The Federal Reserve sparked a trend of higher interest rates for the first time since 2008 on Wednesday, December 16, 2015[i]. Since then, the Federal Discount rate has gone up by many basis points (bps) numerous times. Although this increase seemed insignificant to some, the trend should continue changing debt structures and eventually profitability margins of corporations.
Graph 1
The main change comes from an adjustment in the Weighted Average Cost of Capital (WACC) for the average corporation. Since the increase in the cost of capital is interpreted as an externality, this would create a shift in the WACC from WACC-i to WACC-ii, as shown in Graph 1.
Figure 1
Taking a closer look at the WACC, it’s clear that an increase in the cost of capital will derive from the cost of capital before taxes [Kd] found in Figure 1. Going forward, acquiring money for corporations is going to be costlier, and as a result, fewer projects should be approved since more of them will become unprofitable. The result is that companies holding heavy debt burdens or negative cash flows will find it a lot more difficult to finance their losses. It will be interesting to see how industries perform against the S&P 500 in this new world of higher interest rates. If we treat this as a cycle, it began on December 16, 2015, and will end when the next time the Federal Reserve decides to lower interest rates again.
Tax Reform:
The U.S. Tax Cuts and Jobs Act is also a significant externality affecting corporations as it could decrease the cost of borrowing after taxes as shown in Figure 2. This should have a positive impact on earnings per share (EPS). Although the cost of debt (Kd) will go up, the amount paid in corporate taxes will go down. Higher interest rates and lower corporate tax rates have happened simultaneously only a few times in recent history. Given that these developments affect corporate profitability, they should become significant factors affecting equity performance for some time to come as these forces act as significant externalities on the market.
Figure 2
Historical Outlook:
Finding time periods where the Federal Discount Rate increased as corporate tax rates decreased can give us a clue as to what might happen in the future as both of these effects become more significant. Specifically, we can look at companies that outperformed the S&P 500 during periods of higher interest rates and lower corporate tax rates.
Graph 2
Graph 2 shows three periods when the federal discount rate increased as the corporate tax rate decreased: 1964 to 1966, 1979 to 1980, and 1987 to 1990. Although these periods are in different stages of the business cycle, they can serve as proxies to see which industries will outperform the S&P500 under these new conditions. To test these three periods against the S&P 500, a paired samples t-test with a 95% significance level was performed between 49 industries and the S&P 500[ii].
Null Hypothesis:
Alternative Hypothesis:
Table 1
Net Neutrality:
From the results shown in Table 1, the telecommunications industry stands out the most due to the changes in net neutrality laws, which recently have mostly been dismantled [iii]. This should allow telecommunication companies to increase their EPS as they expand their Internet services throughout the country[iv]. Although it is uncertain whether companies such as Verizon and AT&T will be able to increase their market shares, the demand for a more extensive telecommunications infrastructure is very likely as we get closer to 5G cellular technology[v].
Graph 3
Dollar:
The decline in value of the U.S. dollar, as seen in Graph 3, is also a significant trend that affects telecommunication companies with exposure to emerging markets since the USD has been decreasing significantly for over a year and is set to keep declining in 2018[vi]. As emerging and developing currencies continue to get stronger against the USD, it should be easier for people to acquire Internet services, which should increase revenue for telecommunication companies. This is because emerging and developing market economies will be able to spend more on infrastructure and increase private consumption as their purchasing power increases.
Global Growth:
From a macroeconomic perspective, emerging and developing country growth also presents an opportunity for telecommunication companies exposed to emerging market economies. Recently, revisions were made for emerging markets and developing countries to grow to about 4.5%[vii] in 2018. The fact that emerging market indexes have increased at a faster pace relative to the S&P500 is an indication that if this trend continues, emerging markets might outperform the S&P500 again in 2018, calculated by Figure 4 and shown in Graph 4.
Figure 4
Graph 4
Ratio analysis:
A closer look at the telecommunications industry suggests that the companies best suited to take advantage of these changes in the market are companies that should not be heavily impacted by the rising cost of debt. As a result, companies with the best liquidity ratios and cash reserves within the telecommunications industry should have an advantage over others that are not as liquid or overleveraged in the next couple of years. More importantly, companies that can use their assets effectively to generate profits, should be able to continue to grow at previous rates.
Table 2
Although the companies that stand out in Table 2 are AT&T and Verizon Communications, other companies such as American Tower also hold massive amounts of free cash flow to the firm (FCFF), which puts them in a prime position to increase their market capitalization and grow in a higher interest rate environment.
American Tower:
Table 3
American Tower Corp (Ticker: AMT) is an owner, operator, and developer of multi-tenant communications real estate. The company profits from leasing space for communication sites to wireless services and wireless data providers in the U.S. and abroad. Using the basic premise that a firm’s value is the present value of its projected future cash flow, we can get an idea of the company’s fair value using multiple-price methods for valuation as shown in Table 3.
Table 4
Deconstructing the EPS of American Tower in Table 4 reveals that it’s firmly poised for growth. Although financial leverage is increasing, the total asset turnover and total profit margin are also increasing, which is a sign that it’s putting its assets to good use. This is reflected by the fact that its return on assets has increased by 20% from 2016 to 2017.
