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
When the interest rate increases it affects everything! It affects the housing market, jobs, people spending money and the whole economy. I do believe we need some tax cuts and benefit greatly with these cuts especially if the interest rates are higher. There has to be something positive to outweigh the negative to keep people spending and working! Corporations benefit when corporate taxes are lowered and this helps everyone because then they can hire more people and those people can work more, make more, and spend more. This keeps the economic wheel constantly turning. It is when everyone sits backs, quit spending, and try to wait things out that hurt the economy. The debt is something that I have never quite understood. In my narrow thinking I think why doesn’t every American send in a few $$ and lets get us out of debt.
this article is very interesting, it shows the contrast between lower taxes and increasing interest rates. It also shows how the combining tax cuts and higher interest rates effect different companies. companies have a lot of debts and they can’t rely on banks to finance their debt. therefore interest rates will affect a lot of business, and that is big the U.S. economy.
It is interesting how combining corporate tax cuts and higher interest rates effect different companies. It seems like that with these two things combined, if you can find companies that have little to no debt, and have cash to fund projects, those will be the companies that will continue to grow the most since they will not be reliant on banks. Some companies, however, such as companies with a lot of debt, will be much worse off than they have been since they no longer can rely on banks to finance their debt. But at the same time, with these tax cuts, companies will be able to make more money since they will be paying less in taxes. So those same companies that have cash and do not need to take out loans will be able to grow even bigger. I can see that with higher interest rates, it will also effect small businesses immensely, which is a huge part of the U.S. economy. With these higher interest rates, it will be near impossible to take out a loan and make money off of a new business. The people and companies that plenty of cash on hand, and little debt will be able to benefit greatly from these events.
This article is really an eye opener because I didn’t know that corporations would get badly hurt from the raising interest rates. I thought that large corporation’s had a way around or specific taxes didn’t apply to them. The raising interest rates can be big problem for corporations because then they will produce less due to less profit. I also wasn’t aware that companies like AT&T and Verizon Communications that hold huge amounts of free cash flow to the firm (FCFF) will benefit and grow greatly in the market if the are put in a environment of high interest rates. After reading this article I also became familiar with the American Tower Corp and how they can benefit from high interest rates, lower corporate taxes, deregulation of the telecommunications industry and from the declining of the US dollar. They can benefit by upgrading their technology to 5G, which I think we all will be exposed in the near future.
We can tell that if we build successful companies or any company at all, the unemployment rate could go down significantly as there will be a stronger workforce in an area that could potentially keep growing. the tax cut and job act will allow companies to grow and create jobs for the people, companies should benefit heavily, although the debt may increase, the lower taxes will hopefully grant freedom to companies. I also noticed through Table 4, American Tower proves its opportunities to compete with other telecom giants for the attention and dollars of potential customers, now I don’t know much of what that means but American Tower is a rare case, which could grow strongly from higher interest rates, lower corporate taxes, deregulation of the telecommunications industry and so on. The increases on interest rates and the lowering of taxes along with the deregulation of the telecommunication industry create opportunity in the market of telecommunication companies specifically American Tower. After reading further the declining dollar, companies trying the push toward 5G technology, and deregulation of the telecommunications industry, it may be safe to say American Tower might be one of the safest and profitable companies in the very near future
This article clearly shows the contrast between lower taxes and increasing interest rates. A prime example would be American Tower. With the USD declining year over year compared to that of emerging markets such as Nigeria and India becoming stronger against the USD, it would be considered implausible for the company not to take advantage of the current status. However, with this being the case, and technology becoming more expensive for the companies and in turn for the consumer, it means higher prices for the disappearing middle class in America. Before reading this article, it was not apparent to me regarding the declining value of the USD. Also, it was not visible of the ongoing economic boom in the technology sector not only in the United States but also abroad. American Tower is a prime example of this occurrence. With massive amounts of cash on hand to expand in the United States, but also elsewhere in expanding markets eager to take on upcoming 5G technology that the United States is slow to adopt.
I found this article very fascinating and informing. Typically I find it difficult to see from the perspective of a corporation and consider what drives them to make certain decisions. However, after seeing the facts laid out here, it was much easier for me to understand the material. It also drastically changed my initial attitude toward the decision to dismantle net neutrality, as I now see how it can affect growth. Previously I had only been exposed to information that framed it from a purely social stand point.
Though I am still bit skeptical, it is intriguing to consider how the recent elevated interest rates combined with lowered tax rates affects different companies. In particular, it is amusing that this occurrence could potentially provide a lucrative opportunity for American Tower to take advantage of the many forces working in their favor, including the depreciation of the dollar and the increasing demand for faster cellular technology. Assuming there aren’t any unexpected road blocks.
