In the May 31 - June 6 2010 issue of Bloomberg Businessweek is an report saying that the world price of oil will peak between 2015 and 2020... It will reach $150 to $300 a barrel.
Another important factor to take into consideration is future government regulation that will be taking place after BP's oil spill in the Golf of Mexico. Government regulation could lead to higher prices as well as an increase in the consumption in foreign oil.
Right now the price of oil is $73.43. If you buy one barrel at this price and then it goes up to $100 you will be making a return of 36.18% in your investment [(100-73.43)/73.43]. However, there are other things to take into consideration like the increase in the technology for electric batteries for cars as well as the movement to a more green economy. Thus, it is important to keep an eye on alternative energy investments.
Wednesday, June 2, 2010
Tuesday, May 18, 2010
Problems with Regulation: The EURO
According to the WSJ "The euro plunged to a fresh four-year low Tuesday, sliding below $1.22 as reports that Germany will issue new restrictions on some types of bearish bets on stocks and bonds sparked uneasiness in financial markets. U.S. stocks fell deeper into the red and investors poured into safer-haven U.S. government debt."
I think that one of the problems with regulation is that it prevents the market from following its natural course. Market failures will continue to exist, not matter the amount of regulation established. According the WSJ "The moves came after Germany's financial regular said it is banning naked short-selling of certain euro-zone debt offerings and credit default swaps as well as some financial stocks effective at midnight local time. Under naked short selling, the shares being sold aren't borrowed in advance." In my perspective I think that short selling is a good thing; Short selling works as an indicator of the financial situation of a security or in this case a country. Thus, prohibiting the existance of short selling is prohibiting the flow of information. The problem with Greece is not whether it is being short but rather its financial and management situation. The fact that it can be short is an indicator of the situation.
I think that one of the problems with regulation is that it prevents the market from following its natural course. Market failures will continue to exist, not matter the amount of regulation established. According the WSJ "The moves came after Germany's financial regular said it is banning naked short-selling of certain euro-zone debt offerings and credit default swaps as well as some financial stocks effective at midnight local time. Under naked short selling, the shares being sold aren't borrowed in advance." In my perspective I think that short selling is a good thing; Short selling works as an indicator of the financial situation of a security or in this case a country. Thus, prohibiting the existance of short selling is prohibiting the flow of information. The problem with Greece is not whether it is being short but rather its financial and management situation. The fact that it can be short is an indicator of the situation.
Friday, May 14, 2010
Scipio Africanus: Starbucks vs. McDonalds
Scipio Africanus according to Dr. Laurie of The California State University Long Beach is a strategy where a company attacks the market of another company, and the second company in retaliation attacks the first company market. One example is the current situation with Starbucks and McDonalds. In retaliation of Starbucks intent to sell sandwiches, McDonalds launched a coffee campaign and remodeled all their stores. The coffee, many argued, was better and at a much better price. This spring McDonals launched another coffee strategy: frozen frappes. Directly attacking Starbucks frapuccino market. However, Starbucks has launched a defensive strategy: attacking McDonalds cheap coffee. Starbucks by using one companies acquired seven years ago, Seattle's Best, is planning to expand to a mass market by using the slongan "Great Coffee Everywhere."
In my opionion this is a risky strategy; Starbucks is dealing with a giant company with unlimited resources. Thus, in order for this to work, Starbucks needs to make sure to take over the market. According to Ralph Waldo Emmerson “When you strike at a king… you must kill him.”
In my opionion this is a risky strategy; Starbucks is dealing with a giant company with unlimited resources. Thus, in order for this to work, Starbucks needs to make sure to take over the market. According to Ralph Waldo Emmerson “When you strike at a king… you must kill him.”
Thursday, May 13, 2010
Greece, Can a Bailout work?
Well, Greece makes $343 billion per year and owes $405 billion. Can we arguably say that a bailout will get them out of the hole? Well, according to Dave Ramsey — radio personality, author and personal finance guru — the data from his world of personal financial advice is not encouraging: Most people who consolidate their debt are back in trouble within two years. Mr. Ramsey also says that even with the bailout, Greece will still be spending more than it earns. He says Greece needs to have a fiscal awakening before it can start to pull itself out of debt.