Graph 5[viii]
This growth could happen via a combination of 5G technology expansion in the U.S. and higher wireless and broadband penetration in emerging and developing countries as shown in Graph 5. Specifically, high growth will be observed in countries such as India and Nigeria, where mobile broadband penetration is still low compared to other rapidly emerging countries.
Graph 6
Externalities:
American Tower is in a rare position to profit from higher interest rates, lower corporate taxes, deregulation of the telecommunications industry in the U.S., a declining dollar, and rising global growth. If deregulation incentivizes telephone companies to upgrade their services to 5G technology, it should be easy for American Tower to increase its profit margins as it increases the number of towers leased to more companies at higher prices. Additional growth in the company’s earnings will hinge on emerging and developing country growth, which should continue in 2018 as shown in Graph 6. Given the current economic externalities and emerging and developing country growth trends, American Tower is a company that might merit a closer look for some investors.
References:
[i] https://www.federalreserve.gov/monetarypolicy/fomcpresconf20151216.htm
[ii] http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html
[iii] https://www.nytimes.com/2017/12/14/technology/net-neutrality-repeal-vote.html
[iv] https://www.nytimes.com/2017/11/21/technology/fcc-net-neutrality.html
[v] https://blogs.scientificamerican.com/observations/the-downside-of-net-neutrality/
[vi] https://qz.com/1164158/the-us-dollar-just-had-its-worst-year-in-more-than-a-decade-and-2018-will-bring-more-of-the-same/
[vii] http://www.worldbank.org/en/news/press-release/2018/01/09/global-economy-to-edge-up-to-3-1-percent-in-2018-but-future-potential-growth-a-concern
[viii] http://www.americantower.com/Assets/uploads/files/PDFs/vendor-relations/investor-relations/2016/AMT%20International%20Overview.pdf
After reading the article I gained a little more knowledge of how our economic system works. Having worked 8 years in the banking industry I was familiar with the effects of increasing and decreasing interest rates. It highly impacted how consumers chose to invest their money. Higher interest rates positively impacted those who had money invested in money market accounts, annuities, and cd’s. However, higher interest rates had a negative impact on consumer and small business lending. Consumers interested in home ownership, and on the business side mismanaged corporations largely in debt.
The combination of increased interest rates and corporate tax cuts would seem to bring some balance…If ran correctly tax cuts enable large corporations to invest and allocate resources to expand projects, which works as a gateway to more employment opportunities, and possible wage increases. Unfortunately tax cuts for corporations, aid in some corruption and only seem to benefit the wealthy. The CEO’s and shareholders of corporations are who benefit, not the consumer.
Based off what i have read about this article it seems that telecommunication companies are on the rise of gaining more profit than any other company due to the emerging market and customer needs. at&t and verizon are the top two providers currently and continue to grow everyday. American Towers is very important as well because it allows the united states to start investing outside the country and with other countries prime example of emerging markets. i believe thats where our money should go.
Low interest rates is the way to go if a business is going to profit much in the long run. There will be a lot more clients this way
This article made me aware of the tax cuts benefiting businesses and how they might be affected in the near future. A large amount of countries in the world have emerging markets and this could mean that US companies could profit from the global growth if they now how to put their assets to work properly. As the purchasing power of emerging and developing market economies increases, those economies shall be able to expend more on both infrastructure and private consumption. In spite of the fact, that the US dollar is declining a various measure of cash is as yet being pump into this industry and it is continually developing. With higher interest rates handed down by the Federal Reserve and lower corporate tax rates, huge gains could be in the near future for corporate infrastructures. I conclude that the telecommunications industry will boom in the near future due to the modernization of 5G data. 5G technology expands as a result of deregulation, then there are higher chances of profitability from consumers in the U.S. and other countries.
The Federal interest rate hike is always an interesting topic to me. I really found it fascinating how savings accounts used to have large interest rates compared to abysmally low ones found today (~0.01% in most large banks). Of course, interest rates being high like that would act as a massive albatross around the necks of anyone looking to borrow any money and eventually would lead to fewer large companies springing up and fewer entrepreneurial efforts on the part of individuals. I imagine that this was the main justification behind keeping the rates so low; so that the economy would get some much needed stimulation after the recession. But the comically low rate we have now is because of too much economic intervention and I think that the rates should better reflect the overall state of the economy rather than an artificially hopeful version of it. We shouldn’t try and prod the economy along and instead just let it breathe and allow businesses and consumers alike to decide when to take risky ventures and when to tighten their belts. This would allow for a more natural economic cycle and not one in which we have to constantly scramble to try and ‘fix’ the economy when it does something we don’t like. Sometimes the economy can be slow, and that’s Okay.
Externalities and Growth. This article gave me a lot more knowledge of our economic system. Increasing and decreasing interest rates have various effects. As a result, it changes the mindsets and attitudes of investing in stocks. Higher interest rates impacted those who had money invested in a money market account. The higher the interest rate the worse it is for the smaller businesses.
I found it very interesting that companies such as AT&T and Verizon hold massive amounts of free cash flow which puts them in a position to increase their market capitalization and grow in a higher interest rate environment.