Ultimately, though, I’m bit apprehensive due to the implication of changes for the average person. In countries where there isn’t net neutrality, internet service providers have started cutting off access to sites unless users pay a fee. This could hurt smaller businesses and lead to a less competitive market.
The increase of interest rates seem to heavily affect corporations, causing them to be more hesitant on churning out more projects. Companies will have to adjust to this part of the cycle until everything balances out again. I always thought that since corporations are so big they would barely feel the effects of high tax, but after reading this article it looks like the effects are hitting them even more strongly. It also looks like while some corporations may suffer from the high taxes, others gain a huge profit from it due to the decline of the USD. Telecommunication companies is one of them who stands to gain during this economic cycle, since purchasing services would be cheaper. Other companies like American Tower Corp. have thought ahead and planned for these cycles in the economy and so they remain undaunted. As long as the corporations are watching out for the changes in the economy it is possible for them to prepare for its effects in time.
This article shows that in the global economy, small company still survive in the competition like the fighting between David and Goliath.
Recently the FED raises the Discount rate for the first time since 2008 trying to dampen the overheated US economy. By increasing the interest rate, the profit margin of corporation is reduced because the cost of capital is also increased. In the mean time, the US tax cuts and Job Act help reducing the cost of borrowing money because the corporate tax will go down.
With the explosion of the internet market, telecommunication companies rip the most benefits in the global economy despite high cost of structural investment from the rise of interest rate. High interest rate and low taxes are two major market economic externalities which affect corporate profitability significantly. In fact, investors, in the search for companies that outperform the S&P 500 under conflicting economic environment, find out that telecommunication industries such as AT&T and Verizon perform exceptional well. In fact, American Tower, a smaller emerging internet company with large available cash flow, could perform better, flourishing and increasing its market share in a high interest environment because of its high flexibility.
Still competition for market shares between giant companies are fierce with many hostile takeovers. Small company like American Tower can survive and thrive with better management and high flexibility as having enough cash flow to fight against any external pressures. This characteristic is a universal truth for any prosperous companies not only valid for the telecommunication industry. This article is only an infomercial trying to polish the image of a
While the trend of higher interest rates may be insignificant, it will continue to change debt structures as well as the profit margins of many individuals and firms. For this reason, fewer projects around the world (where interest rates are rising) will be approved and put into action. Currently, telecommunication companies have the opportunity to exploit emerging market economies. American tower is emphasized in this blog as a company that may see an increase in its profit margins; this conclusion was made by analyzing the current economic externalities and trends. Externalities normally occur in an economy when production/consumption of a good impacts an outside source who is currently not associated to the production/consumption. Furthermore, externalities can lead to market failure; negative externalities usually are overproduced, while positive externalities are underproduced. Overall, this was a very interesting blog on externalities and global growth. Current changes in industries should not be overlooked.
In the market, though some businesses are similar or completely different, all business are affected by different situations from financial to production uses. In the article Externalities and global Growth by ejtimana, she explains that when the economy is affected by corporate tax cuts and higher interests rates many different companies are as well. When businesses have money to fund themselves and are not depending on loans or grants from banks, they continue to grow and make a profit compared to those who are dependent. Tax cuts help almost all companies because they are taking in more money which helps them. However, if taxes were to rise, companies who depend on banks could lose an amount of money and produce less which results in less profit and success. I did not know that AT&T earned a large amount of cash flow, which benefits their growth significantly in the market today. American Tower Corp was interesting to learn about how actually benefit from high interests rate and when the US Dollars declines in its value. Due to its rare position of higher interest rates not affecting their profit, they can easily increase profit margins and expand the number of towers leased to more companies at a higher price. 5G expansion can help lead foreign countries such as India and Nigeria to expand on their Wireless markets, helping them reach the advancement that the United States has. In conclusion, business tends to rely on the market value and how interest rates react to the economy. Taxes as well, affect how a business is run and controlled.
This article is clear and precise, which helps me in seeing the contrast between the lower taxes and ever increasing interest rates our market has been dealing with. It is interesting to see how we complain so much about being taxes yet the big corporation are suffering from the same thing. Of course companies that aren’t borrowing money are not effected as much. I see that you believe that 5G will be a game changer. While technology is developing faster than ever I do believe it will be some time before that becomes the norm. Not only that but many countries still do not have a majority of houses with phones or computers or even TVs. When it does come around and the world is more connected I could see it being as you say. Overall the graphs and pictures you used helped me understand this very well, and I doubt I could have otherwise.
