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
With the different types of externalities impacting corporations and their ability to invest money or account for their losses, I was most surprised by the influence of tax reforms and the value of the dollar. Upon seeing the word “tax reforms” the reader would assume that corporations would have to account for higher tax rates. Surprisingly, it leads to lower tax rates as a result of higher interest rates. Studying historical patterns might be the best way for a corporation to anticipate money managing moves.
The value of the dollar also holds a significant impact on the market. I did not consider that U.S. telecommunication companies would be working with other companies or countries. For countries with currencies higher than the USD, the telecommunication companies obtain greater revenue. Additionally, it seems that the most successful companies are those with some type of service or product essential for other companies—such as the American Tower Corporation example. T-Mobile, AT&T, Verizon, etc., are all popular services, but has anyone thought about what goes on behind the scenes? ATC is essentially guaranteed success regardless of economic state. This goes to show that various types of externalities impact different companies in different ways.
Aurore S.
The article is very interesting because it talks about the telecommunication industry. It explains the concept of adding higher interest rates and lowering corporate taxes which might just benefit the bigger corporates on the long term. Also, by having higher interest rates and lower corporate taxes might affects the smaller companies because they won’t be able to compete with larger companies. The Net Neutrality will encourage telecommunication companies to make their own prices and to control their own speed which will promote competitions and higher prices. The telecommunication companies know that they will benefit from the Net Neutrality (we will have to see since the United States senate voted to repeal the Net Neutrality on May 16th), the decline of the U.S dollar, the higher interest rates and lower corporate taxes; therefore, they will have more power over their consumers because they know that nowadays we “live,” on the phone and internet. On the other hand, on my opinion with the Tax Cuts and Jobs Act then it should give a nice “Kick,” to the U.S economy because companies should pay less taxes so more projects which means more benefits, keep the companies from moving overseas, and more jobs opportunities.
The article main focus moves around higher tax rates, Tax reforms and how telecommunications, the industry stands out the most due to net neutrality laws. Although it’s very interesting that it is about the telecommunication industry. Article throw the light on the topic how the interest rates get higher by lowering corporate taxes. which is just good for huge companies on long terms. The decreasing value of U.S dollar also a reason that affects telecommunications companies with exposure to emerging market. But as the writer explains as other currencies getting stronger against U.S dollar, it should be possible for people to acquire internet services, which helps to increase revenue for telecommunication companies.
This was a great insight for me due to the fact I have never really looked at economics before this class. I can conclude from reading this article that the federal reserve is a massive factor in the market. Changing the interest rate can both negatively and positively affect people. Lower tax rates often lead to more jobs from bigger corporations which is good for the job industry. According to these passages, business seems to to be doing very well but the statistics are showing the decline in the American dollar. Net neutrality is where companies are limited in the speed of the internet. Net neutrality is a mandate set by the government that has now been repealed. It will be very interesting to see what the effects of us not having net neutrality. I think more jobs will be produced out of the end of net neutrality. The company American tower has great prospects, investing in this company or just the telecommunications industry in general, could be very beneficial. From the looks of it, telecommunication companies are going to be even more competitive than they are now.
The article reflects something that society is barely now trying to understand; the impact of externalities. For example, tax cuts and higher interest rate primarily benefit big companies and drastically reduce the opportunity for small businesses which are part of the “American dream”. Many US companies outsource labor outside of the US because the cost is smaller and thus many jobs are created elsewhere. US Tax cuts and Job Act are externalities that can injet revenue back into the economy by acting as incentives for companies to keep jobs in America. In this case Telecommunications companies such as American Tower Corporation can expect to continue generating revenue as that is something that is far from being over as it is a very important service today and for many years to come.
Essie Dews,
The article focuses on the telecommunication industries like AT&T and Verizon. The article goes in depth on the side affects of these industries or the externalities of telecommunication industries. Elaborating further into the text the reading focused on how other countries are putting money into the United States telecommunication industries. With consumers from other countries there are both pros and cons to this a company could form monopolies by setting any price, because no other company does the 5G data. With other countries purchasing our internet and technology we are also giving them a boost and building them to become stronger more tech savvy countries. Another thing a reader would find very fascinating is the idea that telecommunication and many other technological industries lower their corporate taxes. By doing this interest rates get higher resulting in the increase of consumer purchase. With the company owners thinking like this the United States telecommunication industry will continue to flourish.
Externality is the affect from a cause, whether it’s positive or negative. Externality is something that economist would like the government to internalize by adopting policies. Tax Reform has its affects on corporations which may decrease the cost of loans after taxes. Significant externalities happened in the pass when there were times when high interest rates and low corporate tax rates occurring at the same time affects equity performance. Over the years the USD worth has been declining as minimum wage is in a standstill and the cost of goods has been increasing. Many people have to work more just to keep with livelihood. The value of the USD affects emerging markets in telecommunication company’s decrease due to the value of money decline. More is spent on infrastructure as purchasing power increases is because of the emerging and developing market economies. This article explains and shows how externalities work, it’s all interconnected, and how one affects the other in economics and could be applied to any corporation.
