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
Many attempts have been made to alleviate the 2008 crash and to prevent new recessions. The Consolidated Appropriations Act, 2016, also known as Protecting Americans from Hikes, reduced the number of fraudulent income tax claims. A large number of the illegal applications involved people filling the income tax child credit for foreign-born children with no legal status in the country. In many instances the beneficiaries would also file the child or children by different persons. The 2016 Act reduced the financial burden caused to the IRS division and the American economy at large. Therefore, this act created a positive impact on the American economy.
Furthermore, lowering the Gini Index which has only continued to grow since the creation of the food stamps program, and regardless of the extensive number of welfare programs available could create a more stable economy. A lower Gini Index would promote investment from foreign countries, which would result in a Global economic betterment. Revising and redirecting the welfare programs would lead to a more prosperous internal economy. Overall, the S&P 500, would have little impact in contrast with the effect caused by the welfare system.
I believe an investor would find this information very useful, particularly the unique position of American Tower. The company builds and leases communications towers to cell phone and telecom companies throughout the United States and other countries. The “perfect storm” of higher interest rates, lower taxes for businesses, fewer regulations for telecoms, combined with the declining US dollar, culminate in a rare opportunity for the company to capitalize on the environment. With the current push towards 5G, investors might do well to consider American Tower. If US cell phone providers widely adopt 5G technology, more towers will need to be installed throughout the country. This analysis provides an in-depth look at the circumstances leading to such an opportunity for the company to grow by increasing its number of towers. Digging into the financial data shows the company is poised for such growth. I agree with the assessment that the company might benefit from the rare combination of factors in the current environment.
In order for economic growth to happen corporations need to invest. The increase in interest rates would make it more difficult for large corporations to invest due to an increase in the cost of capital. When interest rates are increased, there is less disposable income, increase in the cost of borrowing which reduces investment, as well as economic growth. Businesses and consumers will cut back on spending which causes a domino effect. Corporations will start spending less on projects that have no economic profit. This will cause earnings to fall and stock prices to drop. There has to be a balance in between so corporations can continue to invest. Offering a tax cut to big corporations makes up for the extra expense they are incurring for an increase in cost of capital. Many times when this happens, we feel as if the rich are just getting richer and the poor are getting poorer. The telecommunication industry is an example. Now days, you find people paying so much for cellphone and internet service. The consumer has to pay for the extra expense but at the same time the company is the one gaining profit as well as the tax cut.
Global growth is a vital part of business investments. I liked the way the author adds various possibilities involved in the global growth of cell phone companies. Interest rates play a significant role in the overall performance of a lot of connected companies. Whether the companies are international or local, the change impacts everyone on board. Many times investors often project the desired outcome while looking at the political and economic condition of the country. In this overall condition of making a decision, the government is the guider or destroyer in some cases. The currency, the policies, and the law, everything is based on politics. The investors should keep a deep eye on the future policies, devaluation of the money and the laws government is passing. While considering these factors, there is a chance for companies to make a calculated decision and benefit from the actions of the government. The overall impact of this kind of decision making will make a big difference in global growth. Thus, benefitting a considerable number of industries.
With the increasing uncertainty of the Fed either increasing or decreasing interest rates, it is hard to determine which industries or companies to invest in. On one hand if rates go up, it will cost a company more to borrow money, but if the corporate tax rate goes down it will offset the increased cost in borrowing money. In industries that are poised for growth due to technology advancements or entering or increasing penetration in an emerging market, such as in the case of 5G technology for cellular companies, rising costs will be offset by increase in demand for the new services being offered. This only works if government regulations do not interfere with the company’s bottom line through an increase in taxes and fees, such as the UTF, on the new services themselves. As this article states, applying various proven formulas using statistical market data to help determine trends will help guide an investor in the right direction for increased success.
Given the volatility of today’s market finding something as unique as this is rare, although not impossible. This post examines how externalities and global growth can effect economy. With higher interest rates being implemented by the Federal Reserve, the removal of net neutrality, as well as the decline in the value of the dollar, one might conclude that the market won’t be doing as well as it had been doing previously. Furthermore, certain companies will see a decline in their stock prices as they will have a harder time approving projects and hiring employees resulting in a stagnation of growth. With this outlook one might hesitate when looking at investing in the market. However, this post does an incredible job of highlighting a sector and more specifically a company within that sector, that has a high chance of becoming a high performer in what might look like a downturn in the economy. The post illustrates that even though outlook for some might be negative, taking a closure look and investigating the circumstances might yield a diamond in the rough.
