Business Solution Firm 'Box' Moves Towards IPO

In a month that has seen the tech world react to Microsoft's announcement of a new CEO and earnings reports from both Apple and Google, Box, a business oriented cloud storage firm, has made covert moves towards an IPO. Box filed under a provision of the JOBS Act that allows companies with fewer than one billion dollars in annual revenue to file secretly. Last December, Box completed an initial funding round of $100 million resulting in a $2 billion valuation. Dropbox, Box’s biggest competitor, recently received between $250-$450 million of funding with a $10 billion evaluation. Although it may appear that Box is being dwarfed by its competitor’s sheer size, it’s important to make a distinction between these two company's goals. Box has been very forward in describing itself as a firm geared towards businesses.

The firm has leveraged itself as the premier cloud sharing service for business and enterprise by offering integration with Google Apps and database systems such as Salesforce.com. Although it is much larger, Dropbox lacks Box’s direction and focus. Dropbox prides itself on its large user base but has not yet created a reliable revenue stream. This has not been a problem for Box because it has a stable base of paying users. Dropbox’s user base is comprised of everyday consumers who can manage all their cloud computing needs with the company’s free storage option of up 2 gigabytes. Box’s public offering is slated to take place sometime in April with the goal of raising $500 million. The company's expected expansion of both its cloud capabilities and business integration will make Box a promising investment option once it becomes publicly traded.
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Nick Philip

Getting Rid of the Debt Ceiling

Three decades of bipartisan debt ceiling raises

The US government has been in debt every year since 1865. Every single President has added to the national debt. No other developed country but Denmark has a debt ceiling. The US debt ceiling has been raised 70 times since 1960, without ever defaulting. So when the limit needs to be raised again on February 7th, it should be the last time. We should do away with the relic that is the debt ceiling.

For those who are unaware, the US debt ceiling is an amount set by Congress that the US Treasury is allowed to issue. However, the debt ceiling is set separately from the expenditures authorized by Congress. Therefore, when the amount Congress authorizes to spend exceeds the borrowing limit, the limit needs to be raised or the US defaults on its debt. Defaulting has catastrophic effects on both the domestic and international economy.

The debt ceiling was initially meant to make it easier for the US government to borrow money in times of unexpected war or expense. Today, it is a political bargaining chip that has the power to blow up the economy. In the past three years, Congressional stalemate over raising the debt ceiling has led directly to a downgrade of the US credit, a government shutdown, and a stock market crash. Now imagine if we crossed it.

The effects of defaulting on our debt are terrifying. Both short-term and long-term interest rates will spike, stock markets will lose confidence and drop, it will become more expensive for the US to borrow money, and countries may begin to question a dollar-based global economy. Now, why would risk these incredible consequences so some partisans can make a political statement? We shouldn’t.

The US government’s budget is extremely flexible. Entitlements have unpredictable growth depending on how much people go to the doctor, Presidents can ask for emergency funds and predicting the amount the US collects in taxes is an inexact science. It is ludicrous to set a hard limit on the amount we can borrow when, regardless of whether Congress authorizes a higher debt ceiling, we still owe someone money. We owe social security checks to the elderly, Medicare reimbursement to doctors, interest payments on foreign loans and countless more necessary payments.

I agree that the amount the US borrows does need to be reined in, but this is not the way to do it. Leaving the debt ceiling in place puts the minority party, currently the Republicans, but previously the Democrats, in a position to hold the economy hostage by not paying bills we have already committed to pay. Not paying our commitments is decidedly un-American. How can we hold other countries to a high standard of economic responsibility and critique fiscal policy abroad if we do not pay our own debts to the citizen next door? So when you here Speaker Boehner and Republicans discuss this week how they will demand concessions in return for allowing the US to pay their global commitments, remember that this should all go away.
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Luke Wolf

Bond Market: 2012 Annual Review

The 2012 bond market produced healthy returns across the major asset classes and marked the eighteenth year in a row of positive gains for investment grade bonds. The Fed’s ultra-low interest rate policy depressed yields and supported prices of short-term securities and government bonds. Because of the lower yields from the safer securities, investors actively sought out the higher yields investments of the market. In addition to ultra-low interest rates, the slow global growth boosted the bond market. Investors were confident that government central banks would not raise interest rates in the near future given the sluggish economic performance across all countries.

The U.S. Federal Reserve has maintained its stance that it will not raise interest rates until 2015. Therefore, the bond prices would continue to be supported and worth investing in. However, the economy in the U.S. grew just enough to support investor confidence in the financial health of corporate and high yield bond issuers. The Federal Funds rate remains at 0.25%.

Below are the 2012 returns on various asset classes:

• Investment-grade U.S. bonds: 4.22%
• Short-term U.S. Treasuries: 0.51%
• Intermediate-term U.S. Treasuries: 1.73%
• Long-term U.S. Treasuries: 3.78%
• Mortgage-backed securities: 2.426%
• Municipal bonds: 6.78%
• Investment Grade Corporate bonds: 9.82%
• Long-term Investment Grade corporate bonds: 12.41%
• High yield bonds: 14.71%
• International government bonds: 5.66%
• Emerging market bonds: 16.52%

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Brandon Nesfield

2012 Stock Performance Review

In a year characterized by volatility due to concerns over the impending fiscal cliff and questions about the debt ceiling, U.S. markets performed surprisingly well overall. Taking dividend payments into account, the NASDAQ returned 16%, the S&P 500 15%, and the Dow Jones Industrial Average 10%. This strong performance occurred in the midst of a worsening European debt crisis, stalling U.S. economic growth, and political gridlock in Washington. Over the first quarter of 2012, stocks posted strong gains, only to have them erased in the second quarter as the European crisis intensified and technical failures marred the third largest ever IPO in May as Facebook went public. In June, however, ECB president Mario Draghi worked with the EU to provide bailout loans to Spain’s embattled banks, which culled investors’ fears somewhat. With rumors abounding that the Fed would initiate a new round of quantitative easing in the third quarter, stocks began to get back on track. In September, Fed chairman Ben Bernanke announced QE 3 and the S&P reached a 5-year high of 1466. Investors remained bullish into the New Year, despite decreased corporate earnings across the board.