Higher interest rates and low cooperate taxes, it sounds like its a win for big businesses, but it turns out to be a opportunity for a small firm to become a competitior with other cooperations. Usd dropping, but other currencies are rising. We’re headed to 5G! The future is interesting thats the flow of this blog in my opinion and it gets you more involved
For about one and a half years now I’ve been working for Apple, and one of our major points of sale is of course, the iPhone. This being said, the article speaks to something I care and am constantly surrounded with on almost a daily basis. The two things that really stood out to me on the article was the section about the American Tower and the Net Neutrality act. The net neutrality laws and their effects on telecommunication companies is something that I already see happening in the store around me as the various providers we work with consistently go through changes trying to get their shares to go up as technology keeps moving forward. The American tower on the other hand was something I had never heard of before this article and it was cool to see how things such as interest rates, corporate taxes, and even the value of a dollar bill could have an effect on something that seems so completely unrelated. I hope to see the growth of this American Tower and am excited to see how it will impact the work we do in the store everyday.
Externalities have such a big impact on debt and profits in the economy. There are many scenarios that can play a part in the impact that investors must look out for in order to increase what needs to be increased and decrease what needs to be decreased. Companies must be careful of the debt that they are in, for more projects will increase the risk of running the company down. In order to observe how the graph and industry will go, investors and owners look at the weighted average cost of capital. It is an externality that plays a big role as investors see on the graphs and charts. With emerging markets comes more global growth. This is a great opportunity of potential for businesses that would like to expand and flourish in the market place. In order to identify the historical outlook to find what the potential is to come, investors will look into the federal discount rates as well as the corporate tax rates.
After reading this article I can conclude that the economy depends on the Federal Reserve for a lot of reasons. The Federal Reserve can determine whether a business is going to succeed or fail depending on what they decide to do with the interest rates. The Federal Reserve is the central bank of the United States and it is supposed to help the economy with a more stable financial system, but when the interest rates rise then it tends to hurt the financial system for most businesses. However, the article did mention that when the Federal Discount Rate increases then the corporate tax rates will decrease, which could help a company depending on how successful that said company is but it often can hurt small businesses. I also thought it was interesting to read about how the value of the US dollar is decreasing almost every year and will continue to do so. The decline in the US dollar would make the US rely more heavily on exports rather than imports because the dollar is going against foreign currencies. This article was important for me to read considering economics is not my strong suit. It provided a lot of information that I was not aware of beforehand.
With economics not being my strong suit, this article has given me a lot information and a good understanding about “Externalities and Global Growth”. I can tell that federal reserve takes a big part when it comes to the market economy. As said in the article, I am aware about how there has been higher interest rates and low corporate taxes. I know for a fact this is good news for big companies. This article talks a lot about the telecommunications industry and how country growth would actually benefit them to emerge in the market economy. The author also mentions the American Tower, and that is a name I’ve never heard about, but it was interesting to read on how this corporation will profit from all the changes going on. It was also interesting to read and understand how higher interest rates, lower corporate taxes, decline in dollar value, and etc. could change any company’s profitability. My major is Business Management and I know this class will help a lot for my future. Getting a better understanding about our economy is important for me to know and this article has helped a lot with that.
Again I learn that making a decision as its related to the economy will have an impact potentially for a long time to come and can have significant impact not only on the consumer but corporations as well. When I would wait for Allen Greenspan (Jerome Powell today) to announce whether or not interest rates were going up, I don’t think i fully understood what it meant.Although i’d stayed glued to the news none the less (weird now that i think about it) I’d hear Mr Greenspan say”no increase” are staying the same and I’d continue with my day thinking no affect on me. But when they did rise say a half a percent or so i would conclude that when i went to get the mortgage loan for my new home, it would cost me more interest to borrow that money. So interest rates go up (cost of debt) corporate taxes go down thus resulting in higher EPS. Seeing this has only happened a few times throughout the course of history (where interest rates have gone up while corporate taxes went down) affecting corporate profitability,I will absolutely be watching the winners and losers here . Which companies can weather the storm and which companies cant (equity performance). I suspect one such conglomerate knows exactly what to expect. Isn’t that right Mr Trump?
Honestly, all of this is as fascinating as it is troubling, but i feel like I’m smarter about it now – thanks for the great reads!
After reading this article, I realized that it is very interesting. First, externality is a benefit that enjoyed by a third party as a result of an economic transaction. It explains the idea of the Federal Reserve sparked a trend of the higher interest rates. Also, it shows the influence of tax that made changes and the value of dollar. From the idea tax reforms, the reader can assume that by having higher interest rates and lower corporate taxes might affect the smaller companies because they cannot competitive with the large companies. On my opinion, I think, this article shown the importance of someone having a business in the U.S and how you have the idea of tax before invest in a business.
