“Internships across Cities and Industries” INTERCOLLEGIATE FINANCE JOURNAL
INSIDE THIS EDITION:
“Finance 201: How to Tackle Student Debt” “Rock and “Roll”: The History and Economics of Toilet Paper” “Microfinance: Wrestling Profits from the Poor” “Monetary policy ... with Chinese characteristics”
The IFJ Team The Executive Board Brice Gumpel – Founder and Co-President Alex Drechsler – Co-President Max Deutsch – Co-Head of Business Development Matthew Ostrow – Co-Head of Business Development Stephanie Hennings – Head of Content Felicia Iyamu – Head of Distribution Lauren Tsai – Head of Operations Steven Adler - Head of Print Michele Narbonne – Head of Recruitment Alexandra Nuttbrown – Head of Style Wonnie Sim – Head of Finance Emily Law – Head of Design Senior Staff Writers Alexander Lloyd George Eric Han Christopher Heo Ebony McCaskill Camila McHugh Tung Nguyen Sarah Park Thomas Pesce Ana Rosenstein Daniel Tatar Angela Marie Bernadette Teng Amanda Yao Alon Galor Contributing Writers Christian Ackmann Spencer Anderson Tiffany Chang Frances Chen Miguel Ferreira Michael Golz Quinn Herrera Peter Hix Yuta Inamara Maddie Johnson Nathan Johnson Charles Kannel Kyle Law Kaden Lee Pepe Salama Lehm Maguire Kelsey Sherman Kjetil Stiansen Claire Su
Copy Editors Alexandra Nuttbrown Nathan Johnson Elizabeth Studlick Lauren Sukin Caroline Vexler Fact Checkers Christian Ackmann Shreya Bhargava Arielle Schacter Scott Schubert Business Team Max Deutsch Matthew Ostrow Lauren Tsai Wonnie Sim Christopher Heo Yuta Inumaru Madalyn Metz Arielle Schacter Kyle Law Scott Fielding Aidan Leonard Design Team Emily Law – Head of Design Steven Adler – Head of Print Chandelle Heffner– Graphic Designer Sae Ra Lee – Graphic Designer Gabe Lopez – Cover Illustrator Public Relations Team Felicia Iyamu Michele Narbonne Christian Ackmann Kevin Coakley Zaiyi Liu Connor Lynch Claire Su
Check out www.theifj.com for more!
CAREERS & INTERNSHIPS
INTERNSHIPS ACROSS INDUSTRIES AND CITIES By Felicia Iyamu Have you ever wished you could step into the life of someone else? Someone with something you admire or desire? Well, since that is invariably impossible, we have come up with the next best thing to help YOU not only decide what company or firm to intern with, but also to consider what different industries have to offer. These students were lucky enough to land these internships and ultimately discovered that they were doing something they love and want to continue with in the future! Introducing (drum roll please):
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Jerome de Nijs ‘15 Intern Program Manager, Microsoft Seattle, Washington What was your work like? I worked on the Windows Mail App figuring out which features to implement for the next release of Windows. I worked on a team consisting of six people from a variety of cultural backgrounds. I gained a lot of experience collaborating with partner teams, design
CAREERS & INTERNSHIPS
“Much of the technical background learned in school is important to develop ideas, but in a work environment I was able to develop many of the communication skills and take on whole new responsibilities.”
teams, and the developer teams. Much of the technical background learned in school is important to develop ideas, but in a work environment I was able to develop many of the communication skills and take on whole new responsibilities. What was Seattle like? Seattle had surprisingly great weather for the 3 months I was there. This allowed me to take advantage of hiking Mount Rainier and visiting the various lakes surrounding the city.
What was D.C. like? I am obsessed with our nation’s capital. In addition to the city’s little known (but amazing) food scene, its hundred cupcake shops, and its low-key bar nightlife, you can’t help walking around DC and feeling inspired. No matter where you are in D.C., the capital’s monuments are always in view. You can see the nation’s past history as well as history in the making. Moreover, no other city brings together so many people from different states, giving D.C. not only an international, but a uniquely national feel.
Sophia Staley ‘14 Metropolitan Policy Program Intern, The Brookings Institution A Think-Tank based in Washington, D.C.
Sam Tianlin Yang ‘14 Technology, Media & Telecommunication, Credit Suisse Investment Banking Summer Analyst New York, New York
What was your work like? I worked on the Global Cities Initiative, a $10 million project of The Brookings Institution’s Metropolitan Policy Program that helps US metropolitan leaders strengthen their regional economies. US metropolitan leaders do this by increasing their involvement in the global marketplace. I specifically researched the advanced manufacturing industries’ trade relationship among the US, Canada, and Mexico. The work The Brookings Institution (or any think tank) does is invaluable. A government’s mind-set is “go, go, go;” they are focused on getting things done, and oftentimes that leaves them with a rather narrow vision, whereas think tanks have the luxury of time and research. They can step back, look at the bigger picture, and craft policies that governments might not necessarily envision or consider.
What was your work like? This internship gave me a comprehensive overview of the investment banking industry and offered me an opportunity to experience the daily responsibility of a full-time banking analyst. Besides juggling between numerous conference calls, team meetings and client visits, I also learned a lot about the technology industry and current trends in the capital markets from veterans in those sectors. What was NYC like? After work, all the interns in my group usually went out together in the city and we somehow would always end up in the pool on the rooftop of the Standard Hotel.
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The Five People You’ll See at an Info Session By Kaden Lee
The One Who’s Already Got the Job The former intern. The one who was an absolute pleasure to have in the office this past summer. This guy’s on a solid first-name basis with the recruiters. He sits in the back of the room, legs lazily crossed, at complete ease. One question: why are you even here?!
The One Ready to Battle Lions Front row, dead center, and ready to tear jugulars. With eyes cold enough to solve global warming, she is to be avoided at all costs. Do not make nervous small talk with her, do not joke about how many of these things you’ve been to -- no. Save yourself.
