Finance

How low can it go? Goldman Sachs says $20 barrels may be possible

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Via: Source

There has been a LOT of movement in financial markets this summer. China, Greece, and geo-political instability across the world have all combined to send indexes swinging up and down intensely. And now, coming on the heels of a new report out of Goldman Sachs, another indicator of fundamental shifts in the market; this time in the commodities market, has come to the surface.

Earlier this week, Goldman Sachs has issued a statement basically saying that the global surplus of oil is even larger than they had previously predicted, and that the surplus could last into 2017, sending prices for crude oil as low as $20 dollars per barrel.

On first glance, this would appear to be a very good. This would send the price of a gallon of gas at the pump below $2 for the first time in years, and some analysts have speculated, sustained prices that incredibly low may actually spur an increase in American manufacturing; a sector of the economy which has famously (infamously?) been in decline for decades now.

However, when given a longer, more thoughtful glance, prices that low create a diminishing returns scenario. Prices this low would signal systemic weakness in the commodities market. One of the reasons we are seeing this weakness is because prices this low could create a systemic shift in the commodities field, permanently putting American shale oil businesses under. 1 and 2 year views on oil are all lower, with virtually no analysts predicting a return above around $60 per barrel. If oil stays at 30-40 dollars per barrel, economists like Erwat Prasad predict that could be the ideal set of supply and demand circumstances, keeping US production viable, but prices also low. The real problems of diminishing returns may begin if the value dips lower than that for a sustained period of time. This price level would put massive pressure on a number of governments all around the world which depend on their oil exports, like Saudi Arabia or Argentina. This would spur on central bank action, the ramifications of which are not yet known.

The commodities market is certainly one to keep an eye on in coming months.

Markets shot downward on Monday, but there’s reason NOT to be worried

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Via: Forbes

Within minutes of the market’s opening yesterday (Monday) morning, the Dow Jones plunged nearly 1000 points, creating the pained hashtags (#BlackMonday), and anguished GIFs that accompany a market slide in 2015. It was the type of correction that is usually seen anywhere from 1-3 times per year, and although it was indeed painful while it lasted, it was not necessarily outside of the norm. Markets are already back up today, negating all but about 195 points of that drop, and none of the usual indicators that would precede an imminent bear market seem to be in place.

And while single day shocks like that are exactly that; shocking, of course long term trends are really what supplies the fundamentals of both investing, and the stock market in general. Despite some criticisms that the past six years’ gains are more due to Fed policy than real economic strength, the market has gained substantially in value over that time, only a tiny fraction which was erased yesterday. The graph below does a good job of illustrating this point.

See? Not so bad in context. (Via Forbes, YCharts)

There is no shortage of sources of possible instability in the markets heading forward, including China, a possible interest rate hike in September (although that looks slightly less likely on the heels of this instability), and more; but for now at least, there seems to be at least a bit of hopeful optimism.

Jeff Bezos responds to NYT article on Amazon work culture

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For those who missed it in the Sunday Times, the New York newspaper posted a pretty scathing article on the front page of the Business Section, which profiled the intense work culture at internet-giant Amazon. Today, CEO of that company, Jeff Bezos, (among many others) has responded.

In rather candid remarks, the generally well-liked and respected CEO said that he would personally quit any company that operated in the way described in the article, and that ‘anyone working in a company that is really like the one described in the NYT article would be crazy to stay’.

Jeff Bezos. (Via: Business Insider)

Indeed, there were some pretty colorful quotes included in the article, stories that did push the boundaries of believability, but certainly did seem harsh. One ex-‘Amazonian’ said a lasting image in his mind was a grown man crying at his desk after giving a doomed presentation, and one HR rep supposed that when Amazon employees ‘hit the wall’, their only choice is to climb over it. Other, slightly more normal-seeming examples of the intense work environment at the company included late-night emails and texts, and an internal system where employees can report each other anonymously via email to HR for any number of transgressions.

