Monthly Archives: September 2014

Economy Thawing as GDP Expands

Now that the long, cold winter is fading into the past, spring is bringing warmth as well as growth to the US economy. According to the government, the US economy saw 4.6 percent annualized growth during the 2nd quarter of 2014, compared to a 2.1 percent slowdown in the first quarter. Analysts expressed optimism that the data bodes well for the economic growth for the rest of the year.

The announced GDP numbers were even better than that predicted 4.2 percent growth projected one month ago. The new data reflects improvements in business investments and exports. Analysts at JP Morgan foresee a 3 percent growth in GDP in 2015, a serious improvement over the growth rates of previous years which hovered in the vicinity of only 2 percent ever since the recession ended in June, 2009.

Policymakers at the Federal Reserve made a decision last week to keep an important short-term interest rate close to zero, close to record lows, for a “considerable time” into the foreseeable future.

Alibaba Opening Doors to US Investors

Alibaba changing magic words from "Open Sesame" to "IPO"

Alibaba changing magic words from “Open Sesame” to “IPO”

The excitement on Wall Street is becoming palpable as investors, analysts and observers watch carefully what magic the Chinese on-line giant Alibaba is going to create when it launches its initial public offering.

Some are saying the stock-offering will break records as it ventures to expand its already huge role as a global company looking to tap into its incredible growth potential. It is expected that the IPO will bring in to the company anywhere from $19 billion to $24 billion, and it could happen as soon as next week. The company’s symbol of the NYSE will be “BABA.”

If those numbers are realized then Alibaba would reach a market value of between $148 and $163 billion, about the size of the US-based Amazon, another on-line mega-company. There are analysts who counter that the company could actually be worth $200 billion, or even more.

Portfolio manager at Meeshaert Financial Services, Gregori Volokhine says that the firm could still raise their price range before the IPO launches:

“They have moved prudently, because it’s very difficult to know in advance the appetite of US institutional investors,” Volokhine said.

It is unclear if investors are proceeding with caution, remembering the disappointment of the much heralded Facebook IPO.

“People will be cautious because a lot of investors were burned by Facebook,” he said, alluding to the 2012 IPO which ended with a large price decline from the opening price.

Nevertheless, many are expecting Alibaba’s IPO to break the all-time existing record of $22.1 billion which was raised by Agricultural Bank of China in 2010 in Hong Kong and Shanghai.

Dangerous US Volcanoes Not Monitored Well

Mount St. Helens

Mount St. Helens-May 18, 2014

According to a government report, the US is much more vulnerable to volcanic disasters even than Iceland, and yet is failing to monitor the threat as needed.

The government report, issued by the US Geological Survey, sited 169 active volcanoes in the US- almost one third of them classified as ‘serious threats.’ Of those 55 so designated only 3 of them are currently monitored with state-of-the-art instrumentation. Compare that with only 32 active volcanoes in Iceland.

The report states that 39 percent of ‘Very High Threat’ volcanoes are being monitored in a limited, inadequate way. These volcanoes- Mount Rainier in Washington is one example- are being watched for only major changes in their activity levels. The level of monitoring is simply not enough to create detailed models which can satisfactorily predict future behavior.

The report says:

Waiting to deploy a proper monitoring effort until a hazardous volcano awakens and an unrest crisis begins means that scientists, civil authorities, businesses, and citizens are caught in a reactive mode of ‘playing catch up’ with the volcano, trying to get instruments and civil-defense measures in place before the unrest escalates and the situation worsens. Precious time and data are lost in the weeks it can take to deploy a response to a reawakening volcano — time and data that the public needs and should have to prepare for the hazards they may be confronted with.

Geographical regions highlighted by the report include The Cascades of the Pacific Northwest, including Washington, Oregon, California and Nevada. Mount Rainier was singled out as the most threatening volcano in the Cascades range. That is partly because of how close it is to the suburbs of Tacoma and Seattle. Mount St. Helens, which has erupted twice in the past thirty years, is also considered a high priority for monitoring. “Its two eruptive episodes of the past three decades indicate a high probability of renewed eruptive activity.”
Other areas of concern are the Aleutian Islands in Alaska and the Yellowstone super-volcano in Wyoming, which has been the subject of a two part documentary. The USGS stated that:

“If another catastrophic caldera-forming Yellowstone eruption were to occur, it quite likely would alter global weather patterns and have enormous effects on human activity, especially agricultural production, for one-to-two decades.”

Fortunately this scenario is highly unlikely since Yellowstone has not erupted at all for about 70,000 years.

Low Profit Margins Do Not Always Mean Low Profits

A survey conducted by the financial information company Sageworks revealed US industries with the lowest profit margins over the past 12 months. The company examined over 1,000 industries and discovered that the vast majority of sectors are showing positive profit margins, while the most profitable industries have two digit margins.

Profit margins are a good indicator of an industry’s strength. The larger the profit a company makes per dollar of sales that it generates is an indicator of how efficient the company is and how it will continue as it grows. A large profit margin also acts as a cushion when sales decline. Therefore profit margin is an excellent metric for examining the success of a company.

Only one of the industries that Sageworks examined posted a negative profit margin, the continuing care retirement communities and assisted living facilities. In the 12 months ending on July 1, 2014 this industry showed a minus 1 percent margin.

The 15  least profitable industries showing margins below 2 percent included:

•    Office supplies, stationary and gift stores
•    Appliance and electronic retail outlets
•    Liquor stores
•    Car parts, tires and accessories
•    Gas stations

Libby Bierman, and analyst for Sageworks explained that low profit margins don’t necessarily meant that the business is not profitable. Some companies make up their low profit margins with higher sales volumes.

“A lot of the businesses you see on our list are retail businesses, and how many of them make money is largely based on volume through their store, so maybe on each Coke they sell they’re not making loads of profit, but they’re selling enough Cokes to make enough of a profit to make a living,” she said. “A lot of these retailers are focused on getting foot traffic into the stores or selling a lot of units, and these profit margins show why that’s important to them.”