The article posted in March 2018 shows the US dollar on the decline and states that is predicted to keep declining throughout 2018.The decline in value of the U.S. dollar to me seems to be getting stronger – rising and falling somewhat, but on average stays just under 95. In Oct 2015 it was at 94.73, in April 2016 it was at 93.06, July last year it was at 93.54. There have been some low bumps, 89.10 in February this year but it seems to bounce like many numbers do, back into the 90s. From May of this year it has stayed above 93 and is trending above 94. Gold and the dollar have an inverse relationship, gold has been trending downward. Growth is strong, and unemployment is low and we are can buy more foreign goods, phones and other electronics. The downside of a strong dollar is that it is more expensive to export so buyers might start to look at other resources for cheaper rates and that could lead to an imbalance of importing and exporting, which would not be good.
This article is very interesting as it is analyzing one of the most highest trending industries in the economy, telecommunication. Telecommunication is relevant in today’s world through social media, websites, phone companies, etc. since that is how most of the world communicates with each other. The telecommunication industry’s debt is correlated directly with it’s interest rates. When the interest rates rise and the taxes are lowered, this allows the larger companies to not only succeed, but take over the smaller companies and wipe out their competition. The larger companies can afford to have higher interest rates compared to a smaller company. The larger companies have a continuous cash flow, compared to the other companies. This would be part of the recovery period for the economic system which means people can start investing in the larger company in order to make more money and the cycle continues.
The weighted average cost of capital (WACC) is used to calculate a firm’s capital in which all categories are equally proportioned. When looking at the WACC it is seen to increase in the cost of capital. This is going to make it much harder for corporations, lowering their project input because most will become unprofitable. Companies will need to be careful when choosing what projects to move forward with. With higher interest rates firms will need to find a way to perform successfully against the S&P 500. The telecommunication companies in the industry will see increased revenue because people will continuously need to acquire internet and cell phone services. This should give them an advantage over other companies that are not as liquid. As seen on some of the charts used here, AT&T and Verizon stand out because they are bringing in huge amounts of free cash flow (FCFF) to the firms. I believe companies like this (telecommunication) will have the most success over others within the next few years. They are all going to bring in a higher liquidity ratio continuously, but it will be interesting to see who comes out on top.
Externalities can have a pervasive impact on the economy and individual households. Externalities can come in two forms: positive and negative. This article tends to focus on negative externality of raising interest rates. This negative externality impacts both individual consumers and large businesses. The increase in interest rates will likely hit hardest on consumers. The cost of borrowing will increase therefore, consumers will pay more money on loans. The increase in cost would likely reduce consumer spending and slow down economic growth.
It is not expected that large businesses to be hit as hard as the consumers. Unlike consumers, large businesses can internalize this externality due to the recent tax reform. The U.S. Tax Cuts and Jobs Act significantly reduced the corporate tax rate.
A few companies consider this externality to be positive. Companies within the telecommunications are more likely benefit from this externality. The benefits gained can allow telecommunication companies to expand their technologies and service new markets.
The policy to raise interest rates is good for some but not for all. Thorough analysis should be performed before making such market changes that can affect so many people. Implementing such policies can hurt to U.S. economy as a whole.
after reading this I see why there was such a low in 2008 and has since been getting better. I know someone who owns a small company and I understand that taxes are what we pay for all the great benefits our country gives us but the way they are set up are on the side of big corporations. Now I also understand that our economy also relies on how well those big corporations are doing but if they are invincible and all the little companies are paying all the taxes then how are any new companies supposed to form. Now I am not saying that it is impossible for a small company to survive but they way these graphs are making it seem there is now way for expansion if the taxes are going to outweigh the expansion space and then they will end up in debt and then there went away the entire possibility of that small business owner to boost the economy of his community and the possibility of a great new corporation. So i do understand that taxes are needed and that big corporations need space and we need to take care of them so that they can also continue but why not open up a bit to give the small guys a chance.
This article is very interesting to me, in a sense that it solely talks about the negative externalities, but spins the outlook to make them look like; yes they may be bad, but it does help some corporations. With that being said, it is crazy to see that a company I have never heard of, is doing a lot better than such big companies like AT&T, and Verizon. American Tower may be worth looking into, from an investment standpoint, they appear to be doing something right. As far are tax reforms, I agree with them to an extent, and what I mean is that; Yeah, its okay and very beneficial to greatly tax corporations, but looking at the big picture, how is that good for the economy? If we continue to tax big corporations, big amounts, then how will they afford to maintain their profit margins, and continue to house employees? That would cause an uproar, while also causing an increase in unemployment. Although, certain externalities are negative, we have to come up with a way to turn them around, make them positive, and see the big picture, such as with AT&T and Verizon in the telecommunications industry. According to the article, because of net neutrality laws, AT&T and Verizon might not benefit, but the other corporations will with the expansion of technology.
