Wednesday, July 30, 2014

Financial news: 07/30/2014

ZH: There are 7X more Americans with debt in collection than with late payments
CNBC: Multiple metrics indicate stocks are overvalued per billionaire fund manager
CNN: Credit Suisse & Deutsche Bank join UBS in another securities fraud investigation
Fox: Americans to spend $58 billion on pets in 2014 per APPA
AP:  May yr-over-yr home prices ↑ 9.3% vs. April's 10.8% confirm slowing growth 
BI: Delinquent taxes do not prohibit federal security clearance
Bloomberg: Monetary policy is masking reality of underlying geo-political tension
Reuters via YF: EU to place oil, defense and dual use product sanctions on Russia
NYT: EU deflationary pressure ↑ via price cutting amid weak consumer spending
BBC: BP faces market risk as EU sanctions limit Russian oil industry

Tuesday, July 29, 2014

A look at national defense spending

U.S. federal budget spending
Overall defense spending as a percent of the national budget has dropped around 3% in 2 years

Defense spending accounts for a substantial portion of annual federal spending. As America seeks to pave a way to its economic future, questions about how taxpayer dollars should be spent are debated. Whether or not the U.S. defense budget is too large is officially a matter for elected officials to determine. Since for much of recent history, Americans have approved of high military expenditures via their votes, the results have been for a large national defense budget if government is indeed representative.

Budget


In 2014, total national defense spending is projected to reach $626.76 billion per the DoD, down approximately 3% from the 2012 amount. In 2011, defense spending comprised around 19.6% of total federal outlays, and in 2014 that amount is closer to 16.6%. As a percent of gross domestic product, the total defense budget is between 4 -5%, which is near an all time low despite the large dollar amount. This amount is also projected to decrease to closer to 3 - 4% in the coming years.  

GDP


To further illustrate defense spending in proportion to economic output, U.S. gross domestic product for 2011 was $15.09 trillion per the Bureau of Economic Analysis. Since, the DoDs expenditures for that year were $687 billion, defense spending constituted approximately 4.6 percent of the GDP. In 2012, the GDP was closer to $15 to $15.5 trillion, making enacted defense spending roughly 4.2 percent of GDP. Thus, in terms of GDP, defense spending is a much smaller fraction than defense spending as a percentage of annual federal funds spent.

Employment


According to the Bureau of Labor Statistics, “The current goal of the Armed Forces is to maintain a force sufficient to fight and win two major regional conflicts at the same time." This goal means base active duty employment are forecasted to remain relatively consistent, especially since age restrictions cause frequent turnover in the industry. To illustrate further, the BLS reports the military recruitment must amount to 165,000 persons per year in order to replace exiting service personnel.

Debt


The U.S. national debt is very large and continues to grow. Currently, it stands at over $15.87 trillion per the Treasury Department. Economic growth has also been stunted recently, and this places more pressure on the government's financial resources. Moreover, as entitlement costs rise, unemployment remains elevated and industries struggle, fiscal policy becomes a mechanism for solutions. For such policies to be effective, they must balance national functionality with effective defense spending.

Image: Johnpseudo; CC BY-SA 3.0
"Inflationadjusteddefensespending"

Financial news: 07/29/2014

MW: "Investors have abandoned basic arithmetic" per fund manager
CNBC: Stocks to ↓ 20-30% by first full month of autumn per famous investor
CNN: Alumni from select universities help refinance student loans for yield
Fox: U.S. unable to pay disability benefits by 2016 per Treasury trustees
AP: Coal exports indirectly raise the U.S. carbon footprint
Reuters: U.S. Q2 GDP forecast to grow.75% or 3% annualized per economists
Zero Hedge: Investor sentiment is affected by Fed words regardless of validity
NYT: Family Dollar is to be acquired by Dollar Tree for $74.5/share or $8.5B
Bloomberg: Online real estate database Zillow to buy Trulia for $3.5B
BI: Argentina's government seeks time via default risk and regardless of payment
BBC: Lloyd's Bank fined £218M for manipulating the LIBOR

Monday, July 28, 2014

How to ensure a successful IPO

By Linda A. Perez

Taking your company public with an Initial Public Offering (IPO) is a complex process. A successful IPO will enable your company to meet your strategic long-term goals, such as raising capital for growth or acquisitions. Ensuring a successful IPO involves careful planning. 
 