The One That’s Only Here For the Food Cheese plate? Full-sized sandwiches? Score! This one’s easy to spot. He’s probably the only one in the room in jeans and looks like he just came from
Where
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do
his Postmodernist Fiction and the Self seminar. He might even ask a question just to pay his dues.
The One That Makes Michael Cera Look Smooth You’ve never seen this person in anything more formal than lazy Thursday brunch, but here he is, hair heavily combed over and in a piecemeal suit put together like Frankenstein’s Project Runway. But he’s trying real hard, and the lost look in his eyes is enough to inspire Sarah McLaughlin’s next round of commercials.
And Then There’s You Nervous, eager, desperate? No, not desperate. What the hell– yes, very desperate. You want this job, at least you think you do. You spend the next twenty minutes of the presentation trying to think of that one witty question that’ll just dazzle the recruiters into offering you a full-time.
you
fit
?
CAREERS & INTERNSHIPS
INTERVIEW MISTAKES By Lauren Tsai
1.
Focusing too much on yourself, rather than
2. 3. 4.
Dressing inappropriately
how you can contribute to the company
Arriving too early or late Wrong body language (e.g. weak handshake, poor posture, fidgeting, avoiding eye contact)
5. 6.
Not following up with a thank you note
7.
Being rude to the secretary (they hold more
8.
Forgetting to bring extra copies of your
9.
Silent thinking (sometimes it’s not about the
10.
Pretending to be someone you’re not– if it’s
11.
Answering phone calls or texts, or
12.
Forgetting your interviewer’s name
Sounding too rehearsed, or sounding unprepared
power than you think)
resume or list of references
answer, but about the thought process)
not the right fit, better to find out sooner than later
forgetting to put your phone on silent
Five things a company’s website will not teach you that the information session will By Michele Narbone
The names (and contact information) of alumni: When applying to internships or full-time jobs, the alumni network from your university is one of the most useful resources. Alumni love their alma maters and want to bring that culture into their work environment. Before you leave an information session be sure to shake hands, thank and hopefully ask an insightful question to as many employees as possible. Finally, email and make connections immediately afterwards.
What the people are actually like: When a company says “We value our people,” what do they really mean? Although you might not get the answer until you set foot in the office, it is important to meet the employees of any company you apply to, whether it be an entry-level employee or someone at the top. These are the people you will work for and answer to daily; make sure that you can keep up.
What the website means when it uses the word “culture”: In the information session someone will ask, “What has made you stay at your job?” The typical response will probably be a vague answer about how the culture is challenging and exciting, or motivating and stimulating. Search for something more concrete. Either ask during the networking portion of the information session or send an email to one of the alumni. Is it teamwork? Competition? Collaboration? Respect? Communication? Feedback? It is important to identify what defines the company culture and to make sure that you are a good fit.
What the company is specifically looking for in their interns: Every business wants the hard-working, smart, curious and enthusiastic intern or first-year analyst. You may not get the specifics from the recruiter or the bland PowerPoint presentation that broadly explains what the company does. Ask what they specifically look for in a candidate. Find out what to highlight on your resume and what to focus on in preparation for an interview.
Exactly how to apply: Do not think that you can resume drop at every company that offers internships or full-time positions. Universities and companies have policies about submitting a resume and application to both the university career website and the company website. This sort of error should and can be avoided with a little research. Pay attention to not only what a company does but also the logistics. Deadlines are deadlines, and like the college admissions process you already know that a deadline should be the last thing to prevent you from getting the job.
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Yeah That’s Right, Now’s the Time to Hedge Your Career By Tung Nguyen
So, tell me, what’s the big deal? Let’s face it. The economy might be in slow recovery but we Americans, weathering out the biggest financial collapse since the Great Depression, face even larger issues. I’m not talking about the Wall Street fiascos five years ago including Bear Stearns, Lehman Brothers, CDO’s, CDS’s, and the stock crash. Our whole financial system, the US cash crop in the multitrillion pool of virtual money, being overleveraged- all of these are part of a different story. The current crisis involves the American government shutdown and the debt ceiling debate. Let’s summarize: •
President Obama is pushing the Patient Protection and Affordable Healthcare Act of 2010 (a.k.a ‘Obamacare’), which will provide for millions of uninsured Americans.
•
The fiscal year ended on September 30 without an approved plan. This means that the government needed to revise its budget for the new fiscal year by October 17 unless the 16.7 trillion dollar debt ceiling (the amount of
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money government can borrow primarily by selling treasury bonds) was raised to about 17.5 trillion, figures according to BBC. According to CBS MoneyWatch, US Treasury Secretary Jacob Lew forecasted that on October 17, the US government will have $30 billion in spending money, which is insufficient for a government which currently spends $60 billion per day. •
House Republicans, who dominate the House of Representatives, want to raise the debt ceiling with limitations, such as defunding Obamacare. Conversely, President Obama would like a no-strings-attached raise of the debt ceiling, according to Bloomberg. This conflict is the root cause of the government shutdown.
•
The House Republicans disapprove of President Obama’s demand for this unconditional debtceiling raise because the debt ceiling could rise to an extremely precarious situation. Raising the
CAREERS & INTERNSHIPS
debt ceiling now will just be kicking the can of big spending problems further down the road. If the government does not reach a consensus by October 17, for the first time in US history the government will fail to pay its debts. According to a US Treasury report, as cited by the BBC, this potential new American catastrophe will have global ramifications: A default would be unprecedented and has the potential to be catastrophic… Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 [global recession] or worse.” The effect duration: “more than a generation.” As the debt ceiling continues to rise and rise at this rate as it does every year, the events of October 2013 foreshadow that there will be much more at stake, ergo higher risk, and a larger possibility bigger catastrophe that could occur if the government one day cannot pay its debts.
