OPEC gunning for U.S Shale firms

OPEC is continuing to produce large quantities of oil, despite dropping oil prices, to gain global market share. They are doing this to make U.S shale oil producers cut back on production. The booming shale oil industry in the U.S has taken away from OPEC’s market share and also dropped oil prices because of the increased supply. If prices continue to drop, U.S firms will be forced to lay off workers or cut costs in other areas. U.S firms have cut dividends to make sure they don’t have to fire workers. The break-even point that would cause employee layoffs would be around $55 a barrel. Luckily oil prices are at $70, so this wont become an issue till down the road.

http://money.cnn.com/2014/11/28/investing/opec-oil-price-us-shale/index.html

Gas Prices

     Americans have been feeling more confident about the economy as of late due to a noticeable decrease in gas prices.  According to a recent poll, this is the first time 52% of Americans have felt this way in 8 years.  Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo, has forecasted prices continuing to drop below $2.70 and may even drop as low as $2.50.  Capital Economists also believe that these prices will remain this low into 2016.  The reason these prices are remaining so low is because OPEC met on Thanksgiving day and decided to not cut production.  Another reason has been the shale boom in North Dakota and Texas increasing supply in the market.  It is nice to see people finally feeling confident with our economy and I am hopeful that these low prices remain.

http://money.cnn.com/2014/11/28/news/economy/gas-price-cheap/index.html?iid=SF_E_River

Lower Oil Prices Will Underpin Global Auto Sales: Scotiabank Economics

http://money.cnn.com/news/newsfeeds/articles/marketwire/11G027314-001.htm

The car sales in 2014 have increased by three percent from the following year 2013. The automobile industry has a great impact in the U.S. economy considering there around 255 million registered cars each worth tens of thousands of dollars brand new. The increase of the three percent is most likely due to the drop in oil prices caused by a recent finding of oil present in America. In places like southern California, prices have dropped from four dollars a gallon to almost three and places like Ohio have gone down from three dollars to almost two. Gas is a every day necessity for a lot of people who need to commute to work or even school and with the prices dropping by a dollar, people can go out and buy maybe a newer car they want or a more economical one,  so when the prices go back up it will save them time from attending the pump and more importantly money. Sales went up when oil prices dropped.

Euro zone inflation back at five-year low in November

Source: http://www.reuters.com/article/2014/11/28/us-eurozone-economy-idUSKCN0JC0VW20141128

Annual inflation in the euro zone came in at 0.3% in November which shows concerns over deflation are still a threat. Data from Germany showed inflation was the lowest in almost five years. Germany is the euro zone’s largest economy. The European Central Bank has a target of nearly 2%. This has steadily lowered since 2011 when the target was 3%.  The cental bank considers any number less than 1% to be in its “danger zone.” In class we have discussed the negative effects of deflation. The ECB may decide to use quantitative easing to help stimulate the economy but there is some resistance from Germany from using a program like this. The euro zone unemployment is currently at 11.5% which is still a concern that may be more important than the inflation issue for the economy. Food prices and energy have fallen making a significant which is part of the reason for the low inflation. Removing those two from the equation core inflation is at 0.7% which is still low but not as concerning as the 0.3% number. 

Obama sets March 2016 goal for truck fuel efficiency rules

http://www.autonews.com/article/20140218/OEM11/140219856/obama-sets-march-2016-goal-for-truck-fuel-efficiency-rules

This article discusses the fuel efficiency and greenhouse effects of most trucks used for shipping things, describing Obama's plan to set new industry standards that would help in "lower[ing] costs for consumers and [the] development of new technology." The proposed plan would demand (of automakers) a fuel efficiency standard averaging at 54.5mpg by 2025. 

The problem is that while this plan would improve fuel efficiency, it would likely come at increased costs (at least for a while) as the company tried to recuperate those lost in the development of the new technologies. However, even then, many of the same cars have been available in Europe getting better mpg than those available in the US for years (see http://jalopnik.com/5981938/why-do-european-cars-get-better-mpg-than-us-cars for an explanation).

Either way, however, this benefit would not be immediate and would likely take a significant investment by the company, mandating funding by government or increased cost. Either way, then, consumers will end up paying for it.