Thus, even after the crisis... what else does it take for Greece to realize this problem?
Thus, even after the crisis... what else does it take for Greece to realize this problem?
Thursday, April 15, 2010
A bubble in China?
In the April's 19 BusinessWeek issue Charlie Rose had an interview with Jim Chanos, who is a hedge-fund manager and the president and founder of Kynikos Associates which is an investment company that specializes in short-selling. (short-selling is simply a way of speculation in which individual A borrows assets (bonds, stocks, or any type of security) from individual B and sell those assets to individual C. Individual A is expecting the price of those assets to go down in value to buy them back at a lower price and return them to individual B. In the mean time making a profit from selling those assets to individual C. Please keep in mind that it could work the other way in which those assets go up in value and need to be returned to individual B at a loss to individual A).
The interview focus on the risk of a bubble in the real estate market in China. According to Jim Chanos China's GDP is 50% to 60% dependent on construction. Also, China gives a lot of incentives and rewards to keep GDP growth increasing and thus, according to Mr. Chanos, the easiest way to do this is by just putting another building. However, the problem is not just construction, the problem is that the cost of these condos and offices is increasing compared to how much people actually make in China. He gives the example in which the cost of a condominium to the average Chinese two-income couple is around $100,000 to $150,000 U.S. This couple probably makes combined $7,000 to $8,000 a year. Thus, buying something when it is unable to be paid with the actual income earned is really dangerous, as it has been seen in the U.S and/or Dubai.
Putting this on perspective it is also important to mention that no one single country is exempt from a crisis. Mexico 1994, Asia 1997, Argentina 1999, and so many others. The important thing to keep in mind is to start thinking how to deal with it.
The interview focus on the risk of a bubble in the real estate market in China. According to Jim Chanos China's GDP is 50% to 60% dependent on construction. Also, China gives a lot of incentives and rewards to keep GDP growth increasing and thus, according to Mr. Chanos, the easiest way to do this is by just putting another building. However, the problem is not just construction, the problem is that the cost of these condos and offices is increasing compared to how much people actually make in China. He gives the example in which the cost of a condominium to the average Chinese two-income couple is around $100,000 to $150,000 U.S. This couple probably makes combined $7,000 to $8,000 a year. Thus, buying something when it is unable to be paid with the actual income earned is really dangerous, as it has been seen in the U.S and/or Dubai.
Putting this on perspective it is also important to mention that no one single country is exempt from a crisis. Mexico 1994, Asia 1997, Argentina 1999, and so many others. The important thing to keep in mind is to start thinking how to deal with it.
Monday, April 5, 2010
Taxi Drivers in Las Vegas, An Economic Indicator?
So... I went to Las Vegas this past week. Besides watching some shows and eating really good food at great prices (ONE POUND steak dinner for $9.90!!) , I was paying attention to the volume of people that enter into this city. This is a constant event: people checking in and checking out of thousands of rooms in the hotels and casinos. Hundreds of people walking in Las Vegas strip, going into clubs, restaurants, shows, casinos, and so on.
Here is something I found interesting as I talked to a taxi driver from Hooters to the Luxur. As I was waiting to get to my destination I asked the driver how business were doing with the recession. He answer me that one way to know when Vegas was doing bad was by watching the time it takes for a cab to pick up a passenger. He told me that when the economy was doing good, it would take five to ten minutes for a person to be able to get a cab. However, now it takes 45 to one hour to a cab to pick up a passenger.
I found this interesting since for me it seemed busy night. After watching so many people in the street and in the casinos I thought it was a good night for Las Vegas businesses. I guess I was far off from it.
Here is something I found interesting as I talked to a taxi driver from Hooters to the Luxur. As I was waiting to get to my destination I asked the driver how business were doing with the recession. He answer me that one way to know when Vegas was doing bad was by watching the time it takes for a cab to pick up a passenger. He told me that when the economy was doing good, it would take five to ten minutes for a person to be able to get a cab. However, now it takes 45 to one hour to a cab to pick up a passenger.
I found this interesting since for me it seemed busy night. After watching so many people in the street and in the casinos I thought it was a good night for Las Vegas businesses. I guess I was far off from it.