This blog focuses on heralding the effects of externalities and global growth as they are related and influence the management of business enterprises. The information contained in the blog is also essential for successful investing. Externalities are conditions created by external economic activities that result in consequences experienced by unrelated third parties. Externalities can be local, nationwide or global in origin. The consequences of externalities can be either positive or negative depending on the impact characteristics of an externality. Management must forever be vigilant to recognize externalities and analyze the characteristics so they can formulate a response to either, eliminate its negative impact, or incorporate its positive impact to grow the company. Investors should use the information to buy or sell according to the impact scenario. Some examples of externalities are the movement of the Federal Discount Rate, Tax Reform, Value of the Dollar, new Laws, Rules and Regulations.
Considering the global economy, Global Growth is the “Mother of All Externalities” when one thinks of its impact on business and investing. Technological advancements in manufacturing and communications enable developing countries to compete in the global market by using their formerly underemployed human resources and create emerging economies. Comparable products manufactured with cheap labor is a powerful externality that produces a difficult challenge for US companies to overcome. The previous solution to move companies overseas to take advantage of the cheap labor proved to be detrimental to the US economy. The efforts of the current administration to bring back to the US those jobs that emerging economies absorbed is a popular “Externality” employed to Make America Great Again.
When I was reading the item I gained knowledge of how our economic system. A massive amount of countries in the international have rising markets and this will mean that our groups ought to make the most of the worldwide increase in the event that they now the way to put their assets to paintings well. The telecommunications companies are a totally competitive business or even now with greater technological advances taking in the vicinity. The article gave many truths and facts of which enterprise can achieve a global of high-interest prices and maximum extraordinary enterprise that could make the most of better hobby quotes, lower corporate taxes, deregulation of the telecommunications enterprise inside the U. S., a declining greenback, and growing international boom could be American tower because of its huge amount of unfastened cash drift within the agency. I also discovered it very exciting that agencies which include AT&T and Verizon preserve big quantities of free coins float which puts them in a role to boom their marketplace capitalization and grow in a higher interest charge environment.
I believe a tax reform affecting corporations could help with global growth because of how much money they dodge paying.The externalities faced on the market have played a big part in policies like Net Neutrality which gives telecommunications companies more power over digital infrastructure. With a new race.. a digital race for 5G telecommunication companies will do whatever it takes to be the first and have market power. The need for accountability on telecommunication corporations impact on the digital restrictions.
As federal interest rates increase it becomes more and more difficult for large companies to invest. The telecommunication industry it’s a great example. With technology advancing quicker than ever the market for telecommunication will eventually explode. Since acquiring money for corporations will become more and more costly, unprofitable projects will appear more frequently and with huge investment costs and looses these corporations will steer away their investment for new projects slowing down the process for growth. Even though this is opening the field for companies such as American tower allowing them to excel as the cost of borrowing decreases I believe we should find a balance. Investors should consider the fact that there is negative and positive externalities and by using the information correctly it can impact Global growth tremendously. Investing only in companies such as American Towers will eventually delayed the improvement in technology that comes from new projects.
Externalities play a prominent role in the theories of economic growth. In economics the term can be defined as – A side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounds crops by bees kept for honey. Since there are 4 types of Externalities considered by Economists (Positive Consumption Externalities, Negative Consumption Externalities, Positive Production Externalities and Negative Production Externalities) it’s interesting to me as well how Taxation and a Merger and Internalization fit in as well. I’m currently going through a work merger and after reading this I have most certainly learned more. Seems its more profitable to buy an oil company than it is to drill/explore anymore. The externality in the production of the two companies has been internalized as a result of the merger…and my internalization is quite different from the economic one. But that’s another story! Thank you for the interesting article!
Its a good thing that federal discount rates have increased. Now that they have increased we can truly see which of the major companies will actually surpass the S&P 500. Its a true test too see how much the company can grow with higher interest rates. Many will rise and or fall. Telecommunication Companies are in a constant battle against other companies to see which one is better. It’s not really a bad thing for us consumers we end up with better service depending on which provider we have at the moment. Furthermore, an increase in taxes for major companies isn’t a bad thing its bad for them but its better to see which one has what it takes with higher taxes they need to really improve their game which gives us consumers better business.