The article, Externalities and Global Growth, explains how the profitability and growth of some companies are not particularly affected by the constant increase in the Federal Discount rate. Moreover, some other companies have become so strong that they have outperformed the S & P 500 even throughout a course of higher interest rates. I assume one of the reasons that some companies have experience significant loss of profits is probably because although the interest rose, their corporate taxes decrease. This decrease in taxes helped in some way balance the burden of higher interest rates.
Also, it shows how the American Tower not only outperformed the S & P 500 despite the higher interest rates. The company projects of continuous growth in the middle of some negative and positive circumstances. They benefited from the lower corporate taxes and the deregulation of the telecommunications market in the United States.
The Externalities and global growth article made me gain knowledge on how some aspects are negatively and positively affecting businesses as of today. The tax cuts and increase in interest rates that have recently been implemented in our economy will more than likely affect some companies and benefit other companies. Money for corporations will be more expensive therefore causing fewer projects as there will be less profit that will come out of it. The high interest rates of today will affect companies that are in debt or negative and will suffer to recover from their economic loses. Small companies will suffer from the S&P 500 due to the increase. Not all companies will see negative effects as companies such as the telecommunication industry will benefit from these high interest rates. AT&T and Verizon and the current interest rates of today will have free cash flows in their favor to increase their market capitalization. The telecommunication company with the market of today will strive as the technology is changing due to improved technology. The American Tower is interesting to me as instead of it becoming affected by the rise of interest rates, low corporate taxes, the decreasing US dollar, and rising global growth; it benefits from all. If one were to invest into something a smart decision would be to invest towards American Tower.
After reading this article Externalities and Global Growth, I feel as our country becomes more developed and grows, so will telecommunication companies. Newer technology will play a big role in the growth of these companies. It seems from this whole article, the biggest point is that companies like At&T, Verizon, and American tower will grow tremendously and knowing that we should have a plan of action to make some money off of this as well. Possibly through investments of sorts.
The view that net neutrality rules being dismantled will increase the EPS for Internet Service Providers is correct in my opinion, however it is one of several factors to consider. The internet has flourished over the last 30 years with a complete absence of Net Neutrality rules. In recent years, those who create internet content such as Facebook, Alphabet Inc, and Netflix to name a few have been creating content that requires more and more bandwidth to transmit the data. The idea that internet service providers can’t charge a premium for extra load placed on their network by HD streaming services is absolutely asinine. That would be like insisting that a hairdresser charge the same amount to shampoo, cut, and color a woman’s hair as they charge for giving a man a buzz cut. Even though both are similar services for people’s hair, one of them takes much more effort and time. The obvious effect of a rule that mandated the same charge for both services at the hairdresser would mean a higher price for the man’s cut, and the same applies for internet service. More infrastructure is needed to handle the higher loads and the cost of that is going to be shared by all not just by those who utilize it.
This is an important article for everyone to read. It speaks about the Federal taxes and the discounts corporations get. Many things have changed within our last two Presidents. With an election coming up keep in mind the graphs we are looking at. Mostly all the candidates will bring up taxes in their speeches. This will affect you as a tax payer and the company you work for if you are an employee. It will even affect the people that own their own businesses. I know my boss was happy when President Trump was elected because it helped his small business with taxes. But on the other hand it affected me with my taxes. I have a daughter and I was able to get a $2000 tax break for having a child. Before, I was only able to get $1000. These are all day to day things that affect everyone. Another thing to keep your eye on is the interest rates. That is how the banks make their money with interest rates. Please read the charts because they can help you when you go for a loan at the bank.
This article was very interesting to me and it helped me realize several different things about externalities and global growth in the field of economics. The article basically goes into further detail about how companies and businesses stay alive in this crazy world of business and how money and activities affect them. Interest rates are a major game changer for businesses because it allows them to see if it is worth investing or to just walk away. The cell phone tower provider service was a great example to what the author was talking about. He gave different facts and reasonings behind each graph and example given. The article also talks about how global expansion could increase with the technology of these cellular companies and the new technology of 5G service. With that being said, this growth and expansion of 5G technology is allowing companies to make a greater profit, while also allowing the externalities and global growth to expand before our eyes.
This article helped me understand more about how different externalities can impact the economy and how it can affect any business. The telecommunications industries is a very competitive business and even now with more technological advances taking in place. The article gave many fact and statistics of which business can succeed in a world of high-interest rates, and most outstanding company that can profit from higher interest rates, lower corporate taxes, a deregulation of the telecommunications industry in the U.S., a declining dollar, and rising global growth would be American Tower due to its massive amount of free cash flow in the company.
Just like businesses can succeed, interest rates can also make it harder for the economy to grow. It’s good to have high-interest rates to decrease or lower the country’s debt. It can be a serious sacrifice to run a corporate business when there are such high-interest rates in which the price of producing inputs cost more than the profit made from outputs. It is very interesting to know how externalities and global growth have such a big impact on the economy. Companies that have a good success rate in the market and continue to provide excellent services are more likely to flourish due to the reason that cell phones and the internet have a big impact on society, this can help explain the fact why many investors would invest in these companies.
