Market Inefficiencies in the NBA

When the “Moneyball” revolution occurred in baseball the ideas it posited spread rapidly to other sports. You could see a revolution of numbers-based analytical analysis and other financial-market principles dictating the actions of a team taking place in just about every American sport. In the NBA it manifested itself quickly in both the growth of analytics and a more market-based approach to team building strategy. Michael Lewis, author of Moneyball, even wrote an article for the New York Times focusing on the unseen value of NBA player Shane Battier.

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Among the many ideas that Billy Beane’s A’s teams popularized was finding market inefficiencies in the league that you could identify though statistical analysis, and then exploit those insights for your team’s benefit. Basically, you want to find an aspect of team building that no one else is seeing, or is seeing incorrectly, and then you’re gonna make a move that counters the logic everyone else is working under. In a league like the NBA, where everyone works under the restraints of the salary cap, these small advantages of thinking make a massive difference in terms of results.

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Photo Credit: Phelan M. Ebenhack

One way that teams find these advantages is through identifying “undervalued assets” or players that many teams in the league do not want because they see them as ineffective, but the astute manager sees how these players can be developed and utilized in the proper role to succeed for their teams.

I spoke to a friend who works in asset management for a private hedge fund. He told me that he was struggling with the challenges of the work. He told me that the most difficult part to figure out was that everyone in the industry is working off the same pool of information, or that’s how it’s “supposed” to be anyway, and that he had to figure out what everyone else was thinking, and then find a different angle of investment in order to make money. In a competitive environment where everyone’s jobs are dictated by the returns they create the stress this causes is palpable, even when you’re just talking to someone about it.

The same principles apply to personnel professionals in the NBA. Everyone has access to the same information, or at least they should in theory, on the players available to sign, trade or draft, and it’s these people are judged based on their returns i.e. win totals and in-game attendance. As everyone has become more attuned to league-wide trends, it becomes more difficult to find the asset that other teams are undervaluing, and thus the market becomes more competitive. As Patrick Minton of Sportsstudies.net says, It’s one thing to have a ton of data. It is entirely another thing to know what to do with it.”

The San Antonio Spurs, under head coach Gregg Popovich and general manager RC Buford, have operated successfully this way for years. They brought many players in from Europe and South America to play for them, when many other teams had decided most players from abroad could not thrive in the NBA. The Spurs exploited the rest of the league’s lack of knowledge of these talent pools. That combined with superstar Tim Duncan helped them win five NBA championships and win the most games of any NBA team since 1996.

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Source: Sports Illustrated

Daryl Morey, the GM of the Rockets and one of the biggest proponents of NBA “moneyball” principles, popularized the idea of amassing assets to package in trades for star players. A risky move because the trade may never come, and players don’t often appreciate being treated like a stock in your portfolio, but it worked when he attained superstar James Harden in a trade with the Oklahoma City Thunder.

These strategies show the value in having the intuitive ability to see the landscape of conventional thinking, but then have the courage to make the counter-intuitive move in order to exploit it. Much like in the financial markets if you go with the conventional logic, then you limit the margin on the returns you can generate. These assets are not easy to identify, and with the increasing amount of information at team’s disposal it’s becoming more difficult by the day.

 

 

 

How Black Friday Sales Effect the Economy

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As November comes to a close, people are getting excited about what they have to look forward to in the coming month. Thanksgiving is quickly approaching, which means that Hanukkah and Christmas are right around the corner. Although the holidays are an exciting time for most, businesses are even more excited about the influx of cash they are going to make. Black Friday, the Friday after Thanksgiving, is one of the most important retail days of the year for most businesses, with around 30% of annual retail sales occurring between Black Friday and Christmas. Therefore, it is important for businesses to strategically plan how they are going to approach the Black Friday holiday in order to maximize sales and further stimulate the economy.