Be Smart, Be Careful! Most students are in college for a higher education that will lead to a career, most likely in a particular field of study or concentration. Unless you know you want to be the next Eli Musk, Mark Zuckerberg, or the Dark Knight - among the eccentric billionaires - then it is safe to say that in the aforementioned outlook, it may be smart to regard the degree ratings that are on US News and Forbes regarding in-demand degrees and jobs. Balancing these ratings with personal academic passions may be ideal. Like in poker, everyone is dealt a hand in life, but as you all are college students or equivalent, you have played your hand a certain way that has gotten you in an advantageous position in life. With your education in progress, this is where you can decide what you want to do in life. This starts with the classes you take and sign up for. Think about your prospective lifestyle, not of the present era, but in the near future- a future in a potentially unhealthy economic environment. Keep that in mind, and proceed rationally.
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PERSONAL FINANCE
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PERSONAL FINANCE
Finance 201: How to Tackle Student Debt BY EBONY MCCASKILL
Some of us have them and some of us don’t. Either way, we have all heard student loan horror stories. In a few years, thousands of dollars of debt will fall into our laps. While some are prepared for this dreadful day, others are caught completely off guard by the amount of debt we have racked up over the years. Here are some ways to prevent your loans from sneaking up on you and to start tackling your student loans early. 1. Know how much you owe. The first step to tackling your student debt is knowing how much you actually owe! Hold on to the emails and letters your lenders send you because they contain important information regarding whom to contact, the amount of a specific loan and options for deferment or payment. You can find your federal loan information online at nslds.ed.gov. Be sure to check your private lender’s website if you have a private loan. 2. Keep track of your loans and servicer(s). After you sign your loan agreement, you should be sure to check your loan accounts at least twice a year. If you have a variable interest rate,
it may fluctuate. Also, because unsubsidized loans accrue interest while you are in school, it is important to remain aware of your balance. 3. Prioritize your student debt. Not all debt is equal. Federal loans tend to have lower interest rates than private loans. Within these two major categories there is a further division between unsubsidized loans and subsidized loans. Subsidized loans do not accrue interest while unsubsidized loans do. To add to the complication, interest rates can either remain the same (“fixed interest”) or fluctuate (“variable interest”). By taking into consideration not only the amount of each of your loans but also the type of loan, you can fully view the scope of your debt. By prioritizing your student debt, you can create a strategy for paying off your loans responsibly. 4. If possible, make small payments towards your student loans. Beginning to make payments while still in school can improve your credit score and decrease the amount of money you owe over time. Payments don’t even have
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to be significant. $25 a month can lower your payments after college more than you may think. 5. Look at your options for payment after graduation. There are so many options for loan forgiveness, deferment, forbearance, and payment plans. You just have to find them! Check out your loan servicer’s website and view your options. Looking for options before your grace period is over can ease your stress and anxiety in the future. Reigning in your student debt is not as difficult as it seems. Having a clear plan for tackling your student debt can relieve stress, improve your credit score, and eliminate any surprises after graduation. We took out loans to empower ourselves through higher education, not to burden us for the rest of our lives. It’s about time we start controlling our loans before they control us. Strategies to tackle your student debt include knowing how much you owe, prioritizing different types of loans, and looking at options for payment after graduation.
Some shocking student debt statistics: 37 million:
Nearly 1 in 5: The share of
the number of students with
households in 2010 with
student loan debt
student loan debt
Almost 300%:
10%: The default rate for
the amount student loan debt
student loans in the three
has grown over the past 8
years ending September 2011
years $26,600: The average amount owed by a college graduate of the class of 2011
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PERSONAL FINANCE
Finance Matters, Even for a Humanities Major BY ALEXANDRA NUTBROWN
Hi, my name is Alexandra and I’m an English Major As a student of English literature, I have no intention of working in the finance industry. Few humanities students do. But it is vital to have a knowledge of economics – how to invest, build good credit, create a budget – if you want to be financially independent. Rarely does a starting salary for a Humanities student fresh out of college pay enough for that half-decent Manhattan apartment near that cool job at Knopf.
School is all about finding what we are excited about. Then we have to figure out how to support ourselves while doing it. As loath as we may be to take an Econ class or spend time researching companies to invest in, it will make the future so much easier. As twenty-somethings working at publishing firms, NGOs, museums, or whatnot, none of us want to be financially dependent on our parents. A little time invested in finance now is more time we can spend on our passions later.
“A little time invested in finance now is more time we can spend on our passions later.”
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Personal Finance: 10 Things You Should Google BY MAX DEUTSCH
You probably have a checking and saving account at your local bank. In fact, more likely than not, your parents set that up for you. That’s great. But if you want to make a return on your savings, it’s time to invest some money. Since personal investing is cluttered and confusing (at first), let’s breakdown the essentials. 1. Brokerage Account This is the kind of account that you open to invest money in anything. Vanguard, for example, offers popular brokerage accounts. 2. Roth IRA Brokerage Accounts are cool, but Roth Individual Retirement Accounts (IRAs) are cooler. Unlike Brokerage Accounts, Roth IRAs let you grow your money tax free. That is, you don’t have to pay any taxes on capital gains. 3. Capital Gains Referenced it above, so now I should mention it. Basically, it’s just the monetary return you make on your investment. 4. Index Fund Okay, so you opened an investment account, but what do you actually invest in? An index fund lets you enjoy the gains of normal market increases and requires zero expertise in security analysis. Invest in one of these. 5. Lifecycle Fund A lifecycle fund is a collection of index funds. This fund is cool because it will automatically mix and match the different index funds, so that your fund’s risk level
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matches your personal risk aversion (based on your age). Personally, I have a Vanguard Roth IRA invested in the Lifecycle Fund with ticker VFFVX, which gets the job done. 6. Expense Ratio If you want to look at other funds, understanding the expense structure is important. The expense ratio is the percentage amount (of your funds) that the investment company takes in fees. For example, VFFVX has an expense ratio of 0.17%. BUILDING CREDIT You should start building your credit (aka using a credit card… in very particular ways). But do not pay off debts with a credit card. That is very, very bad. Please, don’t. 7. Credit Score This is the number lenders use to understand how risky you are as an investment. The better your credit score, the less you have to pay on loans, and the more money you save. (You can save hundreds of thousands of dollars over your lifetime if you have good credit!). Search “How Credit Scores Are Calculated” to learn more. PS. You have probably heard of FreeCreditReport.com. Don’t use that site. 8. Utilization Rate This makes up part of your credit score. It is the amount you spend on your credit card per month versus the amount you are allowed to spend. You want this ratio to be low. So, if you want to start building credit, get a credit card, and spend just a little more
PERSONAL FINANCE
than the minimum each month. Make sure you pay off your balance on time as well. 9. Secured Credit Card If you have trouble getting a credit card, you can look into a secured credit card. This is basically a credit card with collateral. Once you have shown you are not a credit risk, you can unsecure your card like a real adult. Your bank might offer you a credit card as well if you have a reasonable balance in your checking or savings account. TRAVEL 10. Charles Schwab Checking Account Here is a bonus Google. If you are planning to study
abroad in the Spring, consider opening a Charles Schwab Checking Account. You will get a debit card that you can use anywhere in the world WITHOUT any international ATM fees. That’s pretty awesome.