I think we will see a multitude of things happening both good and bad. In a effort to save money I believe we will see in increase in job automation from companies and also see an increase in people getting laid off. Ultimately, I think this will more quickly affect the lower paid workers, like those who work in factories, who’s jobs can more easily be replaced by machines, with a slower move on the higher salary employees. In my opinion an increase in job automation is good for the future our country and the world as long as it is slow and gradual, rather than these spikes we see here. We have to give ample time for the non-automated generation to retire, while at the same, not training the next generation how to put stuff together, but educating and training them how to operate the machines that will be taking over the current jobs of non-automated employees.
I think much of this post goes to show how much deregulation of small sectors of the government and real world activities can and do effect a nation’s economy. The dismantlement of federal regulation, such as the stated Net Neutrality was deemed by the mainstream as a horrible act. It was unthinkable, and the world was going to end because of it. Not only have we kept on keeping on, the economy is better off for it. 5G telecommunications is well on its way, and expansion has grown in developing countries at a substantially quick rate. I didn’t know that one small act of government could/would have such a deeply running domino effect. Externalities such as these impact people here in the U.S. and across the globe.
Tax cuts to businesses in conjunction with higher interest rates are exceptionally rare in reality, but do occur, conjuring up another ideal scenario for the economy at large.
Christopher Sanchez Jr.
This article definitely opened my eyes to the full effect that our externalities such as the higher interest rates and U.S Tax Cuts and Jobs Act had on the global market growth. It is easy after reading to see how smaller companies are negatively affected by these externalities, because when the smaller companies cannot find investors willing to invest during times of high interest rates they are not as capable to withstand the economic blow as companies such as the mentioned AT&T. This is most definitely because they have the financial stability to carry themselves through the season of said externalities. I also was surprised to see a company like American Tower Corp doing so well, seeing Verizon Communications has a free cash flow of 4.67 billion and American Tower has a free cash flow of 2 billion as shown in figure 2. I definitely agree with this article when it comes to investing in emerging markets. If American Tower can find emerging markets like the mentioned Nigeria and continue to work towards 5g along with the rest of the telecom companies, then I agree that they will manage to greatly increase their profits and be able outperform the S&P500.
I firmly believe that rising interest rate is not a healthy sign for any economy anywhere in the world. I see a correlation between increase in the lending rate by Fed and decline in the corporation tax as it is directly proportional to each other and it’s catastrophic for the American middle class. Due to one primary reason as the average American citizen will be getting poorer and the multibillion dollar corporations will be getting richer. US individual tax rates are not particularly high, income inequality is widening and the tax cuts will add to the government’s ballooning debt bill for future generations. The rise in global inequality will further increase. For example small businesses and first time home buyers will get lending at a higher rate if they fail to make payments on their houses or businesses will go in foreclosure but these big corporations like American Tower will get a bailout from the government. A weaker USD will help these telecommunication corporations to increase their profits globally and expand their business to other developing countries of the world. Here a question arises that why do big corporations need a tax cut? Is this tax cut justified? the answer is no.
The articles mainly focused on Tax reform, Net Neutrality and Economic Growth, which are all controversial subjects. First of all, I believe the United States does not need another tax reform. The reason behind this is because according to my reading, Republican and Democrat are fighting over laws and tax reforms to gain benefits to their side, plus the public is quite upset with the government regarding their taxes. Second, after reading and take presented facts into consideration, I sill feel like higher interest rate is rather dangerous to the economy. Higher interest rates could increase our debts to a point we cannot afford. It also might lead to trust issues when people do business with the US government, meaning they will eventually question its the ability to pay back. Moreover, with the current sanctions against countries like China, the higher interest rate would backfire the sanctions and hurts the US economy instead. Last but not least, net neutrality has been a topic that is rather “hot” these past few months. I believe this is a way that big corporates like Verizon, AT&T, and other communication services make their money on.
Overall, the article presents good facts and datas to be taken into consideration.
The article is very interesting me. It shows how the combining tax cuts and higher interest rates effect different companies. In fact, some companies have a lot of debt that won’t be better than they have been since they no longer can rely on banks to finance their debt. But at the same time, with these tax cuts, companies will be able to make more money. And even, they have chance to pay less in taxes. Some companies that have cash and do not need to take out loans will be able to grow even bigger. The interest rates will affect a lot of business, which is a huge part of the U.S. economy. The people and companies that plenty of cash and a little debt will be able to earn more benefit and profits from their business. And also, it helps their business more independent.