In the U.S., Black Friday has been regarded as the beginning of the Christmas shopping season since 1932. It is referred to as art_img_7_tips_qxfuevBlack Friday because many retailers usually make enough sales on that day to put them in the black for the year, meaning that they will begin to turn a profit. In 2015, 74.2 million people shopped on Black Friday alone, which is lower than the number in past years ranging anywhere from 85 million in 2011 to 92 million in 2013. Although the number of consumers have decreased in recent years, 74.2 million shoppers still means large profits for these corporations.

Black Friday is known for kicking off holiday spending, however, the three-day Black Friday weekend is where businesses truly make their money. In 2014, 133.7 million people shopped over the weekend. Each one of these 133 million spent, on average, $380.95, which totals out to be around $51 billion dollars of consumer money that was poured into the economy. Investors examine Black Friday sales in order to examine the health of the retail industry. Since many economists believe that spending drives economic growth and activity, they will imply that if Black Friday spending is low the health of the economy is too.

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As investors analyze the signals that Black Friday has on the direction of the market for the rest of the year, they tend to tailor their trades to reflect what they believe will be the future of Black Friday sales for that year. Whether the retail performance on Black Friday is good or bad, the results signal consumer confidence in the economy. According to research conducted by the National Retail Federation, 2016 holiday sales have the potential to increase by 3.6% and shoppers plan to spend approximately $655.8 billion.

To prepare for the three busiest retail days of the year, businesses are rearranging their stores, stocking up on merchandise, and hiring between 640,000 and 690,000 workers nationwide. This planning is necessary in order to compete with big-box retailers, like Wal-Mart, who brings in around $8.4 billion on Black Friday. Not only do this week’s upcoming sales have a powerful effect on the future of many businesses but more importantly, the sales should be thoroughly analyzed because the results are an accurate indicator of the health of our nation’s economy.

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Sources:

http://www.investopedia.com/ask/answers/102714/how-stock-market-affected-thanksgiving-and-black-friday.asp

https://www.thebalance.com/what-is-black-friday-3305710

http://www.tradingacademy.com/lessons/article/does-black-friday-have-an-impact-on-the-stock-market/

GoPro or Go Home?

The rise and fall of GoPro is a story other technology companies should be looking at when thinking about going public on the stock market. With an innovative company like GoPro, it seemed like a great next move and expand their business model, however, they might be regretting it now. Companies like GoPro and Twitter are having a hard time diversifying their products and gaining a consumer base, making it hard on investors to stay confident in their products. In its IPO filing in 2014, GoPro admitted that they depend on the sales of their products to capture profits for their company. Let this be a cautionary tale for those who want to become a publicly traded company or for those investing in a stock they may believe in.

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Surfline.com

GoPro is an American company that produces versatile, portable high-definition cameras used for action videos and photography. In 2002, Nick Woodman founded the company after going on a surf trip to Australia and failing to capture quality action photos while surfing. As the company developed, so did the camera software and eventually, digital and video cameras were installed. GoPro made the decision to go public in order to become a larger media company and generate additional revenue from their camera products. On June 25, 2014, GoPro became a publicly traded company on the NASDAQ where their price per share was sold at $24. That day, they sold over 17.8 million shares of GoPro stock.

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GoPro Official Website

Since their IPO, their share price quadrupled in the course of three months and things were on-track for success. On September 24, 2014 GoPro released their camera, Hero 4 causing their stocks and investor confidence to rise in the brand and their price per share jumped from 72.88 to 78.46. At its highest, GoPro was trading for $98.

However, some investors were soured when CEO Nick Woodman sold shares of GoPro stocks for his new charity, the Jill +Nicholas Woodman Foundation, and gave 5.8 million shares to their charity, causing the share price to decrease by seven percent. Although the shares were taken came directly from Woodman’s holdings, which was comprised of 52.4 million shares at the time of GoPro’s IPO, the company created more shares for the charity as well. This was especially alarming because GoPro’s lockup period expired in late November 2014. After the lockup ended, GoPro managers and directors can start selling shares, but not before then. This caused investor confidence to lower because they thought Woodman was signaling the stock’s high price was too extreme by selling off his shares in October.