With the current tax reforms cut towards cooperation and smaller business it allows for business to invest more money in buildings, equipment, or vehicles to enhance their earnings. As a result of these reform acts the overall value of the dollar continues to plummet allowing for other countries to continue to develop as well as investing in domestic companies and overall raising value of the United States economy as a whole. In conjunction with the united states developing more allows other countries to inhabit new more advanced technologies such as faster internet connections or better capital in general. I find these graphs interesting however because as the fed lowers the rates in recent months it allows for more money to be borrowed from banks at a cheaper rate which you would think that this would sky rocket inflation, but because of the other countries becoming more and more mixed into the American economy via investments it allows the economy to stable out or even thrive in its current state.
according to the article the global growth in the telephone communication is growing around the world with the merging markets that could potentially surpass the s and p 500 meaning is not o good for the united states being that the sand p 500 is one of the biggest in the stock market for the united states. the externalities is that they will need to make more tower being that as technology progresses and making the data plans more expensive in the run.
Less developed countries are often if not always the EMEs,due to the fact that their GDP growth can come faster than that of a more developed economy. That aside, with the slow fall of the dollar and the correlation it has with the telecommunication industries. It cannot be understated that an increase in revenue does not necessarily mean the growth of a company. While on one hand you could have increasing revenues, you could also have liabilities that far outweigh the revenues. I include this to provide context as well as to why it is of great importance that liquidity is also mentioned in this article. Liquidity is the ability for a company (or an individual, corporation, etc etc) to be able to keep up with their liabilities and cover the costs of them as well. I like the addition of net neutrality to this article as well, as it was a big scandal a while back, with common people being convinced that common services would somehow become overpriced…yeah right. All it did was allow for more freedom of competitors entering the market. In this scenario, EME’s also have a role to play, as the internet is, telecommunications.
Coming in blindly with no previous knowledge of economics prior to this course, the author of this article very well displays the effects tax cuts will have on business. Having newly opened my own coffee roasting business it is crucial for me to gain knowledge of such events such as these tax cuts as they directly affect my cost of input. The large fluctuation of interest rates is also intriguing as a new business owner as some companies with high-interest rates are exceeding the S&P500 and some companies with lower interest rates are doing significantly worse. With these tax cuts and fluctuating input prices pushes money managers to put their money somewhere where while high risk may be involved, a large return on their investment can be seen as well, something I must learn to better my own company. It will be interesting to see how Trump will take hold of the economy shall he hold another four-year term, or the dangers possed if someone like Bernie Sanders where to be elected and drive up taxation.
Externalities are the outcome of manufacturing or consuming goods and services, which are beneficial or contrary to an individual or a society as a whole. People who benefit from this are usually an anonymous group or society that has no control over externalities, and some refuse to obtain the cost or benefit. Externalities can also impact the supply and demand curve. Negative externalities imply that the consumer does not cover all the costs resulting in excess production that shifts the supply curve to the left and reflecting a higher price at each quantity. Similarly, positive externalities cause the consumer to not gain all the benefits of goods and services which results in shifting the demand curve to the left because the price at each quantity is lower. Shifting of the supply and demand curve can also cause market failure due to the equilibrium prices of firms and households do not adequately reflect the true costs and benefits of products and services. Likewise, after reading the blog I realized that how fluctuations in interest rates affect supply and demand which affects our economy and GDP and ultimately the global growth.
According to the article, it seems that it will be harder for larger corporations to gain a profit in the economy right now, but it will be easier for a smaller company to gain a profit. telecommunications is an ever growing industry that will allow smaller companies to make a profit in developing countries. in this country, due to the economic situation, it will be harder to gain because of the high interest rates and tax cuts. as an investor, one would probably be inclined to invest outside of the country rather than in the country.
I liked how well this article was structured. It starts off by introducing the basics of the topic matter then continued to build on top of it. At the end of the article when you look back to what you read and realize how far you’ve come it’s baffling. Moving on from my opinion of the structure of the article to its topic. I feel as though the periods of higher interest rates and lower corporate taxes are a time for the company with a better business model to shine. Before reading this article I had never heard of American Tower Corp. Now, with this opportunity at hand, they have a chance to make a name for themselves and become a major competitor against other telecommunications industries. I’m curious to see how the other telecommunication companies adapt to this change to maintain their control over the market.