After reading this article, since the Federal Reserved sparked a trend of higher interest rate, it has affected everyone in the economy, especially the big corporations. And not in a good way. With higher interest rates, less projects are carried out by corporations which means no jobs. If many individuals are not working, there is no money circulating in the economy. To prevent loss, investors can start shifting their investments to European markets. Tax cuts in the other hand, can help business, since they will retain more income and be able to produce more product. If a company produces more product, it means there will be more jobs to go around. But if there is tax cuts and interest was to get higher, it will not benefit anyone, since the company will be paying more on interest which will leave less money for payroll. Business will even refrain from borrowing money from the bank if the interest is too high, which will cause less production.
Since we are so technologically advanced compared to the emerging countries; we need to brainstorm and find a way to contribute. If we can get Verizon, AT&T, and even American Tower to expand globally we could achieve more economic growth. Resulting in higher GDP and while also increasing exports. It will be interesting to see American Tower emerge into the top cellular companies. I might just need to quite possibly look into investing in American Tower. Regardless of context if your assets can easily be converted into liquid assets you have so much more purchasing power. We the people as consumers would like to see another company take the reins. We are sick of the spotty service, as we are transitioning into 5g technology we need a company that can efficiently keep up with the speed. In conclusion, Verizon and AT&T need to step up their game if they intend to compete and continue to have us increase their EPS.
Interest rates affect a lot of things like the market and corporations. We know that U.S Tax Cuts and Job Act impact corporations by decreasing the cost of borrowing after taxes. From my understanding in this article is that if interest rate is high but corporate tax rate is low or decreasing then it is profitable for them. It is interesting how this only happens a few times. It grabs my attention finding out that the value of the U.S. dollar is decreasing, when this was brought up in class one day I could not understand why. Also, the telecommunication industry is earning profits because of this same reason, this is what I understood from readying the article. In the article it talks about some telephone companies and how specific companies can increase and grow their market with a higher interest rate environment. For example, in the article it talks about American Towers and how it is in a rare position to increase their profits with the higher interest rates with lower corporate taxes.
The interest rate has never truly gone completely disregarded. However, the article approaches this from a perspective that one outside the economic spectrum may not fully grasp. The action of cutting or raising corporate taxes can certainly take its major toll. It will affect the companies that rely much more on government money to create and initiate much-needed projects. As opposed to a company that relies very little on these sort of funds. Arguably even more interesting is to see how they react when a combination of effects are regulated into the company. An effect such as a reduction of taxes while other variables are active can lead to the thrive of specific companies. Along with creating a steep hill for others to climb. The new influencers that come into consideration outside the norm should be considered with seriousness if one wishes to become adaptable for the best for the future.
This article talks about the outcomes of interest rate. They compare it to taxes and how it effects everyday lives of people. Due to the weighted average cost, WACC, many companies will begin not to profit from different products of theirs because before taxes are taken out, it already cost much to produce. I found it interesting that when taxes are cut, and the interest rate is high, it will have a good effect on the total earnings. Creating more profit for the number of companies that are producing goods. By raising the interest and cutting taxes it creates what is called a federal discount rate. This rate helps the economy move along the business cycle based on if company’s performance under the S&P500. They examine the impacts that the rising and cutting has on different production types and companies. Some suggest that companies that are not affect by the total debt of the country are better off during the changes in the economy.
I honestly never really thought about these things until now. However, I now see what an increase in the interest rate and a decrease in taxes paid by big corporations can do, and it is honestly a little stunning, if not unexpected, when you think about it. Large companies should grow by a fair amount if they can capitalize on the opportunity when it arises. Smaller companies are what I am worried about – what will happen to them? I think the smaller companies that are already established should be able to withstand the changes, but I don’t see that many, if any, smaller companies starting up in this time frame. That would mean a decrease in jobs since there will be fewer competitors.
On a side note these charts show information mostly concerning internet providers, but I am curious to see what this would do to the market for other business in my area.
interest rates are super very important to pay attention to. Having big corporations like at and t, verizon wireless, and sprint expand will cause a huge boom in the economy creating more jobs and a circulation of money flow. I think that we should cut coroporate tax to an extreme low causing a bigger production possiblity curve to grow creating more jobs and a bigger circulation of money flow. It would also be really cool if these corporations would create 5g cell phone service. A new development in technology would create new jobs and expert fields. This article really opened my eyes about high interest rates in big corporations.