Jump to two years later after a tumultuous year after becoming a publicly traded company, where their share price is around $10—quite a different company than two years prior. This fall from grace has happened because investors simply don’t like the stock and that’s because slumming sales. In 2015, their price fluctuated but had a sharp decline in July, where they plummeted to $60 per share. Because GoPro technically sells hardware, they cannot have a high operating margin, especially when their growth is expected to slow. GoPro is projected to generate $2.1 billion in 2017, when its actual revenue of 2015 was around $1.93 million—not a big increase year-over-year. 

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Yahoo Finance

However, today with a share price of around $10, maybe some investors are too hard on GoPro and their sales, they may be able to turn it around. Although the company faces competition and is having a hard time expanding its consumer base, but people who have the product love it. GoPro now has a Karma drone in the works, which could life the company up. Everybody loves a comeback story and this is an opportunity for GoPro to reinvigorate stockholder confidence and gain a new segment of customers.

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GoPro

 

 

Costs of Climate Change – Thanks Trump

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Scientists have researched climate change for over three decades, gathering information about how the human population and our actions have affected the global temperature. At this point, there is little scientific dispute about climate change, but the United States’ newest president-elect seems to have other ideas. Donald Trump has called climate change a hoax, and he has already appointed some skeptics to his energy and environmental transition team, including Myron Ebell of the Competitive Enterprise Institute. On November 21, 2016, Trump released a YouTube video detailing some of his plans for his first 100 days in office, and unsurprisingly, one of his goals is to end restrictions on energy production. Overall, the situation is not looking great for the status of our environment, so it may be important to look at what costs this will bring us in the future.

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One important note about climate change is that it is essentially irrevocable and has a foreseeable time limit. The more we ignore this problem, the greater the problem becomes. This means that it continuously gets more expensive as a result. In 2015, Citigroup estimated that if we do not act, the cost will be up to $44 trillion by 2060. In this scenario, everyone continues living the way they have been, and we maintain the level of progress that has been made. Trump’s desire to lift energy regulations actually sets us backwards on the scale, and it is hard to imagine what the costs would be then. Last week, senior scientists said that if Trump carries through with all of his promises from his campaign, it might as well be “game over” for the environment.

Climate change is not a zero sum game. There are costs to acting and not acting, but it is important to weigh the difference. Many argue that low oil prices have lowered motivation to look for alternative sources of energy. While it may be less attractive to invest time and money into renewables, it could also be argued that because oil is so cheap, there is more space to spend money on energy efficiency without halting the global economy.

For Trump, this future catastrophe is not a huge deal because it most likely will not happen in his lifetime. For today’s millennials, climate change is yet another cost that they will have to incur. Millennials are already dealing with low incomes, high debt, and the heavy weight of social security and healthcare. This is especially detrimental to low-income, vulnerable populations because these groups are always hit the hardest in economic declines.

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All of the monetary costs aside, climate change itself can and will do its own damage to the planet. There will be more frequent and extreme weather cases, disease, and deteriorating farm yields. Additionally, there will be an increase in climate-related disturbances including soil change, drought, and flooding. We are already seeing some uncharacteristically dangerous hurricanes and storms that cause severe destruction, such as Hurricane Sandy on the east coast of the US. The young people of today will have to deal with all this in a few years, and it is unclear whether or not this is even possible.

Alibaba Creates A Grander Black Friday: Singles’ Day

The past Single’s Day (11/11/2016), the world’s biggest online shopping day of the year, has just finished with Chinese shoppers spending $17.8bn in 24 hours. That’s a bit short of the $20 billion some analysts had expected sales to reach but easily surpasses the previous record, last year’s $14.3 billion. But still, a lot.

Let’s look at another number. Shanghai Daily reports that the sales total blew past $1.5 billion, an 8% of the total volume in the first seven minutes of the event.