“Savings Rate Portends Healthy Holiday Spending”

The savings rate grew to the highest it has been in two years in September to 5.6%. Since this time the rate has been declining and has been stable at around 5%. In turn, the amount consumers spent increased. It increased to 2.2%, which is higher than the estimate of 1.8%. Two reasons for the rise in consumer spending are rise in confidence and a drop in gasoline prices. Earlier in the year when the savings rate was climbing, it was a bit of a puzzle because the savings rate usually falls during a period where net worth is growing. It is estimated in the future that the savings rate should decline to around 4%. The 4% areas represents and area where consumers will not be “under-spending”. On the other hand, the Fed does not want consumers to be under saving either because they want families to have precautionary savings. The implication for this is that with consumers willing to spend more during the Holiday season, it should give the economy a little boost at the end of the year.

http://online.wsj.com/articles/savings-rate-portends-healthy-holiday-spending-1417207785

Benefits of a Permanent NFL Franchise in London

Since the 2007 season, the NFL has played 11 of its regular season games at Wembley Stadium, a rugby and soccer venue, in London, England. Gridiron football's popularity in the UK was reflected immediately in 40,000 tickets selling in the first 90 minutes of sale and over 81,000 fans in the stands on gameday for the very first game in October 2007. Estimates show that there are over 11 million UK-based fans and television numbers are on a constant and rapid rise. For the moment, Commissioner Roger Goodell and the NFL are reluctant to make a risky commitment to an overseas team, especially after the failure of NFL Europe, a separate football league based entirely in Europe. From the opposite perspective -- England's top tier soccer league, the English Premier League -- has taken a page out of the NFL's book and begun to give international tours for their top teams, such as Manchester United and Chelsea. The EPL has seen tremendous success in the states in recent years, enough so to inspire some team owners to invest in current American soccer teams and even start new franchises. International interest in both leagues is obviously strong and should be acted upon but the U.S. has their own domestic soccer league, taking the possibility of an EPL team off the table. The NFL, on the other hand, has no overseas competition and can take advantage of a tremendous potential in European interest. Travel details aside, there is a market across the pond and, with the money troubles of teams like the Jacksonville Jaguars and Oakland Raiders, an international move or franchise expansion should be considered.

I think it would be very cool to make the NFL an international league. It would increase popularity in the sport itself around the world and more people will start playing it, giving football a much wider audience and pool of talent to choose from. I love the international aspect of soccer and how its top leagues can choose the best athletes from around the planet. For example, top German club Bayern Munich has a team consisting of Dutch, Spanish, Brazilian, Polish, Moroccan, Swiss, Peruvian, Danish, American, and German players. The NFL is comprised predominantly of Americans and doesn't have a strong international presence. By expanding, the NFL will not inly have a new market to rake in the cash but the sport of football itself will see an increase in international appeal and become more competitive than it has ever been. I think an expansion to other countries, in the right situation and at the right time, would be extremely exciting for the NFL as a business and its massive fan base.

NFL in London

OPEC decides against Output Reduction

http://www.usatoday.com/story/money/markets/2014/11/27/opec-vienna-meeting/19570473/

Oil prices have been declining rapidly since June, falling about 40%. Crude oil prices have dropped to $69.11 per barrel in London, down from $115 per barrel in June of this year. The drops have led to the lowest oil prices since September 2010, which has been attributed to a number of different factors.

Oversupply, decreased demand, and an increase in North American crude production have all contributed to the drop in oil prices. One fact that I found very alarming was that OPEC countries have exceeded their "output target of 30 million barrels a day by about 600,000 barrels a day for the past six months." It is obvious that when combining all of these factors, the price of crude has dropped significantly which caused OPEC to meet and discuss what to do regarding the problem.

In the United States, this can be considered a favorable supply shock as it was in the 1980s. When looking back at the 1980s oil shock, we also observed a decrease in unemployment and inflation as well. Because of this, I believe unemployment will continue to decrease, at least for the next few months until the oil market settles or recovers.

Black Friday's real deal: Cheap gas

http://www.kcci.com/project-economy/black-fridays-real-deal-cheap-gas/29968338

The article argues that the best deal of Black Friday is low gas prices.  Gas costs 50 cents less than it did at this time last year.  Economists and CEOs of retailers predict that consumers will be willing to spend more this holiday season, simply because of the savings they will earn from lower gas prices.