In this article, the deep contrast between increasing interest rates and lower taxes are shown. Interest rates directly affect the market and corporations. The USD is decreasing year after year especially when compared with emerging markets like Nigeria. Meanwhile India is increasing in strength against the USD. Technology is becoming more costly, which effects companies in America and also the middle class by increasing prices. This article was not very clear on the rise in the technology sector. If interest rate is high but corporate tax rate is low, then it’s profitable for them. It was surprising to see that the value of the USD was decreasing. This article also talked about American Towers and how they are able to increase their profits while having higher interest rates with lower corporate taxes. Overall this was a very interesting article. It helped me understand more about the USD and interest rates related to corporations.
– Elijah Boivin
Name: Martin Flores
Amazing blog, net neutrality is a big issue due to the fact that many of us rely on the internet to do many things such as communicate, and whenever the government wants the people to pay for something that should be more than free, it’s going to mess up many things which is maybe something that vanished out of the no where, and I myself forgot about, but thanks to this blog, it helped me remember the issue that was accumulating due to net neutrality. The American Tower Corp. is also something that’s very interesting due to the fact that it wins from interest, and will most likely be in the high ranks in the future.
I am surprised at how much interest rates can affect large corporations because they are normally portrayed as businesses that can withstand almost anything. I do still believe that spikes in interest rates affect the middle class and smaller business more because they have to worry about making enough money to withstand rising rates whereas larger corporations will most likely make it out okay. I am not surprised however, that the U.S. dollar is decreasing in value. I believe it is time to expand our businesses to more countries like American Tower to other countries so we can try to build up the value of the dollar again. This post made me realize that in economics, the little things can really make a big difference.
Externalities and Global Growth. This article is clearly showing the contrast between lower taxes and increasing interest rates. A primary example would be American Tower. Typically, I find it difficult to see from the perspective of a corporation and consider what drives them to make certain decisions. However, after seeing the facts laid out here, it was much easier for me to understand the material. It also looks like while some corporations may suffer from the high taxes, others gain a huge profit from it due to the decline of the USD. American tower is emphasized in this blog as a company that may see an increase in its profit margins; this conclusion was made by analyzing the current economic externalities and trends. I did not know that AT&T earned a large amount of cash flow, which benefits their growth significantly in the market today. American Tower Corp was interesting to learn about how actually benefit from high interests’ rate and when the US Dollars declines in its value. Overall, this article gives me a lot of information.
I believe that when the economy is revived, the interest rate should increase and it should increase slowly. But, it also brings disadvantages. The small and medium size of a corporation has a problem when the interest rate increase. If they are depending on loans from banks, they cannot invest and make more profits than before and they also struggle to find investors in a higher interest rate. Who wants to invest a corporation which is depending on banks in a higher interest rate?. On the other hand, the big corporation which is not depending on loans from banks has money to invest fund to projects with cash. For example, AT&T and Verizon have
massive amounts of free cash to fund projects and they will grow continually in a higher interest rate. To increase the interest rate is a very complicated issue in any world.
This article was very informative on how growth brings on higher interest rates and how major corporations will pay less taxes. Currently, the tax rates are declining and interest rates are rising. What I never knew is that the US dollar value is decreasing and that is beneficial to the telecommunications industry. In the future I can only see the telecommunication industry booming and changing some things up.
This article, Externalities and Global Growth, first states that a interest rate increased since 2008. With This small change if it continued it would be able to make a difference for corporations. Looking at it from a large corporations perspective it would be difficult for them if they had high debts because it would be harder to pay back the money they owed. But, something that could help them would be tax reforms which in a which in a way balance each other out. This article also states that there is a decline in the U.S. dollar which will continue to decrease even in 2018. This decrease gives other currencies a chance at becoming stringer to compete against the U.S. dollar. Also, in the telecommunication market developing countries have been growing about 4.5% which could out preform the S&P500 if it continues to advance. Being able to watch competitors and update with new trends and technologies is what is going to help put these big corporations in the long run.
With a Declining U.S. dollar and low corporate tax rates it sounds like American Tower corp should start hiring more workers to allow a increase in the companies profit margin, when corporate taxes are lowered it give companies breathing room financially and allows them to hire even more workers for the company effectively boosting the economy at the same time. Added along with this would be AMT next incentive which would be to promote its brand to emerging markets like India, Nigeria, etc, as shown in Graph 5. and if the company was able to produce the 5g technology that was mentioned in this article then it would only give further incentive for AMT to invest to drive up profits for it company effectively using the decline of the U.S dollar to cheaply ship goods to other countries while gaining even bigger sales in foreign currency essentially creating a substantial gain for the company
After reading this article I thought it was very informing and very helpful to me and pretty interesting as well. Personally I tend to find it a bit more challenging to see from the perspective of a corporation and trying to think the way they would when it comes to making certain decisions. I try to understand what influences them to make certain decisions. However, after reading and seeing some of the facts easily spread out, it was a simpler and easier way for me to understand the process of it all and it made things clearer. One of the most interesting parts of this article was about net neutrality, now a days everyone is relying on the internet for anything and everything such as communication, work, or for fun in general and it is something that many people believe should be free to the public rather than completely controlled by the government.