Singles Day laughs in the face of Black Friday. Last year on Thanksgiving Day and Black Friday, according to Adobe, American shoppers spent about $4.45 billion online (and $12 billion at brick and mortar shops). And that’s over the span of two days and counting all retailers, not just one site. Cyber Monday online sales, meanwhile, were just over $3 billion, according to CNBS.

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(Source: Forbes)

Singles Day started as “anti-Valentine’s” celebration for single people in China back in the 1990s. Alibaba, the online retail giant, spotted the commercial opportunity in Singles Day back in 2009 and has encouraged single people to celebrate and buy presents for themselves since then. It takes place in China on November 11 every year.

 

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This resulted in 467 million parcels being delivered after 710 million payments were made, according to Chinese news agency Xinhua.

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(Source: Routers)

Ma Yun, the CEO of Alibaba is even more ambitious to promote Singles’ Day globally. Huge international companies are offering big discounts: Apple is offering certain models of its Beats earphone at 50% off, while Nike promotes 60% off on a wide range of shoes and clothes. Even Costco, the local brand of the States is joining this year.

In addition to steep discounts on the site, Alibaba has made an early start to promote the event to build the anticipation for the big day, already generating plenty of buzz from its celebrity line-up at the countdown gala in Shenzhen and an eight-hour fashion show in Shanghai which shoppers can pre-order items and pay later. To push for more sales, the Alibaba has introduced a virtual reality shopping experience and a stream of web broadcasts.

This year, the countdown gala featured appearances from retired NBA star Kobe Bryant, footballer David Beckham and his fashion designer wife Victoria, and U.S. pop band OneRepublic. Jack Ma, the founder of the Alibaba Group, showed up to perform a magic trick, and the new Alibaba Pictures’ film production was also promoted during the gala.

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(Source: NPR)

“It’s not thinking about ourselves as an ordinary company. It’s about thinking of ourselves as an economy,” said Ma Yun. “You can use your device, your mobile phone, to connect to this economy to do global business.”

Undoubtedly, Singles’ Day is China’s largest shopping and advertising event, which is a barometer of China’s strong consumer sector. Singles Day reflects the changing shopping habits of China’s consumers. The mobile market is playing a major role. Mobile purchases accounted for 72% of purchases in 2015, up from 43% in 2014, according to the Atlantic.

 

 

Coachella Valley’s Economy and Music Festivals

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Coachella Valley Music Festival is the largest music festival in the U.S., and its home, the Empire Polo Fields in Indio, California has become the host to festivals several weekends of the year. These few weekends a year have a huge impact on the area due to the mass amounts of people it draws.

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Here’s a breakdown of the economic effects from the two Coachella weekends and Stagecoach in 2016:

  • $704 million – estimated overall economic activity, made up of consumer spending and business spending that was generated by the three festival weekends.
  • $403 million – spent in the Coachella Valley area
  • $106 million – that went into the city of Indio’s economy- benefitting their businesses
  • $3.18 million – in tax revenue for Indio that was made from ticket sales
  • Estimated 10,000 people stayed in Airbnbs
  • Estimated 100,000 people there during each day of Coachella
  • Estimated 70,000 people there during each day of Stagecoach

Now that there has been Desert Trip, a new festival this year at the Polo Field’s, it is estimated that there has been an economic impact of $805 million in 2016 from the three festivals combined. It will be interesting to see the outcomes and information on the Desert Trip festival’s impact. So far, it has been estimated that Desert Trip brought $250 million into the Coachella Valley economy. This all has been a huge move forward since 2012 when the Polo Field’s contract with Golden Voice begun.

Some of the economic outcomes from Coachella and Stagecoach in 2012 were-

  • $254 million – spent in the Coachella Valley area
  • $90 million – that went into the city of Indio’s economy- benefitting their businesses
  • $1.4 million – in tax revenue for Indio that was made from ticket sales

This can partly be attributed to ticket prices increasing and many more people attending each day now.