THERE IS MORE TO LEARN…. This is only scratching the surface and just meant to pique your interest. Now, break out that search engine and see what you can learn. PS: If it seems like your parents know what they are doing, don’t be embarrassed to ask for help. But make sure you understand these things. Relying on your parents can’t last forever, sadly...
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Monetary policy with Chinese characteristics By Alon Galor
After a stressful summer for China – hit by the worst cash crunch in a decade, pushing GDP growth below target for the first time since 1998 – the spotlight shines on the People’s Bank of China’s (PBoC) monetary policy. Monetary policy in Mainland China deviates from conventional central banking in the United States and other advanced economies in several meaningful ways. While the Federal Reserve has exclusively market-based tools at its disposal, the PBoC also employs a variety of non-market instruments, including administrative measures, quantitative targets and sectoral credit policies – the use of these tools underscore the legacy of the planned economy on China’s contemporary monetary policy mix. What are the objectives of monetary policy in China? The primary goals of China’s monetary policy are achieving low inflation and exchange rate stability, while supporting growth and employment and aiding structural adjustments. With the central government’s specific economic goals in mind, the central bank sets a corresponding broad money growth target, and a matching credit growth goal. Finally, to indirectly influence broad money growth, the PBoC regulates the monetary base using its variety of policy instruments. What are the market-based instruments used? One of the most unconventional instruments in China’s arsenal used to modify base money is the reserve requirement ratio (RRR). Until 2002, the PBoC
Drawn by Madeleine Johnson
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adjusted the monetary base principally through the purchase of foreign currency from commercial banks with Renminbi; the sale of government bonds to commercial banks and through the use of repos and reverse repos. However, as the central bank’s stock of government bonds dwindled and FX reserves grew rapidly as a result of the country’s consistent balance of payments (BOP) surplus, the PBoC began searching for an alternative. Initially, central bank bills were issued to curb excess. However, the sale of these bills turned out to be inefficient as a result of high costs and the constant need for rollover. Consequently, in 2006, the central bank began employing the RRR as a cheaper substitute to sterilize foreign exchange and control the growth of base money (remuneration rate is significantly lower than the 1 year central bank bill rate). The last six years (01/2007- 05/2013) clearly highlight the PBoC’s frequent manipulation of reserve requirements. The bank altered the rate 32times for the largest lenders – typically in increments of 50 basis points[1] - and ratio more than doubled to reach their current level of 20%. Although it appears that the RRR has functioned as an effective tool, with PBoC officials arguing they can better target desired results using the former in contrast to OMO, some studies show that its constant manipulation may not be sustainable in the future. Findings demonstrate that RRR use for sterilization shifts part of the costs to commercial banks, which in turn are passed on to consumers. In addition it is speculated that the rate’s frequent alterations are a function of the PBoC’s greater freedom and tactical discretion in applying RRR changes as opposed to open market operations and other important instruments, which require approval of the State Council. Starting in January, the PBoC introduced an addition open market operation tool, called short-term liquidity operations (SLO) – repos typically of less than seven days of duration. What non-market based instruments are used? China also implements monetary policy via
MARKETS & INVESTING
administrative measures, quantitative targets and sectoral credit policies. Administrative measures used to directly control bank lending are an essential strait through which monetary base is leveraged into the economy. Generally referred to under the umbrella term “window lending,” the practice can be understood as gentle coercion through formal statements or private discussions to meet central bank targets. The PBoC, in cooperation with the China Banking Regulatory Commission (CBRC), persuades banks to lend according to the guideline, or face sanctions in the form of liquidity penalties. At times when bank lending was overheating, in late 2003, late 2007 and early 2010, authorities took aggressive administrative action. In 2003, banks were forced to call bank loans, in 2007, virtually halt new lending, and in 2008 and 2010, the central bank imposed strict lending quota. In addition to the former administrative measures, another central non-market based instrument is sectoral credit policy. Used to direct lending towards or away from certain sectors in line with the government’s objective on structural changes, these policies came into use since over-lending and overinvestment issues were often concentrated in a few sectors, such as real estate, mining and heavy industry. How do these forces affect market dynamics? In general, these artificially imposed controls should interfere with market efficiency. In the context of sectoral credit policy, one would expect these controls to result in credit rationing, leading to the misallocation of resources and an increased risk of non-performing loans (NPLs). That being said, the theory of the second best suggests that non-market economic distortions can be balanced with other distortions to best achieve the macroeconomic (or political) objectives at hand. Moreover, the use of these non-market controls prove to have an immediate effect in contrast to tightening base money in a system with chronically large excess reserves. While China’s money market and bond rates are market-determined, the PBoC controls two important sets of interest rates: deposit rates, and lending rates. The central bank’s lending and deposit constrictions are meant to protect state bank margins. Although it might be tempting to conclude that the PBoC maintains floors and ceiling to ensure low cost of capital for state
firms, one must recall that Chinese real lending rates are not low by East Asia standards, and a floor, not a ceiling is imposed. In fact, this policy dates back to the 1990s, when the central bank pushed up interest margins to keep banks profitable in times of extremely large NPLs. In practice, deposit rates tend to cluster at the level of the ceiling, while lending rates are much less uniform, and are allowed to vary between 10% less and 90% higher than the benchmark. Lending rates deviate from the benchmark floor as commercial banks either raise or lower their effective rates according to demand and supply. What does the future hold? Moving towards a more market-based monetary policy framework, the PBoC plans to further liberalize the interest rates by gradually phasing out the benchmark deposit and lending rates. This month, as foreign currency inflows dropped, a mismatch between banks’ long-term lending and short-term funding surfaced, and quarter-end regulatory requirements encroach, a severe credit squeeze has hit. The SHIBOR and the seven-day repo rate have shot up and overnight lending have shown extreme volatility, reaching a stunning 30% at one point last Thursday before dropping back sharply. Yangma or “central mommy” (as interbank bond traders refer to the PBoC) remained silent since the beginning of the crunch, only to speak out on Monday to effectively tell the market to sort out liquidity problems by itself. When Chinese shares sank more than 5% that day, and started the following morning with a successive 5% drop, the central bank made its move. In a policy statement Tuesday afternoon, the PBoC announced that it had injected funds into some financial institutions and is willing to do so again. So, what’s next? It is clear that the PBoC has plenty of options to inject liquidity into the system: lower the reserve requirement ratio, continue conduct open market operations as it has already done, or simply use administrative measures to order large banks to start lending. [1]Reserve Requirement Ratios for Small/Med Depository Inst, Large Depository Inst, and Rural Credit Cooperatives/Small Fin Inst were changed 32, 31 and 29 times respectively, usually in increments of 50 basis points.