Interest rates has a huge impact in our economy today and the fact is with higher interest rate than it seem that the affect will be negative towards the people. This does not seem to be the case with companies like American Tower, ATT, and Version companies due to their ability to increase towers and from that charge companies and people the uses of those towers. I believe lowering the interest rates would always helps. But, in other cases it might not and have a negative impact on economy.
It is my opinion that externalities, In this case higher interest rates on corporations borrowing money from the Federal Reserve will have a profound effect on how major corporations conduct business in the future. Understanding that the Federal Reserve has sparked a trend of higher interest rates as of December 16, 2015 and continues to do so, corporations will have to cut back on many projects in the coming future. In return, this will affect their profit margin, and how many corporations conduct their business to save money and cut cost. However, with the recent tax cuts and job Act also being an externality, this could have a potential positive affect on corporations as it could decrease the cost of borrowing money after taxes. Although the cost of debt will go up, this will have a positive impact on earnings per share. Even though the interest rate will most likely continue to rise, the recent tax cuts will assist the profit margin by offsetting the loss that corporations will take.
Kristen Komperda
One very interesting point this article makes is about how there are point when an increase in the federal discount rate correlates with a decrease in the maximum tax rate. The effect of politics on economics is very important and affects firms and consumers alike. That is shown in the paragraph about net neutrality. As is stated, the dismantling of net neutrality laws opens up the opportunity for internet service providers to increase their earnings per share. This, along with other factors including the declining value of the dollar, benefit certain companies in a way that they are able to grow economically. The author points out that it is important for investors to look at companies like American Tower as they are projected to grow according to the current state of politics and economics in not only the United States, but also other developing countries such as India and Nigeria, where smartphone growth is expanding rapidly and the telecommunications sector has space to grow.
Alexia Mathew
points* not point.
My opinion of the economy was originally overrun with naivetes, now it is not to say that I am completely untethered by the misconceptions of a laity; I have just been more informed of the specifics of the economics of my society. Beyond the basic need for interaction, which created the market— the hub of demand and supply, there are other variables that influence the nature of an economy. One such example is the idea of comparative advantage, which proposes that the entity with the least amount of opportunity cost should produce a good or service, and not just the first entity with a means. Another interesting aspect of the economy I was not previously well vested in, is the process of policy making; although the variability that pervades human interaction makes this interaction largely unpredictable, to a theoretical extent the central bank could steer the economy using monetary policies. These previously remote concepts have helped inform my opinion better. Consequently, my opinion of the economy is a lot more “zoomed-in”; I no longer consider it a philosophical abstraction, but now I know that my daily choices— consume or save, affects the gross domestic product of the country I am in; I know to some extent how the taxes I pay keep the economy working; I know the value of the policies made by the central bank and the government. Essentially, the intricacies of my opinions are better parsed.
___Ifeoluwa Adebiyi
It is quite clear that the problem with the S&P500 is not diversification, as the equity index is inherently diversified. The problem is the concentration in a singular market, in this case the US economy; consequently, the ostensible solution is to seek other assets, in other words diversifying an individual’s own portfolio. The concern then becomes what qualities characterize the best diversifiable assets. Emerging market economies (EME) offer cheap assets, due to the developing nature of the economies involved, with varying risk/return ratios depending on the individual nature of the markets involved, which would make a country like Nigeria appealing at first. I seek to propose another means of deciding which assets to invest in, a measure of correlative difference. Foremost, it is worth noting that every EME, beyond its conspicuous economic tendency— for example the Nigerian dependence on oil or the elasticity of the Chilean economy that is dependent on its service-driven economy, has an economy influenced by a tapestry of variables and consequently does not follow easily predictable patterns. Having said that, it would be prudent to have a starting point as an investor, in this case I propose the rising prices of the S&P500. What this means is rather than investors running to EME due to the appealing nature of the economies, they instead deductively extrapolate the correlation between the equity traded funds in EME and the rising prices of the S&P500. Hence, investors calculate how the volatility in a developed country, in this instance the US which is a big player in the global market, correlates with a particular emerging market and then chooses whether or not to invest in that emerging market.