This article was well thought out, there was a part in here where you talked about 5G from telecommunication companies due to net neutrality and you basically predicted the future. 5G is popping up everywhere now, its cool to think that I still remember when 4G coming out was a big deal. It is true that developing countries can build the newer infrastructure due to the US dollar declining in value. The article is showing how business is booming due to the low interest rates and lower taxes, i really hope that it stays that way for another couple years so that I can get a good job before the economy collapses, but I think even if I get the job they would lay me off. The article states that lower tax rates make the cost of borrowing smaller so that companies can take more risk which would be a good thing for me and fellow scholars.
Before reading this article, I had never heard of American Tower, but they are a great example of how not being a competitor, but being involved with a huge market like telecommunication is, has big rewards. It doesn’t surprise me that the telecommunications industry stands out from the rest when it comes to outperforming the S&P500. Nowadays, technology is vital in a person’s everyday life, and it’s uncommon to not see a person constantly on their phones. I can also see how telecommunication has a numerous impact on the economy of a country thanks to the fact that in Mexico, the richest man of the country is Carlos Slim. He’s the CEO of Telmex, America Movil, and Grupo Carso, which are some of the biggest telecommunication companies in Latin America. This industry has lots of potentials to grow, especially in developing countries. This would allow small businesses to grow and take advantage of this demand and of the higher interest rates like American Tower could potentially do.
Luz Miranda
When you think of interest rate changes, there are other factors to keep in mind that are part of the equation. Inflation and economic growth also provide some guidance into what interest rates will do. Interest rates are lowered to increase economic growth and have a better performing economy. From the article, it seems that the telecommunications industry has an upside due to the demand for telecommunications. This is especially true in developing and emerging country growth as this provides an affordable entry into these emerging market economies. Part of the article that grabbed my attention was the fact was that telecommunication companies should not be afraid to take advantage of these opportunities due the rising cost of debt. It seems that this provides an opportunity for growth due to the fact that these companies have overleveraged which means how much capital the company has in the form of debt and the company’s requirements for financial obligations.
This article does a great job explaining the information and supporting it with accurate data. I agree that a tax cut would make it much easier for businesses to borrow money and raise the earnings per share. The data within the article also shows that this all could benefit telecommunication companies. This would make a lot of sense because as developing countries currency gains value compared to the United States dollar, one could assume that these developing countries would start adding and improving more internet and other types of technology to their country. The article also mentions 5G, once 5G technology is fully developed and expanded people can expect telecommunication companies to benefit even more because they will need to set it up and provide service to all the users. This was a great article with amazing points and data to support those points. I learned a lot of new things from reading it.
The article, Externalities and Global Growth, discuss the importance of global growth . The spike in interest, which was viewed as “insignificant” in some cases, can change debt structures and profitable margins. The understanding and ability to analyze the information in the article is very fundamental for successful investments. Externalities, which are the external economic activities, can either profit or hurt investors. Since the U.S interest rates are not very stable, and tend to switch from going up and down, it is very unclear, I believe it is very confusing in determining where to invest. Some of the downsides explained like the shifting of WACC, which can significantly reduce the amount of project being taken, and the Tax Reforms, and Net Neutrality affecting certain industries help the reader gain a different perspective before investing. As a reader, taking this information into consideration helps understand that you cannot only take into consideration one area, rather use previous time period information. This help see what possibilities could occur in the future.
I found that the most important point of global growth throughout the article was Tax reform, but not for the right reason. Yes, Tax reform is great for creating jobs and widening profit margins, but we must first look at corporations and how they are structured before a tax reform, and then watch what will happen to the structure of the company once taxes become lower. A lot of financial analysts see tax cuts and think of economic growth and the opportunity for more jobs. Yet from personal experience with working for Walmart, as tax reform enacted, the amount of hires increased, yet in a years time corporate had restructured positions to where the amount of associates is decreasing to become more profitable and more efficient with less employees. But on top of Global growth, with the U.S. dollar decreasing in value lets outsourced countries to enact trade with the U.S. being that it is a more fair financial playing field.