These effects on Indio’s economy and the Coachella Valley area’s economy have allowed for renovations to business and infrastructure. It has also brought new businesses, hotels and other tourists due to the city’s new “City of Festivals” reputation and mystique. This effects will most likely grow as the festivals continue to grow. The city of Indio recently approved Golden Voice’s proposal to increase Coachella’s attendance by 26,000 people and Stagecoach’s attendance by 10,000 people. The proposal also included expanding the festival site by 42-acres and adding more parking and camping sites. It allows sound checks to start at 8 a.m. instead of at 10 a.m. as well. It is predicted that the growth in attendance would give Indio $1 million more in ticket taxes.

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Moving forward, the city of Indio is making efforts to bring more people to their city year-round rather than just during those few weeks during the year.

Sources:
http://www.kmir.com/story/31553258/goldenvoice-proposes-attendance-increase-to-coachella-and-stagecoach
http://www.cvindependent.com/index.php/en-US/news/politics/item/3385-to-lead-the-city-of-festivals-seven-candidates-compete-for-two-seats-on-the-indio-city-council
http://www.latimes.com/business/la-fi-coachella-impact-20160723-snap-story.html
http://www.desertsun.com/story/news/local/indio/2016/03/22/goldenvoice-concerts-coachella-economic-impact/82141410/

Gold Mine in the Desert


http://www.cnbc.com/2016/10/07/oldchella-set-to-be-a-boon-of-at-least-250-million-to-coachella-valley.html

The Dark Web: A New Supply Chain for Drug Dealers?

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Black market economies are often subject to many of the same economic developments as legal economies. One industry that has not changed much is the illegal drug trade, which still usually involves the risky transaction of buying drugs in person with cash from a drug dealer. However, the Internet presents new opportunities for people to purchase drugs from the comfort of their own home without ever having to meet a drug dealer.

Internet drug deals have been made possible through the deep web. The deep web refers to parts of the internet that are not indexed by conventional search engines such as Google and Yahoo! Instead, they are accessed through special browsers that encrypt web communications and then randomly relay it multiple times throughout the globe, encrypting it at each step (Tech Crunch). This makes it near impossible to track web traffic run through an encrypted browser, the most popular of which is Tor, or The Onion Router.

Encrypted browsers can be combined with bitcoin to create untraceable online marketplaces, or cryptomarkets. Bitcoin is an online cryptocurrency that can be electronically exchanged for any real global currency (CNN Money). Bitcoin transactions do not log user names, making them anonymous and untraceable. This has led to the rise of entire markets on the deep web devoted to Bitcoin transactions.

Many of these bitcoin transactions involve illegal products because they cannot be easily traced by law enforcement. According to a Carnegie Mellon research study that monitored bitcoin transactions on the deep web, there is an active market for illegal drugs on the deep web, known as the dark web. The study estimates that there is a steady market for illegal drugs on the dark web ranging in $100 million and $180 million a year in total sales volume (Wired). This does not reflect the explosive growth of the dark web in its early stages, when a cryptomarket known as the Silk Road selling everything from marijuana to illegal weapons made an estimated $1.2 billion over two years before being shutdown in a joint FBI-DEA sting (Coin Telegraph).

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The dark web illegal drug market differs from the street market because it is made up primarily of small scale dealers. According to the Carnegie Mellon study, 70% of dark web dealers sold less than $1,000 worth of products while only 2% sold over $100,000 (Wired). Dark web drugs actually tend to cost more than their street counterparts. A study by The Economist reveals that in most countries, a gram of heroin costs roughly twice as much online as on the street while the markup for cocaine is around 40% (Economist).

This markup in cost may be accounted for by the postage and parceling needed for each package, which can be as high as 28% of the price for just the product (Economist). Another potential reason is that dark web drugs are higher quality. A study by Spanish think-tank Energy Control that analyzed samples of dark web drugs against street drugs showed an average purity level of 71.6% for dark web cocaine vs. 48% for street cocaine (Economist).