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MARKETS & INVESTING
Rock and “Roll”: The History and Economics of Toilet Paper By Angela Marie Teng
Company, and Northern Toilet Paper (the first “splinter- free” tissue paper) all began production.
High-tech toilets and Sustainability
You probably take toilet paper for granted. It is always just there – right by the toilet, where it should be. But it turns out that that very toilet paper has a rich history: economic and otherwise.
From rocks to coconuts Until 50 BC, when the Chinese first created sheets of paper, early people used all kinds of things to
prevention of hemorrhoids. Created by Joseph Gayettey in 1857, these were not a long-lasting success. The Sears Roebuck and Co. catalog, written by Richard Sears, soon became the new mode of bumwiping. Americans thought that it was a waste of money to buy something that they can get in the mail for free. In 1890, the Scott
At present, tissue paper is an American bathroom essential, and its market is currently expanding to developing countries. Yet, despite the growth of the markets in developing nations, tissue paper companies continue to increase their prices. One of the factors that affect this change is the cost of production. The prices
“The big question is: How would we fare in a tissue paper-free world?” Paper Company introduced toilet clean up after doing their business paper on a roll, and distributed – from shells, snow, leaves, rocks these to drugstores and private (ouch!), corncobs, sheep’s wool, labelers. At that time, the owners coconuts, moss, hay, grass, clay of the company did not want to be and whatever else they had at hand. associated with this unmentionable One of the more sanitary methods product, so they refused to have was that of the ancient Romans, their names printed on the paper. who used sponges attached to the end of sticks and then dipped in a Finally Splinter Free! salt-water solution. In the 1400’s As time passed, more and more to the 1600’s, the European elite people began to use toilet paper, began to use linen and silk for selfand its “disgusting” reputation was cleaning. When the printing press flushed down the drain. A company came about, the Americans of the called Charmin advertised it as Industrial Revolution started using “soft and feminine” through the magazines, book pages, scraps of use of their logo which portrayed a commercial paper, and newspapers beautiful woman. The following ads to wipe their nethers. soon portrayed bears and babies, showing that tissue paper was Commercial toilet paper beneficial and worth the money, gets “rolling” as supported by plumbers and It was only in the 1850’s that tissue doctors. Numerous companies paper was actually commercialized were erected for the sole purpose as a means to clean one’s bottom. of creating tissue paper, and other The first type of tissue paper sold to the public for the sole purpose of existing companies started to enter the tissue market. Kimberly Clark, self- cleaning was initially infused Kleenex, The Fort Howard Paper with aloe-vera, to promote the
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of raw materials used to make tissue paper are becoming more environmentally costly, specially with the great debate about climate change and its causes. Many economists and environmentalists are questioning the sustainability of toilet paper. In some places across the globe like Japan, many innovations such as the Washlet, a high-tech toilet that has a bidet and bum-dryer, have already begun reducing the environmental impact of tissue paper. The big question is: How would we fare in a tissue paper-free world?
MARKETS & INVESTING
The Double Helix: The Science of Investing By Frances Chen
The biotech bubble seems to just keep growing. The 16 biotechnology companies that have gone public this year are up 48 percent. But these companies have no revenue, no products, and not even a balance sheet, and thus seem like a risky investment. Though no one knows if or when the bubble will burst, the biotech industry can be extremely profitable and you can hedge your risk if you do the research before investing.
The long road to market For one drug to reach the market, it takes over $1 billion and 10 years of R&D. These companies raise their money through private investors and a few rounds of public offerings. But the large costs are met with large rewards - drugs can also bring in a few billion dollars throughout before the patent expires. Every small biotech company’s ultimate goal is to reach this point, but to do this they must first earn approval by the Food & Drug Administration (FDA.)
III tests thousands of patients to determine how effective the drug actually is. If Phase III is successfully completed with no major issues, the company sends a New Drug Application (NDA) and hundreds of thousands of pages of clinical data and analysis to the FDA. After one to two years of review, the FDA may decide to approve the drug for sale in the market, if they believe it is safer and more effective than existing drugs.
How the process affects stock price After the successful completion of Phase II, a flurry of investors bring up the price. However, companies must raise sufficient money for the next phase of clinical trials, and often do so by selling more shares. This dilutes the market and causes the price to drop. Looking out for this before investing is important, as investing right before another public offering can cause a significant loss. The greatest turning point is the final FDA approval. These approvals are well publicized and covered by the media, so the attention draws a huge crowd of new investors to join the market.