Global growth is a very important part of business aspects. In order for economic growth to happen in different corporations and businesses is that they need to invest. Interest rates play a very important role in the overall performance of a connected company. On one end of the interest rates go up then it will cost the company more to borrow money. However, If the corporate tax rate goes down then it will offset the increased cost in borrowing money. In the industries that are poised for growth due to technological advances, the telecommunications companies are making advances. The graphs were very interesting.
Changed laws, a rare state of both increased interest rates and tax cuts, the decreasing value of the US dollar, growth in emerging markets, all of these combine in an opportunity for the most liquid telecommunications companies to expand their networks and increase profits. I think the most unusual aspect of this whole situation is the increase in interest rates, because like the author pointed out early on, this is the first increase in rates since 2008. This increase in rates causes an increase in WACC, which in turn is an increase in risk, causing investment spending to go down. That’s the crazy part, that under normal circumstances this would cause the economy as a whole to invest less, but instead this is a perfect example of how what is good for one company or individual is not good for others. For the majority of companies, the interest rate change makes debt more expensive, but the flip side is that highly liquid companies are able to take advantage because rate change impacts them less, and instead poises them for large increases in profit.
Federal Reserve increasing interest rates could cause corporations and companies to stray away from investing in new projects and give them concern about debt however with the Federal Discount rate going up they make look to continue their current trend. This scenario appears to play more in favor of third parties as they will be the ones more likely to be benefiting from the investment without concern of the higher interest rates of borrowing money. In this case, a positive externality can be observed, as the cost of benefit does not impact the third party. With larger telecommunications companies such as AT&T and Verizon acquiring the debt at higher rates, they are more likely to try and offset the loss by finding new markets in emerging economies that did not have previous access to their services. It will be third parties that will bring the services by erecting new towers and other communication sites before Verizon and AT&T can offer their services. That is to say, the telecommunications companies would be expecting gains in the long run from their investments. The third parties would be able to make a profit in the short run without much debt. A smart investor or money manager would be able to apply this information by first investing in third parties and then later investing at a low cost in the larger telecommunications companies as they pay off their debt and start to profit.
The analysis in this blog is very interesting as it brings several factors together to attempt to predict future outcomes. With higher interest rates, companies may be less likely to invest, but the cuts in taxes will bring some cash back into their pockets to be able to offset this. The example walks through information from the telecom industry, but it seems like it would be true of many industries. Companies that are not as leveraged are not as affected by the interest rate increases. Companies that have assets with high profit margins will be in good shape, especially if being taxed at a lower rate. With more sales, cash flow will increase and even if companies are able to increase projects slightly, they will still be in a free cash flow position, giving them the ability to be flexible with other projects, acquisitions, or paying dividends to investors. I would like to understand better all of the factors in the t-test and ways to interpret the data. I think that living in Houston, which is a large oil and gas market, it would be interesting to interpret results and outcomes of companies in the oil and gas industry based on the included t-test.
When you think of large corporations you immediately think that they must have so much money leftover to spend! However, the fact that these huge corporations mostly use loans to finance their projects, and often rack up debt goes right over people’s heads. This article gave me great insight on how the rare combination of these high interest rates and corporate tax cuts affect companies in very different ways. Like most things in economics, it really depends on how you look at things. For example, the companies that are heavily reliant on loans are going to have an extremely tough time funding anything with the interest rates, but large companies that are not so depend on loans and can rely on their own money will actually benefit from the tax cuts saving them millions. However, the type of company that is the most affected is the small companies. The sole proprietorships, the small partnerships, the family-owned business is what makes up ⅔ of US companies. But with these high interest rates, they are not going to be able to take any money out to help fund a new/small business.
The way that American Towers is explained and how they could have something so positive happen is the perfect demonstration as to seeing how corporations and consumers would hand in hand in the economy. The way that the federal reserve has changed the interest rates causes many changes in the debt structure and profitability in margins of corporations. This causes a major backlash for corporations given that many of the things they may want to do will become unprofitable which would indeed cause many to want to leave the markets they are in. This could go further into affecting the economy than what many would think, this would affect jobs and salaries as well as how much money corporations may have to be able to do things. However, companies that are financially more stable would be able to stay in the market without much of what they do being affected since they aren’t having to pay much in debt. This analysis brings to light how the federal reserve making changes to the interest rates can have and either positive or negative effect.