Maria Pineda
“Externalities and Global Growth” is a very interesting article. I can better understand it after taking the Macroeconomics class and see how higher interest rates affect us. Every time the federal reserve decides to make a change like higher interest rates, it will always benefit one group and affect another. Not just the Federel Reserve, but the changes our president made as well with the tax reform. In a time of crisis or of changes, there is one group that does extremely well. Taking manangerial accouting also helps me to better understand the chart for the American Tower and the turnover ratios that are very important as well. According to the article, the telecommunications market right now is in the best position to expand and do very well. Seems as time passes, technology in telecommunications expands and makes leaps in everything that they come up with. 5G technology just resembles how we want more and more and are very technology and communication driven. The emerging markets can also be seen in different areas of our economy and these emergin markets are what make it stronger.
This article is really an eye opener. I found it extremely interesting how combining corporate tax cuts and higher interest rates affect different companies. Normally, I find it difficult to see from the perspective of a corporation and consider what drives them to make certain decisions. However, after seeing the facts laid out here, it was much easier for me to understand the material. I always thought that since corporations are so big, they would barely feel the effects of high tax, but after reading this article it looks like the effects are hitting them even more strongly. It also looks like while some corporations may suffer from the high taxes, others gain a huge profit from it due to the decline of the USD. Not only did this article help me further understand different companies but it provides graphs and facts that can be useful for company advisors in the future.
If the trend of higher interest rates continue, the profits of companies can drastically change. The value of the US dollar has to be in a healthy position or else it will be the end of most corporate companies. It will be exciting to see what the federal reserve will do with the loan % in the next 10 years. We will continue in the mean while to see a trend of higher interest rates that will be bad with company profits. Companies with good cash flow and cash on hand will be the ones that will survive the high interest rates so that they do not fall back behind.
I learned in class its beneficial for the U.S to merge market systems with other countries, because that will lead to global growth. I think this article states that very clearly with using telecommunications like American towers which allows big corporations to invest outside of the U.S. I also learned how interest rates play a crucial role to how a business will come out. If we keep interest rates high the less chance of a smaller business having success.
This article was very interesting to me in the respect that corporate tax cuts and higher interest rates effect different companies in different ways. Taking this Macroeconomics class has helped me realize that no matter what the fed does it will always be good for one group and not good for the other group. I also found the part of this article that discussed companies that outperformed the S & P500 very interesting.
This article talked about externalities and how it affects the economies and industries around the world. Externalities are seen all over the world through the ever changing nature of our society. This is best seen through emerging nations whose markets are relatively untapped. Interest rates are explained in depth, which as shown decreases as the weighted average cost of capital increases. A big externality in industrial growth is also seen in tax reform. With tax rates, there is a tendency for the maximum tax rate to go down when the federal discount rate goes up (and vice versa). Another externality that can be seen with global growth is seen through the telecommunications industry. Concepts like net neutrality and 5G technologies show that massive growth is about to occur in the telecommunications industry based off the fact that these are relatively new parts of the market that have yet to be cornered until recently due to recent rules and modifications.
The biggest correlation I see in this article to the real world would automatically be how the cost of capital and how it affects corporations in a huge way. The first company that comes to mind is Netflix and how if the cost of capital increases could affect the growth of the company and a possible downfall. With Netflix taking advantage of low interest and tax rates when acquiring capital to produce in house produced movies and TV shows. With the price of capital being cheaper than in past year Netflix has exploited this when producing shows as of recent but it could look different in the near future. With some speculating that interest and tax rates to rise in the near future, some companies such as Netflix and many other companies using cheaper capital to their advantage would not benefit on rising interest rates due to the price of borrowing being more expensive which is the biggest connection I drew from the first part of the article. With emerging markets having an increase in their currencies value increasing the mentioning telecommunication companies I see a real world example of this within Mexico and the phone company Telcel. With the exchange rate of the Mexican peso and the U.S. Dollar becoming tighter, the purchasing power of Mexico and emerging markets are expanding making for more advancements in technology such as 4G LTE service being more available in the past. But as seen in History, if he value of the dollar changes for better or worse the the purchasing power of emerging markets could fall or rise. It is also very interesting that some company’s could indeed profit of of high interest rates with lower corporation tax such as American Tower company. Because with lower tax rates the more on hand capital a company is to have and willing to invest in such as other external markets seeking products and service from these companies yet will pay more for those goods because of interest rates rising.
I like how this article highlights how corporate tax cuts and higher interest rates can positively effect large companies but can negatively effect smaller companies. It is important for larger corporations and companies to be able to benefit from tax cuts, so that they can put more money back into the economy, and built up their infrastructure and investments which will create more output and more jobs. High taxes and strict regulations on large companies actually prevent the economy from growing. The telecommunication companies are in somewhat of a sweet spot, and will likely draw investors with their ability to succeed under the given circumstances. American Tower will have the chance to expand its company and, if deregulation occurs, will be able to expand to new and developing countries. Less regulation provides more incentive for companies to grow and invest, which helps the overall US economy and also foreign economies. I have no doubt that the telecommunications companies will boom in upcoming years, and this is positive growth that the country can look forward to. There is an upside and a downside to all of this, and it is true that smaller businesses may suffer from these high interest rates, while large corporations continue to grow.