____Ifeoluwa Adebiyi
I think it is worth noting that the rarity of the simultaneity of the events— increased federal discount and decreased corporate tax— speaks to the unpredictable nature of externalities. Such is the premise for the importance of externalities. Using American Tower as an example, one sees how an externality remote from the disposition of a corporation could affect the profitability of such a corporation, and subsequently the inclination of investors. I would like to propose a method of valuation from the viewpoint of the investor, which takes into consideration the juxtaposition of odds and effect. With the arbitrary pattern that characterizes externalities and a conspicuous global growth, investors would do well to make prudent investment decisions. The means to such prudent decisions is based on the probabilistic tendency of certain externalities and the effect they would have on certain investment. In other words, one begins by asking how likely is the decline in the value of the U.S. dollar, how likely is it that interest rates rise and discount rates rise, or how likely is it that taxes fall— essentially what are the odds of externalities; and what will be the effect if any, all, some (with a variation of externalities) of these likelihoods occur. I believe this approach gives decisions an extrapolative foundation and makes guesstimations more informed. There is a necessary caveat though, which is that there is a “feasibility chasm” between an analytical proposition like mine and actual events. I will contend though that despite the chasm, it is worth it to have calculations, deductions, and extrapolations that inform investment rather than making whimsical choices.
__________Ifeoluwa Adebiyi
I think it is worth noting that the rarity of the simultaneity of the events— increased federal discount and decreased corporate tax— speaks to the unpredictable nature of externalities. Such is the premise for the importance of externalities. Using American Tower as an example, one sees how an externality remote from the disposition of a corporation could affect the profitability of such a corporation, and subsequently the inclination of investors. I would like to propose a method of valuation from the viewpoint of the investor, which takes into consideration the juxtaposition of odds and effect. With the arbitrary pattern that characterizes externalities and a conspicuous global growth, investors would do well to make prudent investment decisions. The means to such prudent decisions is based on the probabilistic tendency of certain externalities and the effect they would have on certain investment. In other words, one begins by asking how likely is the decline in the value of the U.S. dollar, how likely is it that interest rates rise and discount rates rise, or how likely is it that taxes fall— essentially what are the odds of externalities; and what will be the effect if any, all, some (with a variation of externalities) of these likelihoods occur. I believe this approach gives decisions an extrapolative foundation and makes guesstimations more informed. There is a necessary caveat though, which is that there is a “feasibility chasm” between an analytical proposition like mine and actual events. I will contend though that despite the chasm, it is worth it to have calculations, deductions, and extrapolations that inform investment rather than making whimsical choices.
__________Ifeoluwa Adebiyi
I found this article to be interesting because there were issues discussed that I was unaware about. The fact that interest rates and corporate taxes have the potential to affect companies, both big and small, seems to show me that there is an even larger economic inequality within corporations than I thought. It is surprising to think that the emergence and development of our country’s economics are riding on the whether or not certain company’s earnings will meet the correct amount. The trends that can be found in this article can help one identify the complexity and economic externalities that the businesses must endure. For example, the financial gain that companies, such as AMT, receive, determines whether or not other companies can contain a positive and continuous cash flow, annually. Personally, I believe that access to more advanced technology would help boost the economy’s access to developing a stronger network between the United States and neighboring countries.
Despite what people believe, businesses and corporations suffer heavily from taxes just as much as people feel they are as well. I believe the corporate tax/interest rate should be lowered because in the end, the people will end up picking up the extra weight corporations get stuck with, when they get taxed or take out loans. The more businesses get taxed, the higher their services and products will be for their customers. All of this is hurting the economy. Every day, the national debt keeps getting higher and higher with no sign of it ever going down. This, in part, is causing inflation and the value of the dollar to go down internationally.
It is very interesting to learn that interest rates have such a large affect on large corporations, I originally thought that they had little need for loans. Even though interest rates affect the large companies a lot they have enough money to cover most anything. Small businesses and poor to middle class individuals may have to worry far more due to fear of not being able to make enough money to pay it. The decrease in the U.S dollar makes sense because of all the money we print and all the money we borrow from ourselves and other countries. It is still very surprising how such a small change in a number can have such huge affects in money.
For some reason the telecommunications seem to be doing way better than oil, video games, snapchat and apple. All of them in a way of need of the Wifi which involves telecommunications. It is more available yes, but prices keep going up when we talk about Comcast services for example. Invest in technology seem to be occasionally a good idea, especially for American Tower a company that after taking a look at their balance keep growing and with great increment in their revenue, but also investing big time in their own market, with a debt reasonable and not extremely large as perhaps many other companies that run in debt for long period of time. With the total asset turn over stable, decent returns and profit margin, it looks great. The only thing that worries me is that again there is a bubble and perhaps another crash in the market might be coming soon, or perhaps it already started.