I believe the article is quite on point with the market at least in my opinion. While reading it was interesting to read about the relevance of the rise and lowering of rates between the federal discount rate and corporate tax rates of corporations and the telecommunication industry. In my opinion the article has turned out to be factual because with the growing need for telecommunications has been on the rise and many companies are competing to have the fastest and reliable network. The more countries develop and the more people travel then the need for telecommunication rises. Even competitors like T-Mobile and Sprint have partnered together to have the most reliable 5G network. It also had me interested in looking up the status of The American Tower corp stock since this article was released in March 2018, and now in December of 2019 the stock has risen over 51%.
This article makes a lot of sense to me. Corporations have always borrowed money in order to finance their operations. Increasing interest rates will always cause borrowing to decrease, which will cause businesses to lessen their investment in their company, thereby lowering the countries GDP. This is just common sense and the government cannot help but increase interest rate. What is interesting is how American Tower is able to profit off of high interest rates, with phone providers possibly going to 5g, this will allow American Tower to lease endless phone towers at higher prices. It will be interesting to see if and when 5g becomes mainstream to the majority of the public and how it will effect the economy.
Investors may have great interest to invest into telecommunications companies due to their size and the potential of millions of paying costumers but I think this is only thinking short term and not long term. Lately as more and more of peoples daily lives and livelihoods relay on the internet, the demand for faster internet is expanding, Internet Service Providers (ISP) are not meeting these demands since they have “Mini Monopolies”. As you said: “American Tower Corp is an owner, operator, and developer of multi-tenant communications real estate” and if a ISP company buys up all of the land in a certain area to put up all of their towers and cable no other ISP can put down their towers or cable. Since in that small confined area only one ISP is available to the people in that area, that means the company doesn’t need to grow since there is no competition in that area which in turn discourages growth. This is why when compared to other countries America usually has slower internet since ISPs see no need to improve and grow. This why I don’t think investing in these companies is a good long term idea.
This particular article on the Timanomics blog examines the effect of externalties and global growth on the economy. This information can be found especially useful when it comes to successfully investing. With higher interest rates, many companies will struggle when it comes to taking out loans, however, this will sort out the weaker companies and bring the stronger companies to the main focus. As Taxes increase, companies also begin to struggle more, however, a truly successful company will likely not be as affected considering their amount of yearly revenue. In the graphs the information is clearly depicted, showing lowered interest rates and how this actually allows more money to be borrowed.Also, the fact that markets may actually have a shot at overcoming the SP500 is incredible considering it’s influence in the US, being one of the largest stock markets. It is fascinating to see how companies can work so well with high interest rates and how some are doing so poorly with low interest rates. Tax cuts and price changes also change things for companies, drastically for some, not so much for others.
In my opinion, this article is well written and has much information on tax rate changes of corporations as well as the effects of externalities in our economy. The graphs help me understand when the interest tax rates for corporations increased and understand how in the future a fluctuation like that will occur. It is a bit concerning that business corporations need to handle situations like that, and now with the evolution of technology and demand for faster networks such as 5G. The fortunate matter is that the tax cut and jobs act were the corporations tax rate was lowered to 21% I believe this is an incentive for firms to enter into the investment market side. Not only will the investment increase but telecommunications will not need to concern with shortage of investments since the technology is on their side. We are also seeing an expansion to other countries which signifies at the ver least normal goods.
I figured there was a way around big corporations that different taxes didn’t apply to them. The rising interest rates for companies can be a big problem because they will generate less because of less income. I also got to know the American Tower Corp after reading this article and how they can benefit from high-interest rates, lower corporate taxes, telecommunications industry reform and the fall of the US dollar. We would assume that if they create successful businesses or any industry at all, the unemployment rate will drop significantly as there is going to be a stronger population in a sector that could eventually continue to grow. Tax cuts and job cuts would allow businesses to grow and create jobs for people, businesses will profit greatly, although the debt will increase, the lower taxes will hopefully be free. To sum up, business tends to rely on market value and how interest rates respond to the economy. Taxes also influence the management and control of a company.
The economic growth depends on investment. For investment to occur corporations are an important piece on the economic growth puzzle. If interest rates are increased then corporations have to increase the cost per capital, there is less disposable income, this can lead to make it more difficult for the corporations to investment in the economy. There is the need for a program to keep the balance between investment and corporations. Tax cuts are not a way of solving the investment issue, because that end ups hurting the regular citizens. Large corporations make the money and the citizens pays for those taxes that they do not have to pay. Investment is necessary to create jobs and help the cities growth and the economy growth. Unfortunately, in my opinion the balance between corporations and regular citizens is not meet yet. Citizens depend on the creation of jobs and corporations invest to create those jobs. Both parties win, but if they will do a tax cut on corporations for them to keep investing, but the citizens end up paying those tax cuts. There is no balance. Corporations are making profits and citizens are not. Both side of the coin need to be addressed.