I think it’s interesting that Timana mentioned the affect that net neutrality has had on the market of technology as a whole. If net neutrality becomes something that congress considers and ends up passing, I believe it would stunt the growth of the market and would be detrimental to telecommunications. But for now, net neutrality is on the back burners, which will help telecommunication companies and they’ll profit heavily from it. Since higher interest rates will least impact telecommunications companies that have more cash on hand, I believe it is a good idea to consider investing in those companies. Although interest rates are higher, decrease regulation and lower corporate taxes will help some telecommunications companies grow. Investors would be wise to identify telecommunications companies with lower debt that are able to capitalize on deregulation and growth in emerging markets. Telecommunications companies with a large U.S. presence will continue to benefit from deregulation and lower taxes.
The article is definitely an interesting read. As the tax reforms hit companies are going to be affected and so will all our personal lives. What I find interesting is the telecommunication industry is helping emerging markets grow much faster, outperforming the S&P 500. Not only are the emerging markets going to thrive, but also the telecommunication companies that expose themselves to these emerging markets. The co-mingling of the two can be linked to global growth, which could be seen as normal because of leader countries introducing new technology to the follower countries, such as India. The unnatural position American Tower Cop is in can be broken down to their cash flow. Since AMT has a large abundance of free cash flow, as investors we can realize that their potential to grow is even greater than a company like InterDigital. Lastly, I believe that the ability to expand to these developing countries stems from the deconstruction of the net neutrality rules; in the future, it will be fascinating to see if these growths can be linear, when and if the net neutrality rules are revised or gone for good.
mmigration today compared to what it was in our grandparents days is that the illegals today get benefits for their children. They get free medical care the rest of us pay for. They get welfare benefits if their children are born here. Everything free at our expense.
That wasn’t the case in the early
20th century when immigrants didn’t get welfare or benefits they worked they were not a drain on the system they contributed to the system. They came here to assimilate they learned the language.
Today immigration is ok according to the liberals and Democrats if it’s illegal not if its legal.
Today our whole value system is the complete opposite of what it was in previous generations.
I am interested to see how this plays out. It would make sense for the corporate tax rates to be lowered. With lower tax rates businesses and corporations could take on more, thus selling more or expanding their corporation. Less money owed to the government by the end of the year, means more money for them to work with. American Tower for example could use the money they are saving in tax cuts towards upgrading their current services and expand their region. Also, with a larger output rate due to lower taxes, means more supply for the demanding public. The more the public buys, the more money is in our economic system. The more money in our system means a healthier economy. Even though interest rates are higher, lowering corporate tax rates could help feed the US economy. If trends continue, interest rates could even be lowered. If interest rates were to be lowered it would make the borrowing market boom.
Kathy Allen May 5, 2019
When I was reading Externalities and Global Growth three items caught my attention: the increase of interest rates and how it affects Big Corporations, the deregulation for the telecommunication industries, and the diminished value of the US dollar.
In recent years the Federal Open Market Committee has approved the increase on interest rates for business and personal loans as I have discovered in my research on interest rates. Big Corporations have an advantage even at a higher rate because they will have a lower tax bracket during tax season, but the small established businesses and new startups don’t qualify for these benefits which could mean going out of business or merging with like industries to survive.
In a previous class, Environmental Science, I learned about the importance of regulations and laws that had been put in place to protect our local and global environments from big industries. Regulations have been put into place to protect the wildlife and environment from being over taxed or destroyed by telecommunication construction, amongst other industries, but these same laws have become deregulated in recent years for the sake of corporate profit more than necessity, which I find disturbing. However, I am in favor of growing through development of technology, like 5G cellular fiber optics with the opportunities of cost advantage for the consumer. However, I believe in adhering to regulations and following protocol procedures in respect to our economic and environment infrastructure to preserve the balance between consumer need and environmental preservation.
The subject of the weakening US dollar was an “aha!” moment for me because I personally have not been paying attention to its worth compared to other monies. While inflation and the cost of living may suffer from a weak US dollar, it is an advantage for foreign investors as well as immigrants looking for cheaper countries to live in, as their currency may have a higher value than the US dollar when bringing it to the country. It also leads people in the US to invest their money in other countries where the US dollar is stronger than the local currency, strengthening the global market economy while hurting the US economy as money flows away from local businesses.
Shortly after President Trump took office, the stock market jumped significantly, and the economy took off. Trump promised a level playing field to corporations who responded by bringing manufacturing and skilled-labor jobs back to the United States. With new jobs and economic growth, the Federal Reserve increased interest rates to keep the economy from expanding too quickly, as it has done in the past. Professor Timana discusses this “externality” and explains how it negatively impacts corporations by making borrowing money costlier. But, other economic factors, meaning other positive externalities, can more than offset this impediment depending on the industry in which the investor is interested. This blog focuses on the telecommunications industry, an industry which interests me, and I’ve researched to write a term paper on the topic of net neutrality. I agree that companies in this industry create a good investment opportunity because of the global factors. These companies can take advantage of merging economies with high growth potential that can increase their profitability. Although I am still spending money on my education, I appreciate Professor Timana’s thoughtful blogs and investment ideas.