Financial stocks led the charge over the year, gaining 26% and reversing a freefalling trend. Banks continued to clean up their balance sheets and despite rogue trading mishaps and rate-fixing scandals, the sector performed very well overall. Looking ahead, volatility will likely come down as politicians come to a consensus over the debt ceiling, although a permanent fix does not seem imminent. Investors are fleeing bonds for equities, and many market prognosticators see 2013 as being a year of record highs for stocks.
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Scott Lamson

Quarter Review

With a strong performance from the S&P in the first quarter, one would expect increased mergers and acquisitions. However, the S&P was up for the quarter, 12 percent, which are the best results in fourteen years but M&A activity failed to follow suit. A recent article in the Wall Street Journal titled "Bankers Await Rebound in Mergers", Gina Chon writes, "Globally, the first quarter saw about $545.2 billion of announced deals, the slowest start to a year since the first quarter of 2003." Bankers and investors hope to see a surge in M&A activity in the upcoming quarter. We will have to see if M&A activity will correlate with the markets performance for the remainder of the year. Additionally, investors doubt the S&P will continue to perform at its current rate.
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Editorial Staff

Market Recap (Sep. 17)

The S&P 500 Index (.SPX) fell 0.35% from 1465.42 to 1460.15 over the course of last week amid concerns that turmoil in the euro zone will continue to negatively affect global economic growth. The CBOE Volatility Index (.VIX), which measures volatility in the stock market and is generally considered to be the most accurate indicator of investor fear, traded above 14. The FTSE Eurotop 300 Index traded as high as 1,121.35 and as low as 1105.66 before finishing relatively flat at 1119.32 for a loss of 0.08%. The down trading over the week came as Mario Draghi and the ECB's bond buying plan failed to lift German business confidence and sentiment dropped for a fifth straight month. Spanish Prime Minister Mariano Rajoy's administration will present its budget to parliament this Thursday and bank audit results on Friday. Additionally, Moody's will be issuing a new credit rating on Spanish debt in the coming days that could affect investor sentiment even further.

The currency markets experienced volatility this week as the euro lost more against the dollar than during any other period over the last two months. Although the Federal Reserve's plans to expand the money supply and the ECB's bond buying program has seen the euro recover to heights of ~$1.31 against the dollar over the past few days, EUR/USD was trading back in the $1.28-$1.29 range by Monday, September 24.

Commodities news was dominated by oil prices plummeting. In a three day stretch last week, crude oil prices fell by more than 7%. A large sell order placed by a market mover on Monday triggered stop-losses and prices subsequently continued to decline. Winter months typically cause oil prices to become bearish and hibernate, but depending on how certain diplomatic tensions between key oil producers in the Middle East work out over the coming months, we could see a supply squeeze and a rebound of oil prices.
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Nicholas Hurst

Strong Moves by Fed Spur Stock Surge

Stocks surged this week following the announcement Thursday that the Federal Reserve would undertake its third round of quantitative easing, QE3. The program will consist of the Fed purchasing approximately $40 Billion in mortgage-backed-securities per month until significant improvements are seen in the labor market. The open-endedness of the program came as especially good news to investors who were expecting action from the Fed, but were pleasantly surprised by the forcefulness of the announced program and its potential longevity. By purchasing mortgage-backed-securities, the Fed hopes to boost a still-slumping housing market to growth in the overall economy and eventually an increase in employment.

Similar good news came to investors across the pond in Europe when a German Constitutional Court ruled that Germany could participate in the previously announced program by the European Central Bank to buy up short-term debt from the turmoil-ridden economies of countries in the EU. This affirmation of strong monetary policy from the ECB (which sparked last week’s equity market gains) coupled with the strong action taken by the Fed here at home pushed the Dow Jones up 286.73 (+2.15%) for the week to close at 13,593.37, within 5% of its October-2007 record high. Similarly, the S&P moved up 27.85 to close at 1465.77 (+1.94%) and the NASDAQ docked up 47.53 (+1.52%) to close at 3183.95. Despite this week’s rally, significant economic concerns still linger. Fears of looming inflation and a still week job market continue to worry investors. Only time will tell whether the Fed’s bold moves this week will lead to a sustained rally in the US equity market.
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Editorial Staff

Payout on Greek Credit Swaps

One of the instruments in the European debt crisis was decided on Monday. The payout for the credit default swaps was structured was held at an auction on Monday in London. The investors who bought protection with the credit default swaps will receive a payout equal to 78.5 percent of the original value of the Greek bonds. The estimated total payout amounts to about $2.5 billion. The Greek debt situation and bonds have been crucial in undermining the Greek and Europe economies.
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Editorial Staff