The externalities and global growth that the United States is facing is drastically changing the way many companies and businesses are handling the changing system of economy. As seen by the increasing interest rates and low corporate taxes does have an effect in uprising businesses. As already established businesses and companies strive in the changing system newcomers to this environment have it rough with the S&P 500 in place. However, these externalities do have a positive impact on already established telecommunication companies. As new laws and changes keep occurring one might expect to see 5G in our cellular devices soon.
This increase in technological power is great but the power of the American dollar might decrease because of these changes. The power of the dollar is affected by other competing currencies, but this is one way to be able to get technological improvement in our devices that we so much love. This trade of power for improvement can change depending on future changes to the economic system in a way that can benefit all.
I find it troubling that the cost of debt will decrease yet the corporate tax will stay decreased, this implies a heavier tax burden on the middle class. This could ultimately stifle growth among small businesses and other working-class establishments. As externalities on the market, this would most definitely help large corporations and their shareholders, but it may come at the price of the middle class. Due to the events regarding net neutrality that occurred earlier this year, telecom companies like Verizon and AT&T, as well as ISP’s, have made huge moves to expand their availability, including but not limited to the acquisition of other companies and the development of new technology and infrastructure. As the dollar value continues to decline, and the use of alternative currencies, especially cryptocurrency, the ability to access services and products which were only available in certain developed countries is now widespread. This leads to more profit income for not only telecom companies, but other luxuries as well, which is why we see more and more moves to develop telecom infrastructure in places like Mexico and South America. All in all, this will lead to increased consumption of tech products, boosting the entire industry.
This article is quite interesting as a modern topic of debate as it talks about wireless networks, the telecommunication industry, and the overall growth countries experience from these technological advancements. It also mentions the externalities that come along with this high-tech growth. These externalities have a significant impact on many things in an economy including profits and debt. The article discusses the Federal Reserve and has led me to believe that the Fed has an enormous impact on the success of businesses and jobs within an economy. The Federal Reserve controls and sets the discount rate. The discount rate is the minimum interest rate for lending money to other banks. The Federal Reserve is the central bank of the United States and is thought to provide the economy with a stable financial system. However, when federal interest rates rise, it often hurts small businesses and firms. It is worth noting that the article mentions that there is usually a decrease in corporate taxes when federal interest rates are higher. After reading the article, I am led to believe that countries where mobile broadband penetration is still low will have a higher rate of growth compared to other emerging countries. Of course this makes sense as the countries that are just now receiving the technological advancements have a great deal to “catch up” on. All in all, this article got me thinking about the role the Federal Reserve plays in the U.S. economy and the importance of technology in our innovative, modern society.
What I gathered from this article, is that telecommunications is upcoming in the market especially with the 5g network, that is going to be booming once it hits the streets. American Towers is proving to be a company you want to invest in and other similar companies since the stock market seems to be performing very well and I believe that the interest rates will be going up. The whole net neutrality is not all that great for us the common people, who pay for a service and still get the short end of the stick, while the big corporations reap all the benefits and continue to build up their revenue. With the value of the USD declining it does affect the bigger industries in the United States. I know that some foreign countries pay very well for the USD. Most of this information was news to me since I don’t keep up with stocks or the value of the USD, but I am keeping up with all this useful knowledge now. The reality of it all is that it affects our everyday life. I hope to gain more useful information to help guide me with investments.
Linda Escobar
After reading this article, it seems that businesses are growing but the U.S economy is declining as a whole. The dollar is still declining which will lead to a recession and many of these companies may benefit from these circumstances. Emerging markets are growing and will force these businesses move to increase their profit if the U.S economy doesn’t catch up. Businesses like the American towers are beginning to look like a great investment idea and also other telemarketing businesses such as At&T since the push for 5G internet is on the breach of existence. These businesses look like good investment because of their rapid growth with no sight of slowing down, because of the growth of technology. The American towers are growing faster than the S&P 500 by a % change of about 15%. The taxes problem should be regulated to where these companies don’t benefit from lower taxes, the bigger companies should pay more as others don’t have the same salary. Very interesting article and looking to invest into these companies is a must.