Though net neutrality seems to have a bad reputation in the media lately, from an economics standpoint it may be the future. I realize now the importance of analyzing every piece of an economy before making decisions regarding economic laws. I found the section of the article that discusses the growth of companies that sell capital goods related to technology very interesting. It is a common fact that technology is one of the most important aspects of the progression and improvement of humanity. It is interesting how there is a formula to determine the most productive company, not just industry. Using this formula, investors can not only calculate whether technology, like smartphone providers, is a good investment choice, but also calculate which company, Verizon, AT&T, or Sprint, is most prepared to grow under massive economic change. These calculations highlight the importance of the difference between developing countries versus already developed countries. It is another known fact that technological changes are more drastic within countries that are still developing, as the innovations made in these countries can be done cheaper.
Just like everything the underline is money. The Federal Reserve in a way controls everything by being able to lower or the interest rate or raise it when things are going good and bad. When the Federal Reserve has a big impact on how much money business get or how much it can profit from a job that they are doing especially if they are borrowing money from banks. But just like everything there is a trend in everything and one must learn how to work it for the best for oneself and make the best of worst times and make a killing during a great opportunity. Companies that are able to do this are always the ones that are able to gain a big advantage over the competition.
This article is very interesting to read, and it presents plenty of information about externalities in relation to global growth. Prior to reading this article, I was already aware of the talks surrounding net neutrality and its implementation. In my perspective, if net neutrality does get actually get passed, then I could see the telecommunications companies suffering as a result. Stemming from this is regulation. The less regulation there is in companies, the more freewill the companies have and the more likely people will invest in those companies. The use of the many graphs and charts helps me picture what the effects will be like and helps me predict a future occurrence; also, the idea of free cash flow was mentioned and I understand he effects of free cash flow due to taking financial accounting class. With the expansion to 5G technology, this allows the companies, and the area of telecommunications, to expand on a national and global level. Since the community is so reliant on technology and built around it, it would be detrimental if the net neutrality rules were passed. I still think the telecommunications market will expand in the future even with some companies unfortunately getting affected by changes; however, with every change that gets proposed to our economy, there will always be people that are negatively affected.
I’ve only really heard about lots of negative things about net neutrality being dismantled, especially from my peers. Personally, I support net neutrality. I feel that limiting access to the internet and allowing companies to prioritize certain sites over others is a free market aspect that isn’t completely necessary for society, but I do see why you support it in terms of economics and the growth of these large companies. It seems too often that the “for the people” mindset gets lost in basic economic principles and free market ideals so it’s lately been hard for me to choose either side. Do we want these companies to grow as you explain in accordance with their EPS’ or should we limit the growth of our economy by allowing the free market to rule all?
When the interest rate increases it affects everything. It affects real estate, jobs, people spending money and the whole economy. I do believe we need some tax cuts and benefit greatly with these cuts especially if the interest rates are higher. After reading the article I gained a little more knowledge of how our economic system works. My uncle has been 8 years in the banking industry and he told me many things. I was familiar with the effects of increasing and decreasing interest rates. It highly impacted how consumers chose to invest their money. Higher interest rates positively impacted those who had money invested in money market accounts. As long as the corporations are watching out for the changes in the economy it is possible for them to prepare for its effects in time.
After reading this article by professor Timana I have a developed a stance on externalities and global growth. I feel that in today’s economy higher interest rates could potentially hurt the economy more than some like to think. America is built upon small business owners and services as opposed to back in the day when large factories dominated everything in the progressive era of America. In the U.S. there lies more small business owners and high interest rates would drown them, but the giant companies of the country wouldn’t nearly be affected the same. The leaders of the market such as At&T and Verzion would not be so much be affected due to the high demand and profitability in this new market. Now we live in a world where apple the leader in technology is now a trillion-dollar company and the amount of resources available too them is so vast that increasing interest rates wouldn’t harm them.
This article gave me more insight as to how high or low-interest rates can affect our country. Technology is advancing, so the telecommunications industry has to increase over time as we progress as a country. Telecommunications companies are going to thrive while we start to reach forward into 5g and growing more. Demand will be going up as we begin to improve more. It will be interesting to see the telecommunications industry grow over time and look at the data as it comes along. And to see the spreading of the skills to other developing countries is essential. Also learning that big business can take on higher interest rates while the smaller ones tend to get damaged from this. Developing countries also benefit from the US dollar declining as they start to get stronger and achieve more access to things like the internet which their purchasing power increases. This article was very informative.
The pointing out of Net Neutrality in terms of competition, complements the subject of economic growth. As the companies are with more freedom allowed to charge as they please for their services, this means that now prices should now be more appropriate towards certain kinds of markets. For example, someone who streams Netflix and youtube vs the common grandpa who uses yahoo email for whatever reason. Creating a price more suitable for each target audience allows for greater consumption, as their service becomes more personalized. Hence, this ideally allows for a greater sense of consumption. Furthermore, this is boosted by the dollar depreciating, hence more people from foreign countries will also be able to purchase these services. Which means that there will be more revenue flowing into these companies, allowing for more innovation pressured by a competitive environment. Also interesting to note, that while the Federal Reserve Interest rates go up, it serves as an externality towards large companies that do not have a say in the possible cost of debt, or decreased cost of borrowing.