I believe that tax cuts on companies definitely will make a significant change to our economy and for the better. When companies are given a tax cut, those companies tend to produce more in order to maximize revenue. And in order to produce more revenue, labor is needed. With more labor work being available, the unemployment rate lowers which in turn puts more money in more peoples pockets and allows for more consumer spending. When people are being paid and are spending that pay, the economy regulates itself and allows for a healthy flow of trade. Of course there needs to be taxation, but if it is reduced then our economy will benefit.
In this article I found that ever since the Federal Reserved ended up creating a pathway of making higher interest rates to bleed the American people of their money. Before I started reading this article I was not aware of how the USD has been declining over the years. But I do know since the Federal Reserves did this it has been affecting everyone in our economy, even big corporations. The reason why I believe it this could be a big problem for businesses for companies is simple because they will not be able to turn a profit and if the company doesn’t make any money the people working for them doesn’t make any money and in turn layoffs could happen. What I found very interesting is how some phone companies such as AT&T and even Verizon Communication can hold huge amounts of free cash flow to the firm or (FCFF). I learned that with the American Tower Corp they can benefit from higher interest rates, with lower corporate taxes and that it deregulation from the telecommunications industry which is from the USD declining.
The article is informative and educative. However, it only concerns itself with the performance of the higher interest rate and reduction in corporate tax, the benefit to the big organizations. But emphasis needs to be on the impact of the two policy on the final users which are “consumers.” Just it was explaining in the article; the higher interest rate will increase the cost of capital debt service of many infant firms in the industry. The cost of production will gear up; many companies will force to lay off some staff to maintain market prices, leading to unemployment. Also, the less in the chances of an active competition of firms in an industry tends to, possibly lead to a market monopoly in some industry. It is not a news anymore, the abnormal profit making by MTN telecommunication in some part of Africa countries. Although companies will gain by an increase in their profit margin, the people will be at the receiving end for paying more and getting less for the value of their dollar.
I believe the Tax cut will benefit the economy since there is gonna be more money circulating from people that are spending more and companies that are hiring more people into work. Due to the tax cutting, the economy will expand and grow. From my perspective, this article is more towards a tax cut side but it also presents the downside of it. I see a tax cut as a momentary relief, the burden of those cut are going to be carried by next generations. With a cutting of taxes more people will be open to start businesses but at the same time. the government will not be receiving as much money as it does with higher taxes. Marianny Mata
This was an extremely interesting article focused on interest rates. One piece of information that caught me off guard was the fact that the value of the United States dollar had been decreasing significantly starting in 2017 and continuing on into the following year. It amazes me that I had no idea that the value of the United States dollar was fluctuating so much and I definitely did not realize that the value was decreasing at any significant rate. I was surprised to find that this decrease in value is due to the development of stronger currencies in other countries, which is odd to think that the currency of one country can be devalued by the currency of another. Additionally, I was shocked to see that interest rates can have such a significant impact on large corporations since these corporations are usually portrayed as strong and unmovable by outside forces. Overall, I found this article to be enlightening as I delved into information on interest rates and the surprising depreciation of the United States dollar.
This article is very informative about the movement of the economic. Over-taxation will make investor sit back and there will be no job in the effect of that. So cutting tax is the good move to bring the economic up and running smooth. This allows more companies to hire more workers to boost up the economy. However, the act of making high interest rate and low tax will significantly affect most companies in the market. Take for example. I have to borrow 50k with interest rate of 3% and make a profit out of it 5%. But now the interest rate is 5% and the outcome is still the same. So no one is willing to do any kind of business with high interest rate.
This article to me was very interesting as I learned some things I definitely did not know before. As I am surprised to find the overall effects of interest rates and taxes have on cooperations. Another thing that I found to be interesting is the dismantling of net neutrality laws and how it can economically affect Internet services giving these Internet services the opportunities to increase earnings per share due to the other developing economies becoming stronger compared to the USD as they have opportunities to expand infrastructure as more people gain access to Internet . For I am really surprised to find that the USD continues to lose strength, for the emerging countries continue to rise and effect the value for what are money is worth itself. As there are many emerging markets that can be predicted to out preform the S&p 500, As well as many countries coming into the telecommunications market that are seen to be gaining high growth. Overall after reading this article, I found the information to be very informative with the information about interest rates and its effects as well as the trend of depreciation of the USD.
Overall, this article provides me a lot of new information which I can’t learn from economics textbooks. It is impressive to know that how a high interest rates and cutting on taxes influence different companies. It is also new to me that the decrease of US dollar is beneficial to some industry like telecommunications.