-Robert Ortiz
It is interesting to realize that our economy is in a rare period of growth where the cost of corporate debt is going up while corporate taxes are going down. The article explains that these “significant externalities” are likely to affect corporate profitability well into the future. The article tested industries which outperformed the S&P 500 under these conditions, and the telecommunications industry stood out. Net neutrality changed the way the industry does business, giving companies like Verizon and AT&T the chance to expand internet services and increase profitability. At the same time, a decline in the value of the U.S. dollar allows countries with emerging markets the opportunity to strengthen their currencies and “spend more on infrastructure”. This is good news for telecommunication companies looking to do business in those countries. The article explains that changes in the market, as a result of “significant externalities” will be most advantageous for companies with “the best liquidity ratios and cash reserves”. The article points out specifically that American Tower Corp is “firmly poised for growth” globally because it can profit from five externalities that are happening at the same time: “higher interest rates, lower corporate taxes, deregulation of the telecommunications industry in the U.S., a declining dollar, and rising global growth”. To me, this is an incredible observation!
I thought this article was an eye opener for me. Not too long ago I head that a phone company was releasing 5G technology, but for home use only at this time. As the world experience global growth technology is right alongside it. The decline in value of the U.S. dollar I think was inevitable, because if you take a look at the agriculture industry it has got to the point that it is struggling to keep up the demand for crops because of the global growth which in return causes a strain and then that’s when we get scientist trying to make fake fruit and fake vegetables( not really, but almost). Global growth puts a strain on the economy. I wonder what will we do when the value of the dollar decreases to the point that it is almost trash? To me it’s just a sign that the earth too has to oneday die.
Jackson Cloyd
This article really opened my eyes to the extent that different nation’s economies affect each other. But per the article, it is clear that currently our economy is in an unusual period in which corporate debts are increasing whilst corporate taxes are decreasing. To demonstrate how this period will affect the economy far into the future, industries that performed higher than the S&P 500 in certain industries, with the telecommunications sector standing most prominently. With the value of the US dollar declining, it allows other countries with newly emerging markets a chance to expand their infrastructure. This is very promising for businesses interested in operating in these countries, as better infrastructure will create a way for more efficient production, in turn increasing profitability. The idea that American Tower Corp is firmly poised for growth is actually quite interesting, because it benefits from several different externalities simultaneously.
The most surprising thing found in this article was the influence of tax reforms and the value of the dollar upon reading the article. When I read the word “tax reforms,” I assumed that companies would have to account for higher tax rates. Surprisingly, it leads to lower tax rates as a result of higher interest rates. The value of the dollar also holds a significant impact on the market. I did not realize that U.S. telecommunication companies would be working with other companies or countries. For countries with currencies higher than the United States dollar, the telecommunication companies gain access to higher total revenue.
The conversation about the American Tower being so amazing in business strategies that they are not very affected by the decline of the US dollar makes it clear to many people that investing in this company would be a smart move. Moreover, the telecommunication industry seems to be protected by any future downfalls due to the constant flow of money. Sadly, the value of the dollar is falling, and many aspects of the economy seem to be affected by this. However, it appears that the US is not taking any action towards fixing the problem.
This interesting piece explains the growth and bright future of the telecommunication industry, Although Tax reforms is a way of modifying the way taxes are managed by the government. Other reforms are also ways of dealing with externalities. In a country, the interest rate is been increased or decreased which often affect the people in diverse ways. Increasing taxes causes the rate of unemployment to go higher. When this happens, the big organizations like Walmart, Target, etc, will have no choice than to take their production labor to foreign countries like Vietnam, China, India, etc. By doing so this increases the rate of unemployment. Although from a lame man’s view the businesses are actually growing the U.S economy is slowly going down. while these are happening, emerging markets like telecom are expanding their coast. In all these diverse changes in every sector are affected by Externalities. In my opinion, putting these whole ideas on a scale is like, while the economy and the US dollar is depreciating, the emerging markets like the Telecommunication industries are fast expanding.
This article focuses on impact of externalities and global growth. This article states that high interest rates and low corporate taxes will benefit larger corporations in long run. Net Neutrality, decrease in the value of U.S. dollar, and American tower corp. have a great impact on Telecommunication companies. Net Neutrality allows telecommunication companies to expand their profits through expanding internet services throughout the country. The decline in the value of U.S. dollar will also impact on telecommunication companies with exposure to emerging markets. As the different currencies are getting stronger against USD, it should be easy for people to get internet facilities and that will increase the revenue of telecommunication companies. It also states in the article that “American Tower is in a rare position to profit from higher interest rates, lower corporate taxes, and deregulation of the telecommunications industry in the U.S., a declining dollar, and rising global growth.” I think investing in this company would be very beneficial for an individual.
What I understand from this article is that externalities as a source of the market failure is an important empirical issue that can encounter in the modern day world`s economic life. But also economics has analyzed it only in microeconomic analysis. I think that this issue has important effects in macroeconomics such as in macro accounting and not only national but also global growth. The ecosystem services are the main type macro externalities that we called as global externalities moreover, their replacement with human technology has been the main motive of recent growth characteristic, that is my belief. However, its analysis has been narrowed only into microeconomic analysis. Macro accounting and growth theory are among them. The ecosystem services can be classified as macro positive externalities and we called them as global externalities. In the midst of the discussion on calculation method of GDP, their inclusion into the macro accounting system might produce bigger results then being a mere development in the theory. So long as changing comparison of economies it can affect the direction of macroeconomic policy.