The dark web is still a fledgling market compared to the large-scale operations run by drug cartels. Drug cartels still have monopolies due to undisrupted supply chains that can move tons of drugs rather than small packages. They are enforced by smuggling, intimidation, violence and corruption that do not translate well to the Internet. However, just as online marketplaces such as Amazon and Alibaba have put huge dents in retail, the anonymity of cryptomarkets may become too appealing for customers, and dealers, to ignore.

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Demonetization of Indian Currency

On the 8th of November 2016, along with the US, even India, one of the fastest economies in the world, was also going through a turning point in the history of its country. India’s recently elected prime minister demonetized a large proportion of its currency by ceasing the usage of all 500 and 100 rupee notes as legal tender and replacing with them with new currency notes. Also, limitations have been placed on cash transactions, and laws have been passed for large and unusual bank deposits to be under extensive tax scrutiny.

 

This major step is aimed at combating several serious issues that the country is facing, like black money, corruption, the inflow of fake currency from neighboring countries like to fund terrorism and even the problem of smuggling.

 

Through the implementation of this revolutionary policy, any drastic increases in income of people that do not seem consistent with their past earning patterns are much easier to question and examine under tax assessment, because all the cash will now be discernible by banks and the government. To escape these tax assessments and pay fines for tax evasion and having huge sums of money accounted for, many businesses have completely wiped out their cash. There have been numerous reports of people burning down or throwing away their black money because it now has no monetary value. An expected number of one trillion rupees are to be not exchanged.

 

Also, to strengthen this step taken towards tax evasion is the imposing of more than a 200% penalty for those making deposits of cash worth more than 250,000 rupees that cannot be accounted for.

 

However, in addition to the affects on taxation and corruption, this de monetization has also had an interesting macroeconomic effect. In India, there are major industries that entirely thrive on a parallel economy run by black money. Demonetization will bar these industries and businesses and that significantly lower India’s GDP for the last quarter of 2016. However, this would only be a short-term impact that would be a small price to pay for the increasing the GDP and the overall health of the economy of the country. Additionally, as banks will experience a major influx of deposits, interest rates are likely to fall, and lower lending rates might help boost the economy. Also, the value of the rupee might enhance in the foreign exchange market because of the major decrease in circulation of currency notes in the economy.

 

As of the business forefront of the situation, investing in the real estate, luxury and jewelry industries might not be prudent as of now. This is because housing finance companies will not be willing to give real estate companies loans to companies and individuals that might be currently facing a liquidity crisis. Also owning luxury goods, especially luxury cars or jewelry is often a representation of high earnings and extra wealth, and hence the luxury industry might be adversely impacted because people might refrain from displaying their income levels by involving in such forms of indulgence. Hence investments and stock markets will definitely see volatility.

 

Comprehensively, the Modi administration has made a very forward-looking, unique and distinctive step towards counterfeiting this parallel black money economy, corruption and the circulation of fake currency. As of now, the demonetization has been having a three-fold effect on interest rates, taxation and the stock market. Nevertheless, the increasing magnitude of these impacts, volatility and destabilization to be caused by it is yet to be seen.

 

 

Should Anti-Dumping Laws be Dumped?

Should Anti-Dumping laws be dumped?

Anti dumping refers to the process by which governments levy extra costs and taxes to imports to protect domestic manufacturers. Dumping is the process by which foreign exporters enter into an international market by providing goods at significantly lower prices. Foreign exporters are both willing to do so can do it because of several reasons.

Firstly, foreign competitors might have comparative advantage over local manufacturers. Comparative advantage gives foreign importers the chance to produce the same goods more effectively because of better natural resource availability, better climate, productive skills, cheaper labor and other conditions that might provide a better environment for the same product to be made faster. Secondly, exporting to other countries is both accessible and profitable for many companies. Also, many companies are often able to find a huge demand for their product outside of their home country.

However, when these countries enter foreign markets, they have a huge impact on the foreign country and provide competition for domestic producers. Governments hence create anti dumping laws, trade barriers, and other legal restrictions towards foreign imports to improve their trade deficit, to safeguard niche and newly developing industries, and to give these companies a chance to grow and be ready to become competitive.