Initial Public Offerings
Companies become public via IPOs

Step 1: deciding to go public

The first step is making the decision to go public. An IPO is an investment--often a costly investment. Legal fees, accounting fees, printing costs, and ensuring you adhere to the Securities Exchange Commission (SEC) regulations are all costs which must be considered before making the decision to offer an IPO.

You must also consider your business goals. Is your company really ready for an IPO? Is going public part of your company’s long-term strategy? How will going public change your company’s existing culture and infrastructure? Will the transition from private to public be easy?
An IPO adviser can help your leadership team analyze your business goals. However, it’s essential that you choose an IPO adviser with experience in your industry, one with a thorough understanding of the specific markets concerned.

Successful IPOs all begin with an IPO readiness assessment. Will your company appeal to investors? What potential will future investors see? Will they expect continued, and profitable, growth? The IPO readiness assessment should also focus on the markets. Are market conditions favourable for your IPO at this time? Is the market ready for your IPO?

A professional readiness assessment will enable your team to finalize your plans, highlighting areas which may need attention before going public. This assessment is essentially a roadmap to a successful IPO.

Step 2: preparing the IPO

After making the decision to go public, the next step is preparing your IPO services strategy. What type of securities will you issue? How many, and at what price? Will you trade in Canada only, or list in the US also?
A meticulously-planned strategy is the key to a successful IPO. You must prepare your company, your leadership team, a timeline, and the actual IPO prospectus.

Prepare your company
 
Your IPO adviser will help analyze your management structure. What management structure will you have as a public company? A simple and flexible corporate structure is often recommended for this time of transition. Your corporate structure must be adaptable. Thorough preparation of the roles, reporting structures, and responsibilities must be done at this stage.
Prepare your team
A successful IPO service needs a team with specialized skills, skills from outside your company as well as your existing leadership team. Your IPO adviser will be crucial in assembling the team.

The underwriter is possibly the most important member of a successful IPO. The underwriter—often an investment banker—will help set the initial offering price, will help with the prospectus, and will help create enthusiasm for your stocks.

The underwriter will conduct a thorough review of your company—the underwriters’ due diligence.

IPO implementation
Effective underwriting help ensures the best value per share offered

Step 3: executing the IPO

Once your team is prepared, the next step is to create a prospectus. This document details your company for future investors. It is a key part of your marketing material. Your own team, your IPO adviser, and the underwriter will collaborate on creating the prospectus. The underwriter’s due diligence ensures that the prospectus consists of full, true, and plain disclosure.

The prospectus must be filed with securities regulators in the jurisdictions you plan to sell securities. The prospectus must be reviewed and approved by the SEC before being shown to potential investors.

While the prospectus is being prepared, a stock exchange listing must be applied for. Again, your IPO adviser can assist with the often complex regulations.

Once your prospectus is approved by the SEC, it can be shown to potential investors. Your IPO adviser and the underwriter will help prepare other marketing documents for your team to take “on the road”, and present your stocks to possible investors.

The price of your IPO is a key consideration. This of course depends on the market. How does the market regard your company now it’s about to go public? Analysis of market trends and activity will be part of your final negotiations with the underwriters. The day before stocks are issued, a starting price must be determined.

Once your documents are finalized and filed with the SEC, your underwriters can start selling your securities. The ideal stock price will keep demand slightly greater than supply, ensuring a continual upward trend. After the IPO, your stocks can be sold on the open stock market.



About the author: Linda A Perez has been in the finance industry for the past 2 years. She is presently working at a finance company in Canada. She has her interests in cooking, photography, craft and painting.  Follow her on https://www.facebook.com/linda.aperez.169

Images: Author/Publisher licensed