Drug approval process
Profiting from biotechnology
Understanding the drug discovery pipeline is essential for biotech investors. After the pre-clinical stages, there are three main stages of drug development. The preclinical stages narrow down around 10,000 compounds to just five to go through clinical test with humans. Phase I of drug development starts with thousands of similar molecules that are tested for safety with a small group. Phase II then attempts to determine the optimum dosage and continues to monitor the long term safety of the drug. Phase
So how can investors profit from this industry? Understanding the science can help predict whether or not a drug will make it through each of the clinical stages and reach FDA approval. The clinical studies are published, and analyzing the data and understanding the drug and the disease, along with the population of the disease and competing drugs, give insight into whether the drug is a potential blockbuster.
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MARKETS & INVESTING
1) Your future employment
The Taper : What it is and Why You Should Care About It By Sarah Park
Have you been hearing the word taper increasingly in the past months? Do you not only know what it means but can you articulate its meaning to a colleague? Please read below to form a full-proof understanding.
Unprecedented bond-buying: how long can it last? Since last year, the Federal Reserve has been buying $85 billion a month in U.S. Treasury bonds and mortgage-backed securities in an attempt to stimulate our lackluster economy. By infusing it with cash and keeping interest rates at historically low levels —basically zero— the purpose of this unprecedented bond-buying program is to encourage borrowing, spending, hiring and investing. While the program’s effectiveness is the subject of contention, the economy has made significant, albeit mixed, progress since its inception, as made evident by a lower and steadily decreasing unemployment rate, record highs for stocks, and a strong housing market rebound. However, the Fed cannot continue this program indefinitely. Its balance sheet has already swelled to over $3.5 trillion dollars. The Fed’s goal is for the economy to function without assistance of this magnitude.
To taper or not to taper? Earlier this year, Fed Chairman Ben Bernanke indicated that if the economy continued to improve, the Fed could begin to gradually taper, or reduce, its bond-buying purchases in the near future with the goal of ending the program completely by mid 2015. In order to determine whether to taper, the Fed has been closely tracking the economy along with a range of data including the monthly jobs reports, consumer sentiment, and manufac-turing activity. Although most economists expected the Fed to begin tapering in September, Bernanke announced that it would continue its monetary injection until it received evidence of stronger economic progress and stability. So, now that you know what the taper is (basically just a fancy term for reduction), you may be wondering, why does this matter? Why should I care? Here’s why.
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Chances are you will be working after college, and your ability to find a job and the number and value of options available are contingent on the economy’s overall health. Although the unemployment rate is decreasing, the job market is still an unwelcoming environment— especially to recent college graduates. The fact that the taper didn’t begin in September shows that despite improvements in the economy, the Fed still feels that substantial progress has not yet been made. The Fed emphasized in its September report that it has decided to wait for greater signs of stability before enacting a taper. You should definitely be on the lookout for when this happens; it will mean that the economy is stronger, unemployment is lower, and the chances of you finding a job are better.
2) Interest Rates Interest rates are a big deal. They play a crucial role in our economy as they determine the amount of saving and investment and they influence the inflation rate. They therefore regulate your level of spending and your purchasing power—i.e. your ability to buy goods and services. I think we can all relate to feeling like/being a poor college student. When inflation increases, our purchasing power decreases. The Fed’s bond-buying program has been deliberately keeping interest rates and inflation extremely low, leading many economists to fear that when the Fed does decide to taper, interest rates and inflation will rise significantly, which could bring a whole new meaning to your life as a “poor college student.”
MARKETS & INVESTING
Who’s Who in the Fed
By Thomas Pesce
The Federal Reserve, commonly referred to as the Fed, is the central bank of the United States and therefore prescribes monetary policy for the country. The Fed has a “dual mandate” from Congress as it was created both to maximize employment and to keep prices (inflation) stable. The following is a list of people you should know regarding the Fed. Ben Bernanke – As the Chairman of the Fed since 2006, Bernanke has directed monetary policy through the Global Financial Crisis. His policy of Quantitative Easing (QE), which basically increased the money supply in the United States, arguably prevented the economy from falling into an even worse recession. Today, Bernanke faces the issue of when to taper -gradually reduce- QE, as ending the policy too early could revert the economy back into recession. Furthermore, Bernanke’s eight-year term as chairman ends January 31, 2014, so if QE does not wind down by then, a new chairman will oversee the process. Janet Yellen – A Brown University graduate and current vice chairman of the Fed, Yellen has now been nominated by President Obama to replace Bernanke in 2014. She is considered a “dove” compared to other candidates, meaning she believes that QE should not end yet. If appointed, Yellen will become the first female chairman of the Fed. Larry Summers – The former Harvard University president is now also the former frontrunner to replace Bernanke. Though previously President Obama’s first choice for the position, Summers withdrew as he is considered a lightning rod for controversy. He is also perceived as a “hawk” for his eagerness to end QE; as a result, the day he withdrew his name for nomination stock markets enjoyed large gains. Now that Yellen has been nominated to replace Bernanke, she will likely oversee the process of tapering. The Fed decided not to taper after their meeting in September, and QE will probably not be eliminated entirely by the time Bernanke leaves in January. The next chairman will therefore take the helm while the Fed works to wind down its most aggressive policy action in history. Markets will now pay close attention to Janet Yellen to determine her plans for potential appointment as chairman of the Federal Reserve.
A Timeless Lesson from Benjamin Graham’s The Intelligent Investor By Peter Hix “If you were to distill the secret of sound investment into three words we venture the motto, margin of safety.” This quote comes from Ben Graham’s 1949 investment book, The Intelligent Investor, but it is still applicable over 60 years later. The margin of safety is the difference between a company’s intrinsic value and its market value. The greater the difference, the greater the margin of safety. The concept is meant to encourage investors to seek opportunities in which the market price is far lower than the intrinsic value; a large margin of safety will protect against analytical errors or unforeseen negative developments. For example, if you believe that Microsoft (MSFT) should be worth $45/share, then the price of $33/share would offer a healthy 36% margin of safety. If, however, you found its intrinsic value to be worth $35/ share, then it would only have a 6% margin of safety. The goal of any prudent investor should be to maximize the margin of safety of every investment. This concept also demonstrates that the safety of an investment is always contingent on the price paid. A good company might not necessarily be a good investment and conversely, a bad company might not be a bad investment.