Externalities can have both positive and negative effects, and even small changes in interest rates can have massive consequences. Tax reform, as addressed in the article, is an example of this. While tax reform benefits some by lowering expenses, it can have negative effects on the broader economy by plummeting the value of the dollar and influencing dominant investors to seek investments elsewhere. Most people do not think about major companies having to borrow money as a large portion of their capital. However, even the largest companies must use debt from time to time, and the recent increase in corporate taxes will likely result in more conservative financial management in the U.S. Only companies with the highest liquidity ratios and cash reserves will benefit, so there has to be losers as well. On the other hand, this is an indication that alternative emerging markets will become more popular and global growth will become essential for investors.
Reading this article was very interesting. It talks about and explains the externalities and global growth. From this article, I was able to understand the difference between lower taxes and increasing interest rates. I also saw how high interest rates affect companies. I was surprised to know that large corporations were affected by an increase in interest rates. I always thought that interest rates would not affect them because they’ll have their way around increased rates that will prevent them from having problems such as a reduction in profit. The article helped me become familiar with American Tower. Before reading this article, I did not know about this corporation. By declining the US dollar, deregulation of the telecommunications industry, lower corporate taxes, American Tower can profit safely. The graphs were also very helpful in helping rely the information. The graphs helped me understand the increase in tax rate. Lastly, I was amazed to know that by cutting taxes, more jobs can be created. The money would still go to the corporation by hiring people.
for monetary boom to manifest firms need to invest. The make bigger in interest prices would make it greater challenging for large corporations to make investments due to an extent in the fee of capital. When activity rates are increased, there is much less disposable income, make bigger in the fee of borrowing which reduces investment, as nicely as economic growth. Businesses and consumers will cut lower back on spending which motives a domino effect. Corporations will start spending much less on projects that have no financial profit. This will cause income to fall and stock expenditures to drop. There has to be stability in between so corporations can proceed to invest. Offering a tax cut to massive firms makes up for the more costly they are incurring for an amplify in fee of capital. Many instances when this happens, we feel as if the wealthy are simply getting richer and the negative are getting poorer. The telecommunication enterprise is an example. Nowadays, you find human beings paying so a good deal for mobile phone and web service. The purchaser has to pay for the more rate but at the identical time the enterprise is the one gaining earnings as properly as the tax reduce
The article helped educate me on how different externalities can influence the economy and how they can affect businesses. The article also contained many statistics and facts about which business can be successful in a world of high interest rates. While interest rates can stimulate economic growth, it can also hinder the economy. High interest rates are useful to decrease the debt of the country. Running a business when there are high interest rates can be challenging due the cost of manufacturing being more than the profit on the products. I believe that low interest rates are the best for a company to make a profit though. It is very interesting how much of an impact external effects and global growth have on the economy. Telecommunication companies are extremely successful right now due to the emerging market and new customer needs. This article was very enlightening and definitely worth the read.
Everything has an impact once the market has a change and telecommunications is not an exception. It depends on how these companies can take advantage of the situation but some of them do not have to rise their cost of debt. An important thing to consider is that companies should use their assets to generate profits and grow their advantage against their competition. 5G technology would have a great impact on the world in the near future. We can already see an advance growth in more developed countries such as Mexico, U.S., Brazil, and others; but in India and Nigeria where cellular service is low in comparison with other countries, there is no much technological advance in those countries. But all of this happens because on how the market moves and changes, and based on that companies can now be more aware of which changes make in their business model and become better than their competition.
I came in to this course with no previous knowledge of anything relating to economics, and this article helped broaden my perspective of topics I was oblivious to. Based off of what I have learned from the article, I believe the author did an unbelievably good job of portraying the effects that tax cuts could apply to business. I found it interesting how externalities have the power to positively and negatively impact the supply and demand curve. I knew that this curve could later then impact the market, possibly enough to make it fail, but this article taught me how and why. From this blog, I have been exposed to new information and view points regarding important economical activities that I barely knew anything about. I have realized that the constant rise and fall of interest rates, tax cuts and investments, fluctuating supply and demand, and affects imposed on the GDP can all affect not just the United States, individually, but the global growth as well.