This article helped me understand more about the impact of interest rates on businesses. The article starts out by describing the negative effect of the higher interest rate that was issued by the federal reserve. The later on in the article, it started to mention the positive effects it’ll have in the long-term. When I think of interest rates, I don’t tend to see the positive in it because to me it’s mean someone has to bear the burden of the increase whether it’s the business or consumer. Sure, businesses will get hit heavily but eventually, they will find a way to balance it out (ie. Cut cost, pass the cost onto the consumer) or some law will be passed as we saw with the tax reform to help reduce their burden. Before this class, I didn’t really pay much to economics or what effects it has on me as an individual. But one thing I found interesting about this article is that rapid declining of the US dollar. This will eventually mean that we the consumers will have to pay more for necessities such as food and have to start prioritizing needs vs wants just to get by.
To me it seems that interest rates have been spiking since the Federal Reserve changed them in 2015, and I feel like I get notified and read a lot about how much they have been discussing them lately. Although, before this class and article, I never knew exactly how it impacted the economy. I was a little confused as to why the cost of capital is considered an externality. I really think this shift in the WACC will hurt the economy significantly. Having started a company before, I am aware how hard it is to obtain capital, and also how necessary a lot of capital is for businesses. To me, the tax reform section effectively summarized the impact of such an act. I feel like the impacts the US Tax Cuts and Job Act has on companies should be considered when evaluating a company and during earnings calls. I admire the approach under the historical analysis of the relationship between the discount rate and corporate tax rates, as it can be useful. Having taken a stats class in high school and understanding t-tests and confidence intervals, it was inspiring to see its application to economics. I believe that regarding net neutrality and its opportunity for telecommunication companies, AT&T will develop the 5G network that many customers are demanding. I was not familiar with the decline in value over the years for the USD, and it will be interesting to see how this deflation will affect other industries other than the telecommunication carriers. I now understand that EPS changes, costs of debt, liquidity ratios, cash reserves, and FCFF can help me in my analysis of which companies are in a period of growth (at least in the telecommunications industry). American Tower Corp, given the status of the telecommunications industry, seems like a success in the future and I am glad to have heard of this company, so I can conduct further research about it. Sometimes it can be easy to focus on the trends of large corporations, and not the ones they work with behind the scenes whose success parallels the large corporations.
With the shift in weighted average cost of capital it will be harder for companies to acquire money if they aren’t being ran more efficiently. For companies who have a small profit margin or negative margin will need cut operating cost to down to essentials to maximize profits or even break even. The business market is and will always be survival of the fittest. Tax cuts will benefit those companies who know how to use it in their favor, sounds simple but many companies file for bankruptcy every year and as of 2018 U.S companies have racked up a $6.3 trillion-dollar debt, the most in history. As stated in the article “companies that can use their assets effectively to generate profits” being able to leverage their assets for their benefit and help with their growth. Along with the telecommunication I believe that the Technology/Software industry will continue to grow because most have little to no debt, and little collateral as their main assets would be computers. So, with no real overhead most companies become cash heavy and grow steadily.
With higher Federal Discount Rate, corporations might have fewer projects that will continue to proceed due to the profitability changes. However, for corporations with more liquid abilities, their flexibilities against these changes will not be stagnant. Thus, big corporations might be suffered less than small ones for their abundant resources.
With global grown, the dollar’s value is decreasing while the other values are increasing to keep up with the dollar’s value. The power of purchase increase helps emerging markets to have more power for infrastructures investments. Thus, it helps them become more profitable and grow faster, especially for those emerging markets with lower broadband penetration such as India. Also, with 5G technology, companies are rushing to install new technology to gain more customers before their competitors. Thus, it helps them gain more profit to further growth. ATC is the only exception because their profit is raising despite higher interest rates. It is because of the more the broadband telecommunication grows, the more towers they need. Finally, externalities and global growth always help some markets to grow, some stagnant or even decline.
This article is very informative. It helped me understand the extent different nations economies affect each other. According to the article the U.S. economy is declining as a whole even thought business are growing. Emerging markets are growing and will force businesses to increase their profit if the U.S. does not catch up.
The idea behind the article being focused on telecommunication is interesting because there are a lot of controversial issues involving them such as net neutrality, monopolies, etc. It reminds of me when T-Mobile wanted to merge with AT&T. This couldn’t be allowed because two enormous companies with such high value would have created a monopoly which is toxic to the economy. And also to find that global trends have shown that telecommunication companies are growing faster than S&P500 is really interesting but makes a lot of sense bc this industry is really penetrating economies around the world. As for the high interest rates, I learned in international finance that this isn’t always a bad thing; it could mean lower rates elsewhere, appreciation of a specific currency, and eventually, someone has to bear the burden of paying the high IR.