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BUSINESS & STARTUPS
Valve Corporation: A Fable of Flatness By Alexander Lloyd George If software-selling platforms or pioneering shooters don’t float your boat, you could be forgiven for thinking that Valve, while clearly deserving its plaudits, is irrelevant to you. Valve Corporation was started in 1996 by a pair of ex-Microsoft employees Gabe Newell and Mike Corporation. It is a videogame development and digital distribution company with a fantastic legacy. First coming to prominence as the developer of Half-Life—voted the greatest PC game of all time by the magazine PC Gamer— the company has since affirmed that status with a succession of hits, such as Left 4 Dead, Team Fortress, and the ground-breaking Steam, which is essentially Amazon for videogames. Valve has gone from the brainchild of two disgruntled Microsoft programmers to a 400-person business with an equity of around $2.5 billion. Shockingly enough, however, this standout success is not the most remarkable thing about the company. Its uniqueness extends far beyond its equity value or employee count to its business structure. Valve is a company with no managerial structure.
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There is no corporate hierarchy, a characteristic described in its new employee handbook as “flat.” While there is a founder and president, Gabe Newell, “even he isn’t your manager.” There is no one person who directs underlings toward projects or decides deadlines. Employees themselves decide which projects to start or join, and work on those to their heart’s content. A simple but key aspect of every employee’s office area typifies this flexible structure. Each and every employee’s desk is equipped with wheels, symbolically communicating that no member of the company is tied down to one project or job specification, while functionally actually allowing employees to move their desks closer to whomever they might be working with at the time. This brings us to what is described by Valve as the “most important role” each employee has at the company: picking whom to work with. More specifically, the process of hiring. Due to the lack of organizational structure, and consequently top-down
BUSINESS & STARTUPS
direction, Valve emphasizes the hiring of highly skilled and collaborative individuals who can self-direct and add value across the company. Valve’s productive output is effectively dependent on a doctrine of putting all the smartest people together in a room and cutting them loose. As such, it is paramount the right people are in the room. (who hires Valve’s employees?) Such a framework and lack of active seniority might beg the question: how are salaries determined? While at most companies these are determined by duration of employment or title, Valve employs an altogether different rubric to determine pay. Each employee’s pay is defined by a “stack ranking” – a parameter arrived at by combining anonymous peer evaluations of skill level, productivity, group contribution, and product contribution. While all company members are compensated handsomely – more so than equivalent positions at Google and Microsoft, according to the company’s handbook – this rubric decides the exact order, derived from how all the members think each employee is performing.
While at points seemingly utopian in its ideals and practice, Valve is far from perfect. It is notorious for having soft deadlines and experiencing project delays in addition to experiencing difficulties efficiently disseminating information among the increasing number of employees. Despite these shortcomings, the company’s bold business structure and doggedness in persisting with these practices as it grows is both commendable and noteworthy.
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BUSINESS & STARTUPS
MICROFINANCE: WRESTLING PROFITS FROM THE POOR By Daniel Tatar
While microfinance is primarily known as a charitable enterprise, for-profit companies have thrived by offering loans at exorbitant rates to those without access to credit. Microfinance, defined as “a collection of banking practices built around providing small loans (typically without collateral) and accepting tiny savings deposits,”[1] has revolutionized international development practices since its development in the late 1970’s by Nobel Laureate Muhammad Yunus. The vast majority of loans are granted to people who intend to create or expand a business. By offering capital to the impoverished or otherwise “unbankable,” microfinance institutions provide the resources to achieve homegrown economic uplift without the corruption associated with traditional government aid regimes.[2] Furthermore, most microfinance loans are granted to women, thus promoting enhanced gender equality in poor populations. Microfinance operations have traditionally been conducted by nonprofit organizations such as Grameen Bank in Bangladesh. Does Microfinance help facilitate development ? Despite the international community’s support for microfinance banks, empirical tests have been much less conclusive about the system’s efficacy. In Karlan and Zinman (2011), the authors assessed favorable outcomes assumed by proponents of microfinance using a randomized control trial in the Philippines. They concluded that although there was indeed a demand for microfinance loans in the region, these funds did not translate into positive changes in several metrics associated with development success, including business activity, employees, and women’s welfare. Furthermore, subjective well-being seemed to decline in the region. Thus, business objectives were not met by the invention. However, there was nonetheless improvement with regard to such social concerns as coping with risk, strengthening community ties, and increasing access to informal credit.[3] Because these
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things are also valuable, microfinance was able to have a positive impact and alleviate conditions of poverty, even without stimulating economic growth and may therefore be worth it as a form of charitable investment. Can microfinance work as a for-profit industry? For-profit microfinance, however, fails to improve the welfare of the destitute. Problems with for-profit microfinance include price gouging and hostile enforcement. To be fair, nearly all microfinance loans have high interest rates; this is a function of the clientele. Because the recipients of microfinance often have erratic income and no collateral, the possibility of defaulting on a loan is quite high. In order to stay solvent, a provider must therefore amass a portfolio of loans that can account for this possibility of default. To give a point of reference, the control trial in the Philippines disbursed loans with a 60% annual interest rate.