This article gave me a lot more insight in economics and our economy in general. For example, tax cuts in corporate businesses are a huge advantage for corporate business in more than one way, including profitability. Increasing profitability also increases the average earning per share, but it can also have negative effects, like slightly increasing debt. This article also showed me how rapidly the US Dollar was declining rapidly in value and how it would affect the telecommunication industry in both the near and far future in not only the country, but all over the world as well. Also, as we continue to grow economically, our consumer demand for products will continue to increase as well. This article also shows examples of increasing and decreasing interest rates, and how devastating or productive high and low interest rates could impact from small/local business to big-headed corporate businesses, like Apple or Google. Overall, it was a well informed and planned out article that lead you from one thing to the next easily.
This article has provided me the knowledge and the ability to understand more about how our economic system is being run. What stood out to me the most is the ratio analysis about telecommunications. It’s very impressive to know the power that telecommunications companies have gained more than other companies. They’re evolving and making a lot more profit than any other company out there due to their emerging market and creativity of supplying to costumer needs. As I can see in this article the two main providers that are currently growing and continue to grow each day are at&t and Verizon. These companies are expanding and are giving people the pleasure to be able to communicate with their loved ones even when they’re outside the country. For instances, my aunt has Verizon and every time she would go to Honduras for vacations she was still allowed to make calls and text from Honduras to the U.S. Also, American Tower is the tree top provider that plays an important role since it helps the United States invest in foreign companies.
When I look at this article, I begin to seriously doubt if the United States has a free market economy. While the United States advocates for free and mixed economy, it seems as though taxes and government regulations control the market. With issues like EpiPen and other products, the success of a company depends heavily on the government in numerous ways. Through accounting, my professor has taught me how to get those contribution margin numbers, profit margins, turnover ratios, and etc.; moreover, this article has shown me how these numbers matter and make a difference in the grand scheme of things. I liked how the writer brought and connected the political/taxation and the accounting principles of businesses to connect to find the growth gained from the economy. Also, I have done my share of research on 5G technologies, and I have discovered that it brings a lot of problems such as the weather satellites. Would the consumer be willing enough to pay more and would the opportunity and the development of further mobile technology come?
High interest rates is the key way to lose customers and put more pressure on their clients. If the client is trying to protect his assets, then the individual maybe doing on its own because of the type of action the financial advisors are trying to do to them with the rates that are being offered which can be said to be unreasonable. It may be beneficial for the ones who are working for the bank but when it comes to the ones that matters most which is the client there is no gain to speak of sadly.
High interest rates is the key way to lose customers and put more pressure on their clients. If the client is trying to protect his assets, then the individual maybe doing on its own because of the type of action the financial advisors are trying to do to them with the rates that are being offered which can be said to be unreasonable. It may be beneficial for the ones who are working for the bank but when it comes to the ones that matters most which is the client there is no gain to speak of sadly. They may have the wrong mindset and misuse the funds that have been entrusted in them to manage. When the advisor and the client know each other for a long period of time, the mindset of the financial advisor will be in the wrong area and interest rates will be higher later down the road. You can’t trust these bankers fully.
This article was well written and provides more knowledge about economic to me. Unsurprisingly, interest rate plays vital role in economy system. High interest rate brings more revenue to investors, but on the other hand, it seems to be negative to lenders and SME. This article has brought me from the Fed to American tower where when Fed increase or decrease interest, which business sectors would benefit from the change. Provided graphs and formulas convince the reader well to understand step by step of Externalities, WACC, and Emerging Market.
This article is load with information that can serve as a guideline for some first-time investors. Although it’s not foolproof, but with the historical Outlook showing which companies can outperform the S&P 500, also factoring the t-test and also as the graph shows the changes in net neutrality laws. An investor with enough cash flow can correlate all this information and put them to action. Telecommunication companies such as AT&T and Verizon growth is good for the economy, because of the overall growth that it brings.
The Federal Reserves controls the interest rate, however, with all the facts known regarding the economy we always hope for the best. The Federal Reserve knows when it is appropriate to lower or raise interest rate. Of course, changes in interest rates always affects investors decisions. When the interest rates are lowered, it benefits some and affects other and vice versa when the interest rates are raised. It is importance to keep a balance and of course big businesses are not nearly affected as new small emerging businesses.
With the federal reserve controlling all the interest rate how do we know if the interest rate is the best for the economy? I mean wouldn’t a low interest rate improve the spending on stuff like cars and houses. How can we be sure that the federal reserve isnt looking out for the 1%.
Reading this article, I found it gave a lot of information about interest rates and the roles it plays in the economics.This article has shown me that interest rates can affect a lot of things in the economy in a positive or negative way.For example high interest rates can affect their consumers leaving them sometimes not wanting to invest and start a business. The article has also mentioned about telecommunications and how they are more powerful they have become. In addition, this article gave historical evidence about the economy today. This made the information more understanding helpful to see actual change in the federal discount rates.