Wednesday, March 24, 2010
The Economics of LA's Street Food Vendors
For those of you that know LA, and for those of you who are Hispanics or Latinos, I found something interesting while I stopped to buy a delicious and refreshing Mexican style ice cream with one street-vendor around Long Beach California. Yes, one of those little merchants that sell a wide range of products, from CDs, shirts, "tenis", and DVDs, to elotes, churros, and chicharrones.
Well, even though it seems that this is an "underground" economy, in reality is a pretty complex, challenging, and most of all COMPETITIVE market. I know we live in an economy where billion dollar corporations like Walmart, Costco, and Kroger, among many others, seem to provide all those goods that people need. I know we live in an economy where billion dollar mergers and acquisitions occur not only domestically but globally. However, it is interesting to notice the economics that exist in this "underground" economy, not only because its being around for a while, but because it is expanding through the implementation of bright business strategies and the forces of the economic theories that we learn on school.
So, what is it that called my attention?
To a degree was this conversation I had with the ice cream vendor. He said, and I paraphrase, "see... its really competitive in LA. You cannot start something new because everybody will copy your idea within a week. We are too many, you can't go a whole street trying to sell something before running into somebody else selling the same thing. Thus, we now are driving outside LA to sell our goods. We move into these new neighborhoods where there is no too much competition, we sell during the day, and then we go back to LA."
This is what called my attention, the fact that these small merchants get together to move their business, after taking a look to competition, into a new market. The beauty of a free market in action.
We are not talking of whether is legal or illegal, what i am saying is that it is interesting to observe how competition reduces prices dramatically, how the difficulty of legal permits forces them to think strategically and to come up with new ideas to sell their products.
See, if a company decides to go abroad and relocate their business its call off shoring. These companies do so because they take into consideration some of the same factors that occur with street vendors. Yet, corporations have a bunch of university graduates thinking about the strategy. These are only street vendors, some with only middle school education, and yet they are implementing strategies in account to their business environment.
For example before the ice cream vendor could move to whatever neighborhood he wants to go, he needs to think about his cost, his possibilities of revenue, and the opportunity of market share. He needs to think about getting a group of vendors (partnership) to reduce the gas cost and move to areas where other competition is minimal. These vendors take into account, subconsciously, the political, legal, technological, and economic situation, and then strategically act upon it to improve their business, their lives, and their future.
This indeed fascinates me.
Well, even though it seems that this is an "underground" economy, in reality is a pretty complex, challenging, and most of all COMPETITIVE market. I know we live in an economy where billion dollar corporations like Walmart, Costco, and Kroger, among many others, seem to provide all those goods that people need. I know we live in an economy where billion dollar mergers and acquisitions occur not only domestically but globally. However, it is interesting to notice the economics that exist in this "underground" economy, not only because its being around for a while, but because it is expanding through the implementation of bright business strategies and the forces of the economic theories that we learn on school.
So, what is it that called my attention?
To a degree was this conversation I had with the ice cream vendor. He said, and I paraphrase, "see... its really competitive in LA. You cannot start something new because everybody will copy your idea within a week. We are too many, you can't go a whole street trying to sell something before running into somebody else selling the same thing. Thus, we now are driving outside LA to sell our goods. We move into these new neighborhoods where there is no too much competition, we sell during the day, and then we go back to LA."
This is what called my attention, the fact that these small merchants get together to move their business, after taking a look to competition, into a new market. The beauty of a free market in action.
We are not talking of whether is legal or illegal, what i am saying is that it is interesting to observe how competition reduces prices dramatically, how the difficulty of legal permits forces them to think strategically and to come up with new ideas to sell their products.
See, if a company decides to go abroad and relocate their business its call off shoring. These companies do so because they take into consideration some of the same factors that occur with street vendors. Yet, corporations have a bunch of university graduates thinking about the strategy. These are only street vendors, some with only middle school education, and yet they are implementing strategies in account to their business environment.
For example before the ice cream vendor could move to whatever neighborhood he wants to go, he needs to think about his cost, his possibilities of revenue, and the opportunity of market share. He needs to think about getting a group of vendors (partnership) to reduce the gas cost and move to areas where other competition is minimal. These vendors take into account, subconsciously, the political, legal, technological, and economic situation, and then strategically act upon it to improve their business, their lives, and their future.
This indeed fascinates me.
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