The article continues to say that it is likely for gas prices to drop even further, a contributing factor as to why Americans are feeling better about the overall economy.  In a recent CNN poll, 52% of Americans think things are going well in the country now, the first time a majority of Americans have felt that way in eight years.

The article concludes by thanking U.S. drillers and OPEC for the likeliness of gas prices to stay low into 2015 and 2016, driven by the shale gas boom that is bringing a huge new oil supply onto the world market and keeping prices low.

I was not surprised to read that people will be willing to spend more this holiday season because of the savings they will earn from lower gas prices.  However, I found it interesting that simply because of lower gas prices, Americans felt better about the overall economy.  I think this can somewhat be attested to Keynes' Animal Spirits.

Opening Stores on Thanksgiving Day Doesn’t Lead to Profitability

Every year, an increased number of stores open for “Black Friday” shopping earlier and earlier.  It is no surprise that Wal-mart, for example, will open at 6:00pm Thanksgiving Day. The executives of these companies believe that it is necessary to open this early in order to match their competition and maximize sales.  Indeed, Thanksgiving Day sales grew by $1.8 billion. Except, Black Friday sales decreased by $1.5 billion.  Sales that would have occurred on Black Friday are simply occurring a day earlier.  Sales for the overall 4-day period grew by only 1%.  Since stores must pay workers to work on Thanksgiving and incur the costs of keeping their facilities open for longer periods, researches are finding this 1% increase in sales is not exactly resulting in net profits.

 In my opinion, if stores are not experiencing legitimate increases in profitability, they should return to opening on Friday morning.  This way, they are not luring workers and eager shoppers away from quality time with their families. 

http://money.cnn.com/2014/11/26/news/economy/stores-open-thanksgiving-no-sales-boost/index.html?iid=HP_River  

The Power of Pharma Giants

            A recent article in the November 15^th edition of The Economist discuses how the pharmaceutical industry is shaped by M&A’s more than any other industry. This is because a lot of big pharma companies like GSK, Pfizer, and Merck prefer acquiring other companies that are doing what they want to do rather than doing it themselves.

            What is interesting about the pharma industry is that companies are no longer aiming for the “sheer scale” method. Up until recently companies used to just develop as many drugs as they could and not necessarily specialize in any specific area; they preferred breadth over depth. However, as of recently big pharma companies have started to specialize in order to gain more market share in their decided field. A study done by a consulting company known as Bain & Company found that over the past 20 years the 10 most successful pharma companies in terms of stockholder returns all used M&A’s to build market share in select areas. A good example of this is how recently GSK has swapped assets with Norvatis so that GSK can strengthen its leads in vaccines and Norvatis its standing for cancer related drugs.

            Another thing that pharma companies are doing is acquiring smaller pharma companies. A big part of being successful in the pharma industry is being able to come up with a good idea. So, if big pharma companies aren’t able to come up with an idea they just use their billions of dollars in cash to acquire a smaller company that does have a good idea. For example, Merck put forth a deal to purchase Idenix for $3.9 billion. The reason Merck wanted to acquire Idenix was to strengthen its pipeline for hepatitis treatments. Recent studies done by Bain, a consulting company, have shown that over 70% of the best performing pharma companies have not developed their drugs in house but instead acquired smaller companies.

            A big question to most is why exactly are these small companies with great ideas selling themselves out to the pharma giants. Well, a big part of the pharma industry involves having the expertise to organize clinical trials, deal with regulators, and get drugs successfully to market. This expertise is something that the smaller, naïve per se, pharma companies lack. So, deals between the smaller and larger pharma companies allow the larger companies to not have to come up with their own ideas and allow the smaller companies to not have to worry about developing and marketing their drugs as well as jumping through regulations. One last and commonly overlooked reason is because a lot of the pharma giants are in countries with heavy taxation rates. So, they simply just acquire companies that are based in countries with low tax rates so that they can develop a drug there and pay taxes for that respective country. This is why so many pharma companies in Ireland have recently been bought up. 

US economy grows faster than first forecast

http://www.bbc.com/news/business-30191076

The US economy grew much faster in the third quarter than the original report. After a strong second quarter, the increased growth has been a welcoming sign for the economy getting back on track. The strong showing has been linked to a rise in consumer spending which accounts for 70% of the US GDP. 