The Externalities and Global Growth article provides insight on the basis in which the Federal Reserve, decides to raise higher interest rates in the economy. It seems that the start of the first initiation since 2008, occurred on December 16, 2015, and since then has continued to heighten. Just like with many other increases in our market, it seemed a bit insignificant until more increases occurred. I often question, how the market works regarding the extreme shifts in pricing within certain industries. Most of us are aware of the supply and demand aspect of it but sometimes, the shifts occur overnight and we are not aware until it really hits our pockets. However, there have been companies that have outperformed the S&P500, and have not been affected by the rise in interest rates. The decrease in taxes makes it so that companies are not at a deficit and are able to still be profitable.
Tiffany Lewis
Externalities and Global growth are Implications for allocative efficiency and suggested solutions. Externalities are the costs or benefits that affect people who are not directly involved in the production or consumption of a good or a service. Thus, externalities are not limited to the parties participating The prevalence of externalities in consumption and production of goods and services generates a number of discussion points indicating weaknesses in the general rules relating to allocative efficiency in the market economic system. An education will directly impact the production possibilities curve because an educated person will be able to use their skills to aid the overall economic growth. Learning at the college level allows individuals to perform specialized tasks such as engineering. It might also result in new ideas to facilitate production and design. Therefore, as we have learned, when you increase land, labor, capital, and entrepreneurial activity, the production possibilities curve expands to indicate growth. Despite having the second-largest economy in the world, China is poor in per capita terms because they have a very large population. Real GDP does not take a country’s population into account. Political freedom does not always aid economic growth because freedom can sometimes lead to chaos and uncertainty. When businesses find ways to internalize externalities they can make more money.
Oliver Petrik
The Federal Reserve increased interest rates for the first time since 2008 in December of 2015. Unfortunately, the rates have continued to go up countless times since then. We currently and always have had people in power that have no clue of what they are doing. This trend of the Federal Reserve increasing interest rates is very detrimental for the S&P 500, as it will eventually cut margins for the companies in or involved in the S&P 500. Since the companies will now make less profit and have more debt that will eventually result in fewer projects or simply less innovation for the whole country. The fewer projects that corporations undertake will result in fewer jobs and thus higher unemployment. Overall, the Federal Reserve should decrease interest rates in order to try to maximize the U.S. dollar. I am also a firm believer in lower taxes including both corporate, and personal income taxes. Uncle Sam doesn’t need our money, we the people do!
The article is very informative and detailed! I really enjoy doing this extra credit, so I can share my own opinion about these particular topics. The charts provided for the article make the whole picture clear and understandable. Thank you so much for your time, P. Timana!
Here is what I think according to my reading of this article: the examples provided in this article are very accurate but at the same time let’s take a closer look to the communication companies. Back in a day, it would not even be a point! Communications have occurred over mail, later it was phone line. BUT people still could survive without it. In this days, we just cannot stay away from our cell phone digging internet, registering for classes, paying bills, searching for information, being on social media. For the companies who own airspace (communication companies) non of the situation in the economy will be harmful. It might affect them at some point but nothing crucial because the demand is way too high.
My perspective has widely broadened after reading this. I found it very interesting that no matter how small of a change in interest rates that the Fed passed, that it could have such a large effect on the economy and on U.S businesses. I also found it very fascinating how certain companies surpassed the S&P 500 during periods of high-interest rates and low corporate tax rates. While its good for these companies, I do feel that if the Fed continues to raise rates that the S&P 500 could be significantly impacted because of the reduction of available funds. This could cause a feedback loop. In this loop, the more that these interest rates are raised the businesses will take out fewer loans in order to approve hiring and projects. With fewer people being hired and fewer projects being approved the entire economy could suffer some severe drawbacks or even face a recession. Another cause of this could be innovation being slowed. This is because without project approval new products and goods would simply be not be created.
This article helped me to better understand how out economic systems work. One thing that was made clear is how tax cuts affect us. These tax cuts can be a benefit to businesses and these cuts will affect the future of the companies. These cuts can be a good thing if done properly, allowing companies to invest and use resources to use on projects. Which in turn leads to new jobs and higher wages. However, these tax cuts can be used to only benefit the wealthy owners of the company and the shareholders, never making its way down to benefit the consumer.
An example of the good that can be done with these cuts is in countries around the world. These emerging markets could use the company’s resources, and the companies could make a profit but also improve the growth of the global economy. And as these emerging markets gain their footing, they will begin to develop to increase infrastructure and private consumption also befitting the early investors.
After reading this, I have learned much more than I knew before. I never knew that changing interest rates would have a big effect on the economy. The charts provide more evidence for the article and it really helped with all the details. I did not know that acquiring money from corporations would mean that many of the other companies would able to start up because they would be unprofitable. I think that the Fed should acquire less money from corporations so that new and improving companies would be able to start up and be able to make a profit. Since the federal reserve is still increasing prices, the S&P 500 is being affected numerous amounts of times during the years. There are many companies that exceed the S&P 500, but they are not affected by the increase in interest rates. In the future, the fed will continue to increase rates and this will have an even bigger effect on the economy.