International trade dumping is often occurred at the cost of domestic workers and domestic companies loosing market share. However, trade barriers can also be detrimental to the overall efficiency of the economy. Trade barriers can also affect developing nations differently, because if developed nations have trade barriers, this would lead to them over producing and then dumping their products in developing nations for cheaper prices. Also, because the more richer and developed nations set the fundamental trade policies, developing nations face high barriers from these countries and cannot export from these countries to improve their own trade deficit.

Anti dumping laws and trade barriers and weather they should be implemented have always been a subject of controversy. Anti-dumping laws can sometimes be a barrier to innovation and progress, because if new advanced products are not allowed to enter the market, then domestic producers might not have the incentive to research and develop their products because of lack of competition. Also, providing more choice and higher quality to consumers is also crucial for the economy. Trade restrictions also however improve the current account balance of a country, by improving trade deficit and net exports.

The debate on weather anti-dumping laws and trade barriers should be encouraged or dumped is not one that can be resolved easily, and this debate falls under the umbrella of the debate of Keynesian versus classical economics. However a balanced argument that considers arguments of both sides would convey that government intervention and trade barriers are required to an extent, because free markets would only work in an ideal world of perfect competition, where demand and supply would purely control the market. However, in the real world, some degree of government involvement and laws are required to ensure fair competition and balance of trade across nations.

 

 

 

 

 

Tesla in a Market of its Own

The Automobile Industry

The automobile industry today: an industry that is exhausted with a plethora of options for the consumer to choose from. This is a market that is innovative, changing, and advancing on a daily basis to meet increasing consumer and environmental needs.

General Motors (GM) is an American multinational corporation that designs, manufactures, markets and distributes motor vehicles and parts. GM was founded in 1908 and has played pivotal role in the automobile industry since its inauguration. With that being said, I am going to take a deeper dive into the mission and ideas behind Tesla Motors for the remainder of this post. Tesla was founded in 2003 in the city of technologic innovation, Silicon Valley. Elon Musk and the other cofounders believed from the start that it could become a standalone leader in a market that was already extremely saturated and highly competitive. Tesla sought to create an electronic vehicle that would be an integral part of a company that is now referred to as a hybrid between an American automaker and “energy storage company”.car-graphs

“Tesla’s mission is to accelerate the world’s transition to sustainable energy.”

We look at two companies, on opposite ends of the spectrum; Tesla – a company looking to quickly gain market share, compared to General Motors who has been in business for over 100 years. Both share a common purpose of serving consumers with the power of a motor vehicle.

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This is where the story begins. The thing is, Tesla Motor’s valuation is ¾ of General Motors. However, its production makes up only a tenth of GM. Currently, Tesla’s market cap is at $29.2 billion in comparison to GM’s $48.5 billion. Looking closer into this situation, it is important to understand that the automobile industry is all about scale.

Car companies are competing with similar products. A standard vehicle is no longer appealing to the millennial car buyer. It is companies like Tesla who are being rewarded for its innovation, which has allowed them to capture market share in a competitive space. Tesla has taken risks, risks that have surely paid off and will allow Tesla Motors to grow as it continues to roll out new vehicles in the future.

Tesla is breaking every rule of what a car company should be and investors are rewarding it for doing so. All, telling by the market valuation and how investors are reacting to its stock (TSLA).

Cars or Energy? Pick One…or Both.

As mentioned earlier, Tesla has also been referred to as an “energy storage company”. Co-Founder and CEO, and Product Architect, Elon Musk, truly believes that there will be a future when all vehicles will depend 100% on electricity or alternatives to gasoline and oil. Tesla will stand by this motto and become a supplier of electric parts to gain the cooperation and ability to work alongside other car makers. By doing so, Tesla has the capability to continue to dominate the electric vehicle industry by becoming a supplier that other makers will soon rely on, in order to grow and flourish.