The future expected growth will be hard to predict but this has been the best growth in a decade. The recent rise in the single-family housing prices can be great predictor of the growth in the economy. However, the recent may led to a rise interest rates and with the end of quantitative easing. In October, the Fed announced that interest rates would stay the same for a considerable time. A change in the interest rates may lead to different expectations thus effecting the future outlook for the fourth quarter and next year's expectations. 

A Business Owner Blames Search Engines for lost sales

http://boss.blogs.nytimes.com/2014/11/24/a-business-owner-blames-search-engines-for-lost-sales/?ref=business&_r=0
By Adriana Gardella

Baldino's lock & key had annual sales of about $6.7 million but in 2008, sales started to decline and fell to $4.7 million in 2013. Mark Baldino the owner of Baldino's lock & keys blamed search engines for the drop in sales, saying search engines publish thousands of listings for unlicensed locksmiths which makes it harder for consumers to find his company amid the clutter. He went further to say that search engines benefit from including 'phony' locksmiths because these listings force Baldino's and other legitimate locksmiths to pay for ads to help their business appear higher in search results. Baldino sued Google, Yellowbook and Ziplocal in federal court for violating various federal and state laws, including the Lanham Act which deals with false advertising. The defendants profit frim knowingly listing unlicensed locksmiths. More specifically, Baldino's complaint says that since 2002, it has paid a total of nearly $1 million in advertising fees to the defendants to remove all fraudulent locksmith listings.

On the other hand, lawyers of the defendants argue that "There is no legal obligation for the defendants to do what Baldino is telling them to do", saying that the claims by Baldino's cannot satisfy the requirements of the RICO and Lanham Act and that the defendants were immune from liabilty according to the Communications  Decency Act, which protects many online intermediaries that publish information provided by others, with some exceptions.

Would you be like Mr. Baldino and take actions to restore sales or allow the defendants to list whomever they want? After all, the defendants are also running businesses.

Fiscal policy concerns flagged in economic outlook report

Government now increases its spending to deal with recession. US reached its debt ceiling in 2011. This made Congress rose the debt ceiling, so the rating from Standard and Poors downgrade.  Federal Government shut down for few days in October 2013 because of the difference of budget.

The effect of fiscal policy affects stock and bond. Firms' decision is heavily affected by the fiscal policy. If the policy is not clear enough, firms may postpone new projects, move them overseas, or abandon it. The debt ceiling influences the amount of debt that U.S. Department of Treasury can give to bond holders. Eventually, it affects both investment-grade and high-yield debt securities. At the end, the IMF gives out 6 main priorities for fiscal policy.

The government increases spending in order to decrease real interest rate. This policy is to attract people to consume more. However, it has its down point. More people have incentive to borrow more. Therefore, the result is the Congress rose the debt ceiling. Federal Government then encountered problem: budget deficit. Since the government increases the spending, its budget decreases. With so many people wanting to borrow, the budget deficit increases. Therefore, Federal Government shut down in October 2013.

Also, the key that IMF gives out has so many contradictions. To lower the health care cost equals to decrease tax. This may boost the real interest rate. If so, investment decreases. This will be harder for Government to increase investment. Also, another goal is to increase spending on infrastructure. Recalls that the Federal Government used to have so much deficit that forced it to shut down for few days, why increasing spending more? This makes the fiscal policy more unclear, therefore, may affect badly on stock and bond like the article mentions. 

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels

The solar and wind industries in the United States have had a "long-held dream: to produce energy at a cost equal to conventional sources like coal and natural gas" and the dream may be a reality soon. The costs of providing electricity in these nonconventional ways has decreased significantly since 2009, and it is now cheaper in some markets. Several companies in areas like the Great Plains and Southwest, "where wind and sunlight are abundant," are signing power purchase agreements that are cheaper than contracts for natural gas.
Some of the smaller cost is due to subsidies that may not last much longer, but recent research shows that "even without those subsidies, alternative energies can often compete with traditional sources." Companies pass these cost savings onto their customers. There are other costs associated with wind and solar energy, which is intermittent and requires another power source "that can respond to fluctuations in demand."They are also not dispatchable, so it is not likely that these energy sources will completely replace conventional power plants.
But still prices have dropped a substantial amount.  In some areas "the price of electricity sold to utilities under long-term contracts from large scale solar projects has fallen by more than 70  percent since 2008." The industries have achieved lower costs through "a combination of new technologies and approaches to financing and operations" but they are not quite ready "to give up on their government supports."It is unclear in this political climate whether federal government support, such as tax credits, will be renewed in the coming years.
Its exciting that renewable energy is becoming competitive. The accessibility will increase its use, which is a step in improving the health of our environment.

