stall their investment,” Ash says. Moreover, “inflation is likely to remain relatively high,” above 7 percent this year, emerging-markets economist Liza Ermolenko of Capital Economics in London wrote in a note to clients.

http://www.businessweek.com/articles/2014-04-25/even-without-sanctions-russias-economy-is-looking-sicklier-than-ever#r=nav-fs

Cities where home prices are hitting new highs

http://money.cnn.com/gallery/real_estate/2014/04/22/housing-market-prices/index.html?iid=Lead

While home values nationwide are still down 13.5% from their pre-housing bust peaks, prices in these major housing markets have recovered. This article lists seven cities where home prices are hitting new highs. The first city on the list is Dallas, TX, who boosted home values from just below $127,000 in late 2011 up to current home value at $143,200.

The seven cities listed seem to have a commonality that is helping housing values rise—booming oil and other energy-related industries, as well as healthcare and technology-related industries. Population growth and economic growth are also commonalities between these cities who have boosted housing values from their housing boom peaks.  It is interesting that many cities, such as Austin and San Antonio, Texas, are on this list as well as the recent list CNN Money came out with for the top ten growing cities in America.

Additional source: http://money.cnn.com/gallery/real_estate/2014/04/22/housing-market-prices/5.html

Wall Street Week Ahead: A burst of energy with Exxon, Chevron on tap

     Since late Februrary, it seems as though investors have fallen out of love with biotechnologies and other high flying stocks. The oil industry is what really seems to be fueling the market. Since the 25th of February Energy names have been the best-performing sectors of the S&P 500. They hope to continue to build on these recent gains. These sectors alone have attract large inflows 9 out of the past 10 weeks. They also have begun to average 488.9 million dollars weekly over the last 4 weeks. This is the largest inflow these sectors have seen since 2011. On a total return basis the energy market is up more than 7%. This can be compared to the1.8% loss the healthcare sector has seen, making it the worst performing sector in the period. The oil companies are not only making money for themselves but they are also paying it out to the shareholders. Both Exxon and Chevron are ranked among the top 10 dividend payers in terms of absolute dollars. This should continue to attract new investors.


http://finance.yahoo.com/news/wall-street-week-ahead-burst-222954993.html

Millions of Middle Class American Families Living Paycheck to Paycheck

According to a study done by Brookings Institution,  more than 25 million middle class families in America are living paycheck to paycheck. 

While these people receive decent salaries, they lack savings and readily accessible funds. The study finds that 66% of these families are middle class, with a median income of $41,000. These families also have a median net worth of $41,000 even though they do not own liquid assets. Researchers say that these findings are surprising and that they do not expect these people to be living paycheck to paycheck. 

The reason as to why these middle class families don't put away their cash in the bank or the stock market isn't clear. Greg Kaplan, assistant professor of economics at Princeton University, suggests that many people believe that housing and retirement funds will bring them better returns in the future. He also found out that people who prefer to put all their money into illiquid assets are able to consumer more in the future. People would rather own a home even though they won't have a lot of spending money.

http://money.cnn.com/2014/04/25/news/economy/middle-class-paycheck/index.html?iid=SF_E_LN

What stumps Warren Buffet? Minimum wage

Warren Buffet told CNN in an interview wednesday when asked whether or not to raise the minimum wage, "I thought about it for 50 years and I just don't know the answer on it." Buffett also said that the current federal minimum of $7.25 is not a living wage. If raising it didn't hurt employment he'd want it up significantly higher. "You do lose some employment as you increase the minimum wage, if you didn't I would be for having it $15 an hour," he said. Many states and cities have already raised their minimum wages above the federal minimum. Ohio for example is at $7.85. Also, President Obama is pushing for a raise nationwide to $10.10 an hour. However as we have learned in class, increasing the minimum wage also increases the unemployment. So what do you think? Should we raise the wage? 

http://money.cnn.com/2014/04/23/investing/buffett-minimum-wage/index.html?iid=SF_E_LN

Reusable rockets in development

http://www.economist.com/news/science-and-technology/21600968-spacexs-latest-launch-could-change-economics-going-orbit-up-and-down


Since the beginning of space traveling, the rockets were just disposables: They could only be used for a single blast. Then they are dropped down to the ocean from mid air after they are burnt up. This was one of the reasons why space project budget was so high. The only reusable rocket was built in the United States, yet the shuttle was sabotaged and resulted in the deaths of two crew members, which just augmented the cost even more.
SpaceX has been developing the rockets to make it reusable. Their theory is that, after shooting, instead of just dropping to the ocean, it will land rather softly by deploying its legs. They are even thinking of hovering technology for the rocket. The success in this project might play a major role in reduction of the mammoth quantity of expenditure in space traveling in the long run.

How will the Fed handle new big issues

Despite their unanimous vote to continue lowering their bond-buying strategy, there is much uncertainty within the Federal Reserve on how to tackle the big issues that lie ahead. Federal Reserve Chairman Janet Yellen has pointed out three major issues that the Federal Reserve must track: "the level of slack in the labor market, whether inflation is rising back toward the Fed's 2 percent goal, and the factors that could derail the economic recovery." On Tuesday and Wednesday, Fed officials will meet to discuss these issues. However, the U.S. central bankers are not likely to move quickly on policy.

http://www.reuters.com/article/2014/04/27/us-usa-fed-idUSBREA3Q08920140427

Rebirth of America's dead factories

http://money.cnn.com/gallery/smallbusiness/2014/04/21/factories-plant-manufacturing/index.html?iid=Lead

           American manufacturing has been going overseas for over past two decades to reduce the costs. High-tech systems are doing more and more work for people. Therefore it has been cruel for workers in manufacturing industry. But now it is going to change.
           Stuart Lichter, president of Industrial Realty Group, said "demand for closed factories has picked up since the recession," which means American companies are going to bring production back home. This movement will inject new blood to thousands of closed factories and greatly boost U.S. job market then make the domestic economy be better.

Few Consumers Are Buying Premise of Mobile Wallets

Few Consumers Are Buying Premise of Mobile Wallets

The New York Times posted an article addressing the efforts to move toward a more technological way of life. The newest efforts include the use of mobile wallets has the market looking for a boost in consumer spending. Though extremely rocky, there have been substantial jumps in online purchases from 2011 to 2012. Creating an easier way for consumers to pay for items, like the use of wallet apps, would increase spending globally. This could also have some averse effects if fraud sparks with these apps; in this case spending would decrease.