Knowing Tesla’s Executive is a Musk

636030757259556361-1129479309_elon-muskIt’s imperative to get back to Tesla’s roots and the man behind the magic. Elon Musk is running the show of this technologic
al craze. In 1998, he co-founded PayPal, an online payment service company that was entering a market, which was moving quickly and attracting the
introduction of new, innovative products/services each day. Tesla, similar in a way, is a cutting-edge, innovative, brand new product.

Musk is an innovator, always thinking of new ways to better his projects. He is trying to “disrupt an established and technology-adverse industry” by the power of the Tesla. Due to his many controversial and outlandish ideas, questions have risen regarding his leadership and direction with the company.

After reporting its first profitable quarter on October 26, 2016, there are still many consumers who are hesitant to pull the trigger. Many people are satisfied with the car companies they already trust and are scared to take the leap of faith. However, those who have started making the switch have been seen in increasing numbers as time passes. Tesla’s newest Model 3 sedan has over 375,000 preorders.

Investing in Tesla

Being that Tesla’s concept is completely new to the consumer, it is frightening, yet, exciting. This is the future and investors are seeing this through Tesla’s growing stock price. So great that,
“automobile manufacturers have entered a race towardscreen-shot-2016-11-09-at-10-53-29-pms the development of sustainable cars, and shifts in customer demand will drive production in the future.”

Investors are trusting this company by looking at its growing numbers in sales. Its projection rates are growing astronomically and the car maker is being faced with manufacturing inventory challenges today. Although seen as a challenge, this is an issue that most companies want to be facing. It is incredible that investors have wanted to trust this company from the beginning all because of its concept and the man behind the madness. Tesla Motors just recently became a profitable corporation; however, that did not stop investors from trusting this technologically-savvy vehicle from its inception.

Musk has provided our world with the future; a vehicle capable of technological, energy-saving power that one could have never dreamt of actually operating on the roads today. This is a vehicle of its own.

It’s ALL good, or is it?

We must take a step back as it is crucial to analyze Tesla Motors’s values and initiative as an automobile and energy storage company. Is Tesla moving too fast all at once? Yes, I firmly believe it is great that they have been able to single-handedly dominate the electric vehicle space, but more distinguished and respected automakers are headed directly for them because they see this being the future.

More recently, Tesla has announced that is not only is going to continue to just dominate the space of electrical vehicles, but also solar energy. Let’s evaluate this company as a whole. It has been able to grow its production from 50,000 vehicles to over 500,000 in just three years. The numbers are incredible, making leaders of this company only want to try new things and continue to be a relevant name in the technological, energy-saving industry.

The Path to Success is Up in the Air

It might be a good idea for Tesla to focus on one specific thing. Should they be focusing on the idea this company was created on in the first place, electric vehicles? Or, should Tesla focus more on research and development in the alternative energy space? When we look at Musk from an outsider’s perspective, it seems like focusing on one product at a time will not be the case.

Though it does not appear that Tesla is taking any initiative to slow down, it is imperative to look at all aspects of the empire in regards to this automobile maker. There are a lot of obstacles that Tesla is willing to face head-on and by thinking together critically, we too can discuss the future of Tesla Motors for the betterment of the investor, the company, and its stakeholders.

 

 

Sources:

http://themarketmogul.com/teslas-road-to-success-is-not-car-manufacturing/

Castellanza, Luca. “Tesla’s Road To Success Is Not Car Manufacturing.” The Market Mogul. N.p., 15 Aug. 2016. Web. 10 Nov. 2016.

http://www.usatoday.com/story/money/business/2016/08/20/tesla-gigafactory-lithium-ion-batteries/87684228/

McDonald, Michael. “The Key Challenge to Tesla’s Growth.” USA Today. Gannett, 20 Aug. 2016. Web. 10 Nov. 2016.

http://money.cnn.com/2016/11/02/technology/tesla-solar-city-solar-roof/index.html

McFarland, Matt. “Tesla Is Killing off the Ugly Solar Panel. But There’s One Problem.” CNN Money. N.p., 2 Nov. 2016. Web. 10 Nov. 2016.