Source:http://www.nytimes.com/2014/11/24/business/energy-environment/solar-and-wind-energy-start-to-win-on-price-vs-conventional-fuels.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

http://www.economist.com/blogs/buttonwood/2014/11/geopolitics-and-oil

This article shows the relationship between the price of oil, and Russia's willingness to cross borders and invade countries, detailing Afghanistan, Georgia, and Crimea as it's examples. What is seen in graphs in the article is upon Russias invasion of these nations, we see a steep decline in the price of oil. It is speculated that high oil prices give the Russians confidence, and upon their invasion we see an inflated confidence in the price of oil resulting in a crash of the price. This was the soviet unions downfall, and the article notes that Russia's economy is already showing signs of crisis. The Russian ruble is at a low point, and if Russia sees high oil prices as a positive sign for their economy, invasion of Ukraine could spell disaster for the large nation.

Murders in Jerusalem

Keep God out of it

The Israeli-Palestinian conflict is drifting dangerously towards religious war

http://www.economist.com/news/leaders/21633812-israeli-palestinian-conflict-drifting-dangerously-towards-religious-war-keep-god-out-it

This article talks about the recent attack at a synagogue in Jerusalem.  The attackers killed four worshipers and one policeman.  The article states that the pushed further from a dispute over rival nationalism and closer to one about religions and Jerusalem.  If a full out war erupted in this region there would be large economic implications for countries all over the world.  Whether it comes from countries who enter into the war as allies of a country or countries losing trade with certain countries in this region.  I specifically found this article interesting because of religion classes I have taken with Doctor Eastman.  He has said that it is going to be extremely difficult to ever come to a peaceful resolution between these countries, because to them it is not a matter of governments disagreeing.  Rather, their dispute dates back thousands of years both sides of the conflict are fighting over a land that they feel was promised to them by god, and in their eyes Jerusalem belongs to them and them only.  Sharing Jerusalem is not an option at this point to them.  There will always be unease and contest over Jerusalem and this conflict is bound to continue affect the economies of Israel and Palestine as well as anyone who involves themselves.

Target is giving away money to get you to shop

            According to a CNN Money article, Target is offering “free money” to customers by offering 10% off gift cards on Black Friday. Other in-store discounts that Target is offering during the holiday season include $50 off Beats headphones and $10 off an Apple TV if customers order online and pick up their items at a store.

            Target is using these in-store discounts to bring customers into their stores, ultimately hoping to encourage them to spend more money than they normally would online. They are hoping that these promotions will help them recover after the data breach that decreased in-store sales during last year’s holiday season.

Target stores will open at 6 p.m. on Thanksgiving Day, two hours earlier than last year. They will also offer some online-only deals for those who don’t want to deal with the crowds on Black Friday.

The article mentions that online shopping growth is expected to be far greater than in-store growth this year, so it will be interesting to see what kind of effect these in-store deals have on Target’s holiday sales.

Source: http://money.cnn.com/2014/11/10/news/economy/target-holiday-sales/index.html?iid=SF_E_River

Video games are getting respect — as big business, entertainment, creative discipline

       This article discusses the untapped potential of the video game industry in the United States. Now a days, it seems that everyone plays some type of video game. In fact, video game sales last year totaled 21 billion. That's more than the movie and music industry combined. However, our video game market falls behind others. Countries in Asia and Europe have made gaming into a spectator sport. They sell out arenas and have large monetary rewards for professional gamers. Something Americans probably scoff at. However, video game experts believe that this is where the US is headed. Creating this mass market for video game tournaments and viewing can only benefit the economy. While watching people play FIFA or Call of Duty in a stadium doesn't appeal to me, or probably a  lot of people, there seems to be a large market for it bringing us into the modern age of sports entertainment. 

http://www.washingtonpost.com/business/video-games-are-getting-respect--as-big-business-entertainment-creative-discipline/2014/11/21/c7fd4e78-6f64-11e4-893f-86bd390a3340_story.html