All companies try and make a profit and potentially grow bigger. But there are many factors that play into that. Not just good business practices, but market timing, tax rates, what is emerging on the market as the “next best thing”, the value of the dollar and much more. Tax reforms can help or hurt a business. You must look at all aspects of the business market if you are to have a successful and profitable business. You must be able to adjust for fluctuations in the market. The company, American Tower, that was discussed in this article, not only has taken advantage of the fact that cell phone and wireless technology is an exploding tech industry but also organized their business model to make sure that they can respond to fluctuating tax rates. Being able to capitalize on economic conditions as well as safeguard yourself from conditions that could potentially cause you to lose money is a good business model to structure your business under.
This article is very informative about the telecommunication industry. It was informative about the growth and debt in the telecommunication industry. Before reading this article, I knew very little to none about the telecommunication industry. This industry has been growing bigger and bigger over the years and is now a big industry. It has come a long way because now there is 5G. We have faster message speeds and faster data than years ago. There are a lot more companies competing with each other including Verizon, AT&T and T-Mobile. Telecommunication is important because it allows families, friends and coworkers to communicate with each other and in the business world, it is important for the companies to easily communicate with their customers and clients. I can see the telecommunication industry will continue to grow. I feel like there will always be a demand for this industry because communication is important for global growth and company growth.
This article is very well written and easy to understand with the graphs. The effects that taxes and rates have on aspects of business can be felt around the world and can even cause a country to fall behind in technology. American Towers has found a way to provide a service to the service industry. Telecommunications is an industry that will never die, but also one that needs to stay focused on technology so the support that American Towers offers in invaluable. Countries that are stepping onboard the “technology train” are finding that putting trust in companies like American Tower can cause exponential growth in telecoms and add value to the overall economy. Companies like China’s Huawei are offering services to these emerging Economies and there giving companies like American Tower a run for there money. Although it is common knowledge that the Chinese Government is running Huawei, emerging markets are still choosing to use them for technological advances instead of using trusted American technology for the advancement of there enterprises.
After reading this article, there are mixed opinions about the higher interest rates because it seems to have gradually changed many factors and caused the federal discount rate to be increased by many points. It can viewed as both significant and insignificant because it creates differences in structures of debt and will also affect the amount of profits that margins of corporations receive. One of the main factors that seemed to be mostly affected is the weighted average cost of capital. As time goes on, it seems that it will get harder to get money to invest into corporations. Which will then result in a decrease in projects because most of them will not be able to make profits. The companies that are already having a hard time with their cash flow will be at a greater loss because it will be difficult for them to pay for their losses while still surviving this new adjustment.
It is important to know the basics and logic behind an economy’s growth and why high-power leaders make certain decision is to better the economy. Somehow each country relies on each other’s economic decision to fuel their own economy. Looking at the charts in this article, it can be difficult to see where to invest as an investor. The telecommunications industry affects more than I imagined. Looking at the graph that shows the internal markets wireless versus mobile, It looks like American Tower Corp has potential to become a great success. Each year their return on assets increase and the demand for more is increasing as well. Currently, 5G is being built in more places, taking over the telecommunications industry. Since the U.S. dollar has decreased in value, developing countries can build new infrastructure to build their economy. The big question I have for this article is where this leaves the U.S. economy status. Will it soon fall or is there opportunity somewhere for it to succeed?
This article opens with explaining the Federal Reserve raised the interest rate for the first time since 2008. Since 2008 was in the middle of the Great Recession this leads me to think the country is going through another recession. I would like to learn what event in our economy made the Fed feel it was prudent to increase the interest rate. I found this to be a great explanation of tax rates and the federal discount rates provided by the government affect businesses such as telecommunications. Companies with liquid assets such as AT&T and Verizon will be successful, but less liquid businesses that might need financial help will have a harder time seeking help. With the Federal Government’s ability to increase the interest rates they will hinder the ability for small businesses to take out loans to sustain themselves through tough times. As the US dollar decreases value this will also hurt the smaller businesses. This not only hurts the US economy, but the economy of other countries. These small businesses will not be able to buy products from other countries.