This article actually got me a little anxious to see how changes in regulation will play out in the telecommunications market. As the author suggested, If I were an investor I would definitely give American Tower a hard look. A 20% increase return on assets sounds impressive enough to me and if the telecommunications market is in fact expanding, I would expect it to become a lot more competitive amongst our giants like AT&T and Verizon. It seems the “Circle of Life” exists in all aspects if this tax reform has positioned Americans to possess greater spending power in the near future. It appears the telecommunications industry will forever be a fall back as technology continues to grow and develop. For the most part, this article projects positive vibes but I was a little disturbed to find out that the rate at which the USD was declining. I don’t know if that is beneficial or if that means companies with large debts will raise prices on their products or lower wages for their employees. I assume they will be looking for alternative ways to compensate for their losses but maybe I don’t have the full picture.
This article makes me very happy because my dad works in telecommunications. It discusses many different factors that help support future profits for telecommunication companies. For instance, the article discusses how changes in net neutrality laws that have been broken up which may allow for increases in earnings per share in telecommunications companies as they can expand more throughout the country. Also, it mentions how a decline in the value of the USD allows for the purchasing power for other markets to increase which results in an increase in revenue for telecommunications companies since it will be easier for people to obtain internet services. This article also identifies growth opportunities for telecommunication companies that can expose themselves to emerging markets. Emerging markets and developing countries might grow by 4.5% in 2018, so, if telecommunication companies take advantage of the rising global growth, they have a good chance of increasing their profits.
While this article presents many facts about the current economy, one thing is missing. That is that the current economy does not match any previous models we have had. While it is true that tax cuts and regulation rollbacks have spurred on the economy. The intangible of the presidents’ pulpit rhetoric and negotiating with tariffs have a compounding effect on driving the economy and creating growth throughout all sectors of American based businesses. As the dollar rises the growth scene could be diminished, however with a federal reserve that acts slowly I believe the fear of an overheated economy will be kept in check. What is lacking now is clarity of negotiations internationally and the federal reserve’s clear communication of a policy that will reflect future ups and downs of the tariff based negotiations. It seems apparent to me that the strength of America’s economy can be leveraged against external factors to continue the growth rate of three percent for the foreseeable future.
Through this reading, it appears that while business is, in fact, going to the United States, the economy as a whole is still moving in a negative manner. The U.S. Dollar is continuously declining and will eventually lead to a deep recession and with that many companies could take a hurt or some may find a way to benefit from these circumstances. These emerging markets are rapidly expanding and may force this business to relocate to increase their profits if the United States economy does not start fixing its economy. Telemarketing business such as AT&T are beginning to look like a great investment since their push for 5G internet is in the near future. These telemarketing businesses are great investments because of their rapid growth and no evident sign of halting. These American Towers are even growing faster than the S&P 500 by 15%. The problem these taxes create should be regulated to where companies can benefit from these lower tax rates.
This article talks about Externalities and Global Growth. It touches on several different topics affected such as the federal reserves higher interest rates, the decline in the value of the American dollar and global growth to name a few. This article seems to be written a while ago but the information is still very much relevant. It predicts the value of the U.S. dollar will continue to decline into 2018. The exchange rates in February of euro was $1.25, in April the euro began to weaken and in June when president Trump initiated a trade war the euro fell to $1.16. In return the Federal Reserve raised the fed funds rates to 2 percent. A higher interest rate strengthens a currency because investors receive more return on their holdings. The value of the dollar afftects Telecommunication companies. 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. I would have never guessed that the value of the dollar can affect so many differernt industries including telecommunications
Brandon Morris
From this article, the audience gains a greater perspective in how Externalities and Global Growth works. The presenter imparts the different types of externalities that have and may impact corporations, such as the telecommunications industry and their methods of competition. Traditionally, a positive externality could be created social benefits for the market, such as the creation of the World Wide Web. When dealing with the externalities, they may exist in either the production or consumption of a good or service and are backed by rules/regulations and encouraged consumption by subsidies. From reading this article, students have a greater understanding in the idea that telecommunication companies and other industries find ways to lower their corporate taxes, raise interest rates, cause the change in the value of the dollar. Many externalities can direct impact in the potential success of a company and the economic system behind it creating a constant cycle of corrections.
From the article “Externalities and Global Growth”, I understand that there are going to be fewer projects that would increase the number of jobs that would be available to those who are just starting out in their prospective fields after college be. Another thing that I think would be possible from the increase in the cost of capital is that there are going to be fewer entrepreneurs as people who are yet to graduate realize that there is an increase in the risk that they would take, should they want to start their own companies. However, this is just a very simple way of analyzing a situation with a few components of economics. With the upcoming innovation in the telecommunications industry of 5G, I believe that it is going to be a revolutionary innovation because it would be something that would be needing to be implemented at a larger scope to be more effective. I do agree that looking at these externalities is a crucial step to take when considering investing in companies like American Tower.