However, after a number of passionate articles were published today from Amazon employees on all spectrums of the hierarchy defending the company and its culture, it’s very clear that not everyone dislikes working at Amazon, and some people seem to truly be thriving.

Price targets for Tesla raised hugely; analysts saying stock could double

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Via: Source

While there are some pretty vocal skeptics of the company, it is ultimately tough to argue against the seemingly very bright future of Tesla, the luxury-electric automaker.

Every year, emissions regulations are tightened even further by governments around the world, squeezing automakers to create more and more efficient models. And while gas prices have remained low and stagnant through most of 2015, gasoline is ultimately a limited resource, with a price that is always subject to change, for higher, or lower. However, the public’s appetite for beautiful looking, and highly performing vehicles is unlikely to wane as quickly. Thus, the writing is pretty blatantly on the wall that the fully electric automaker is poised to be leader in a potentially massive market.

A number of new reports out of Wall Street this week echo that sentiment, as well. To say Morgan Stanley analyst Adam Jonas is bullish on Tesla would be an understatement. In a new note from Monday morning, Jonas writes that he has increased his price hike on the company’s stock from $280 to $465, citing a number of reasons, the key one of which being an as yet untapped aspect of the business called Tesla Mobility, which is deemed an ‘on-demand, app-based mobility service’, similar perhaps to Uber which itself is valued at over $1 billion.

Also, the automaker is well-positioned to be a leader in not only the electric car industry, but also the self-driving industry as well, an area which many tech giants, and automakers are now exploring. What do you think? Is the sky the limit for Tesla? Or will their growth be limited somehow?

*Insert search ranking joke here*; Google announces massive reorganization, new CEO

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Google dropped a massive bomb on the tech and business communities late Monday night, as they announced that they will be reorganizing their entire operation, bringing all of their subsidiary companies and side projects under one label, now known as Alphabet.

There are a number of rumors circulating around the web as to the timing of this move, namely that Twitter was preparing a CEO offer for newly-minted Google Chief Exec. Sundar Pichai. But no matter the motivations, or how long the move had been in the works at Google, it is a truly massive one.

Also, while the move is a surprising one, it is a logical one as well. Google, through acquisitions mainly, now owns or helps operate no less than seven separate ventures, not even including their core search, images, maps, etc. business. As previously noted, the company will retain Mr. Pichai as CEO of the core Google business, of which he was already second in command, and in charge of massive sections of the business like Android/mobile.

In terms of leadership of the new umbrella company, Alphabet, Google founders Sergey Brin and Larry Page will run as co-heads. This new organization will over not only the core Google business, but also Calico (health), Google Ventures, Google Capital, Nest (internet-connected home goods), Google X, and their Fiber business as well. In a blog post, it was noted that the purpose of this move was to make their separate businesses easier to organize and run independently. How this all evolves, will certainly be interesting to see.

China surprises everyone and devalues the yuan

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As has previously been reported both on this site, and elsewhere, it has been an interesting summer for the Chinese economy. And with an announcement coming today out of Hong Kong that seems to have surprised truly everyone, that trend continues.

Indeed, as is being reported by CNN Money and other sources, the Chinese government has moved to devalue the yuan, as the People’s Bank of China is allowing the currency to depreciate close to 2% against the US dollar they announced Tuesday. The purpose for doing this, of course, is to keep export prices attractive, as that sector of the Chinese economy composes about 19% of total GDP.

But of course, the concern here, as alluded to in the embedded video, is a currency war. If China, the largest exporter in their region, has now devalued their currency close to 2%, will other exporters like Viet Nam and Japan be forced to as well? Mr. Woo, in the video, alludes that the effects might be felt as far as European countries like Germany, who’s exports to China account for around 3% of their respective GDP.

China has announced though, that this is a one-time-only move, necessitated by a recent policy change that stipulated that the PBOC will no longer set a daily midpoint value on the yuan, instead setting the price according the previous day’s closing value.