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