Externalities are benefits that an unrelated third party receives due to economic activity. This article discusses the recent repeal of the net neutrality laws set by the Obama administration as an example of externalities. These laws were set to prevent telecommunication companies from taking control over the media that we consume. For example, these companies could start charging fees for access to certains websites at certain download speeds, otherwise known as throttling. In other words, the deregulation of the internet allows for telecommunication companies to grow their EPS. Without legislation to regulate the telecommunication industry, the potential of misconduct is high.
The article also estimates that the telecommunication industry will continue to grow larger due to the development of other countries and their currencies. The articles states that as the value of foreign currencies grow stronger against the US dollar, those foreign countries will be spending more on telecommunication infrastructure.
After reading this article, I am fearful of what’s to come. Telecommunication companies essentially already have a monopoly over the industry. Without legislation to keep these companies in check, these companies have free rein to do as they please. Although, the growth of these companies could create more jobs.
The Externalities and Global Growth article provide a strong basic understanding about the interest rates, tax reform, the value of the US dollar and how the changes of those components have great effects on businesses. The particular example of the externalities and global growth in this article mainly related to the telecommunications industry. In my opinion, the statistic provided by the article, American Tower Corp (ATM) should excel rapidly with the 5G because of the cash flow availabilities, government corporate tax cut and the devaluation of the US dollar which will eventually create a bridge for the company to become the dominator for the 5G network international. ATM, in my opinion, will eventually become a closer look for some investors when the company increases its margin benefit by building more internet network infrastructure as the value of the dollar decreases and opportunities to expand to growing countries increases. However, according to the current statistic with the US dollar value increases, it may create a temporary barrier for ATM to expand at its maximum speed.
It is interesting how much of an effect the WACC has on smaller telecommunication corporations, especially when it comes to finding the money for projects, and when corporations cannot find the funds then they fall into debt and lose profits. Similarly, taxes and the cost of debt can fluctuate ever so often that it may, again, affect the profits of these corporations. In today’s economy, it seems as though smaller corporations are really struggling to make the profits in order to stay in the everyday competition against larger corporations receiving the big funds for a project. However, the Net Neutrality helps to encourage those smaller companies, as well as those larger companies, to take control of their pricing and promoting their business; which in turn encourages the competition of those other companies. Although our U.S. dollar is decreasing in value, there have been alternative, promising currencies growing, and with that more people may be able to afford such resources that benefit telecommunication companies. In conclusion, there are roadblocks for these telecommunication companies that have major effects on their profits, but at the same time our economy is learning and growing that can benefit these companies.
It is very interesting how this article expands into explaining how all of these factors affect the telecommunications industry. I definitely learned a lot reading this article that I would not have known without it. It was very interesting to me to learn that the telecommunications industry should not be heavily impacted by the rising cost of debt. Commonly you would think all of these factors would decrease previous growth rates but in fact, it does the opposite. It was also very interesting to learn about the American tower being able to hold such massive amounts of free cash flow. As the author states deconstructing the EPS of American tower allows you to learn that the company is in prime for growth. All of this has allowed for the company to have their assets increased by 20% in just one year from 2016 to 2017. Lastly it was also very interesting to learn that all of this allows for higher growth in foreign countries which I had not previously known before.
This article was very informative and outlined some surprising facts. I had no idea that the value of the U.S. dollar has been declining, and is expected to keep declining. Much to my surprise was the fact that the telecommunications industry is best suited to take advantage of these circumstances! This proves even more so how industries correlate so closely to our economy, some even doing better when the economy is not doing so well. Companies like Verizon and AT&T which are always in competition for the largest and fastest data network will benefit especially with the advancements in new technology such as 5G. This will allow them to work with other markets to create an even bigger market. I am one customer who always enjoys such advancements but the price is often dwindled down to the customer as well. Nothing comes free, so I am sure when these technological improvements “go live”, the customer will see an increase in their service prices. That, I am not looking forward to,
Valerie Cortez
This article made me see the importance of telecommunication in America and the role of the federal reserve. The federal reserve system is responsible for higher interest rates which will continue to be a trend. The federal reserve system was initially created as a central banking system to control the monetary system to alleviate financial crises. Companies who search for capital for investments end up paying back more due to the increase in the interest rates. The tax reform introduced goes concurrently with high interest rates, so that when companies borrow and must pay high interest rates, they wouldn’t have to pay high taxes but low taxes. The telecommunications companies were benefiting from high interest and low taxes transformation but the decline in the U.S. dollar has affected them. Therefore, Americans will not profit from higher interest rates, lower corporate taxes, deregulation of the telecommunications industry in the U.S., a declining dollar, and rising global growth.