[4] However, this is nothing in comparison to the arrangements produced by loan sharks in the informal market and therefore microfinance offers a welcome relief for those in need. The future of for-profit microfinance firms However, for-profit firms have lost their benevolent attitudes and have instead begun focusing on rapidly expanding their influence. Initially, microfinance was the prerogative of nonprofit organizations, most of which were funded by Western donors or by local savings. This created a limited pool of money available for loans. Proponents of commercial microloans claim that more capitalization will lead to more capacity, and thus more poverty alleviation. Unfortunately, these newly-created for-profit firms began “pump[ing] out as much microcredit as possible, in order to grow fast, grab market share, hike up profits, and so grow even faster,” while also increasing their own executive bonuses.[5] Muhammad Yunus himself took to attacking the industry. He noted that privatization not only removed the kind of empathy necessary to collect payments humanely but also encouraged increased interest rates. Yunus is harsh, but correct. After all, “poverty should be eradicated, not seen as a money-making opportunity.”[6] 1] Armendáriz de Aghion, Beatriz, and Jonathan Morduch. The Economics of Microfinance. Cambridge, MA: MIT Press, 2005, 1. [2] Armendáriz, 2. [3] Microcredit in Theory and Practice: Using Randomized Credit Scoring for Impact Evaluation Dean Karlan and Jonathan Zinman Science 10 June 2011: 332 (6035), 1278-1284. [DOI:10.1126/science.1200138] [4] Karlan and Zinman [5] http://www.ft.com/cms/s/0/7f04461c-964c-11e0-afc5-00144feab49a. html#axzz2h8j6ETIy [6] http://www.nytimes.com/2011/01/15/opinion/15yunus.html?_r=0
BUSINESS & STARTUPS
MILLENIAL MENTALITY By Ana Rosenstein The world is saturated with startups that seemingly pop up out of every unfilled or even overfilled sector crevice. And more than ever, young entrepreneurs try to build a unique business that will propel their career. Millennials, also called “generation Y” are the cohort following generation X; they were born roughly between the 1980’s and early 2000’s. This generation, or rather, our generation has the overarching mentality from the get-go of being one’s own boss, and avoid the corporate world at
employment accounted for by the United States private-sector business startups from 1980-2005 was roughly 3 percent. Although this is a small fraction of overall employment, all of this newly emerging employment reflects new jobs. Three percent is massive compared to the average annual net employment growth of the United States’ private sector from the same period, which was about 1.8 percent. The United States also topped the chart for entrepreneurial activity among advanced countries in the Global Entrepreneurship
from the ground up is a much more illustrious concept than the one we encounter in reality. In actuality, most startups fail and those who have invested their time, money, and energy into a failed business endeavor are at a greater disadvantage than before their unsuccessful venture. The numbers have also not shown positive results for their efforts. According to Nate Hindman of the Huffington Post, roughly three out of four new firms that receive venture capital backing, fail to deliver their projected returns.
“And now, in a fragile globalized economy, entrepreneurial spirit is valued more than ever, but there are risks to consider before venturing off into the uncertain realm of start-ups.” all costs. Clearly, this mentality has driven many young innovators to develop unique products that already impact the way people subsist and interact in society. But we must also examine the possibility and consequences of failure: does this ideology work toward our generation’s advantage or sheer detriment? To claim that all people of generation Y want to start their own companies (and avoid being one of thousands at a large corporate institution) may fall into the trend of stereotyping an entire cohort. However, recall that there is validity in most generalizations. Currently, the fraction of
Monitor’s 2011 annual report. The report makes estimates about start-up businesses formation across the world, based on a 140,000 person survey. By their account, about twelve percent of US adults run businesses that are less than three and a half years old. Dan Schweibel of Millennial Branding stated that by 2025, generation Y is going to make up 75% of the global workforce – it is their (or rather our) independent thinking and entrepreneurial mindset that will change the future of the workplace. While this may be the case, a change in mindset does not necessarily equate to success. This vision of building a startup
To make that statistic even bleaker, a study by Allmand Law reported that 90% of all tech startups fail. With everyone working at the “hottest new startup” and fast-growing number of emerging businesses (particularly those started by young entrepreneurs) how do we distinguish the successful ones from the rest? Even more importantly, how do we know how these entrepreneurs will fare ten, or even one year from now?
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DOWN
1 Inventor of a best selling toy 1 Computer storage, for short 6 Star, for short 2 Colorful Mattel card game 11 File type accepted by many 3D printers 3 Prefix with fire 14 Battery part 4 Brainchild 15 Poem with 17 syllables 5 Kind of speech or speaker 16 George Washington is on it 6 Entropy 17 Where financial instruments with high liquidity 7 Bring home the bacon and short maturities are traded 8 An important button on Facebook 19 Doc. to protect company secrets 9 Just manage, with “out” 20 “Do I have a volunteer?” 10 Nothing ________ (swish!) 21 Fresh 11 Bond that can be transformed into equity 23 Soccer star Freddy 12 Peruvian peaks 26 NFL tiebreakers, often 13 Mergers and buyouts W28 120 yards, for a football field 18 Urban legend 30 Table attendant 22 Where “1984” takes place 32 Non-studio film 23 Cream of the crop 33 “Well, I don’t think so…” 24 Al ________ (spaghetti spec) 34 Has ____ ear (is tone-deaf) 25 Promises to buy all the unsold shares in an 37 Popular degree category equity offering 38 English river 27 Run amok 39 Kind of 52-Down 29 Method used to attract publicity 40 Four years, for the Chairman of the Fed 30 Comes after “over” or “under” 41 Norway’s capital 31 Part of A.D. 42 Popular app for placing calls over Wifi 33 Constellation bear 43 Native American dwelling 35 “______ a vacation!” 45 Part of S.W.A.K. 36 Bookish 46 Piccadilly ______ 38 Ski lifts 48 X-X-X part 42 They have magnitude and direction 49 Big name in ice cream 44 Talk show lineup 50 Sudden increase in a stock’s price 45 Pageant accessory 51 There are 12 in a year 46 $100 bill, in old slang 54 Butter unit 47 2010 Apple debuts 55 Partial owner of Apple, for example 48 Lock of hair 60 Chemical suffix 51 _____ value (usually $1000 for a bond) 61 Shell food 52 Golf bag item 62 Washer cycle 53 Lose ground, like a stock 63 Total System Services, Inc., while trading 56 Signifies an estimate, in statistics 64 WWII British weapons 57 Genetic letters 65 Hiccup cause 58 Feminine suffix 59 Sleep acronym
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