“Nova” Trillion Dollar Bet (TV Episode 2000)

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For over a hundred years economists had dreamed of a way of reducing risk in the stock market. Two Nobel Prize winning economists found a formula which it seemed did exactly that- only for a roiling crisis to sweep through the markets, leaving their new hedge fund almost broke Written by Anonymous

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“Nova” Trillion Dollar Bet (TV Episode 2000)

Amazon Joins Trillion Dollar Club

It’s official, Apple now has company in the Trillion Dollar Club as Amazon’s stock surged past $2,000, briefly pushing the company’s total value to just over the trillion-dollar mark.

This makes the company’s CEO Jeff Bezos the richest person in the world, with a net worth estimated at around $166 billion dollars.

Amazon started out as just another internet company struggling to turn a profit. Over the years, however, the company has become a true retail powerhouse, and a disruptive force in the industry.

Some analysts predict that the company’s stock price is poised to climb even higher. Brian Nowak, (an analyst at Morgan Stanley) cities some reasons for his continued optimism. These include the company’s rapid growth, their improving business mix and their profit potential. Overall, Amazon’s total value only trails Apple’s by about $100 billion.

The last twelve months have been kind to Amazon, and the company has seen its stock price surge nearly 75 percent. The company is aggressively expanding into new businesses and finding success in doing so, which is exciting investors. Last year, for example, Amazon purchased Whole Foods Market for $13.7 billion, and recently acquired the online pharmacy, PillPack.

While there are only two members of the trillion-dollar club, there are two other companies poised to join their ranks. Both Microsoft and Google’s parent company, Alphabet are currently valued at about $850 billion. A modest nudge in either company’s stock price could push either of them into the trillion-dollar stratosphere.

Although there are a number of analysts who are excited by the stock’s future prospects, there is also some cause for concern. At current prices, the stock is trading at nearly 100 times earnings, which is nearly five times the broader market’s P/E ratio of 21. Then there’s the considerable risk that Amazon may suffer from a regulatory crackdown, given its size and dominance in the market.

Even so, it’s great news, and even better if you already own Amazon stock!

Used with permission from Article Aggregator

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Amazon Joins Trillion Dollar Club

Trump’s Trillion-Dollar Hit to Homeowners

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

This story was co-published with Fortune.

In recent weeks, President Donald Trump has been talking about plans for, as he put it, a “very substantial tax cut for middle income folks who work so hard.” But before Congress embarks on a new tax measure, people should consider one of the largely unexamined effects of the last tax bill, which Trump promised would help the middle class: Would you believe it has inflicted a trillion dollars of damage on homeowners — many of them middle class — throughout the country?

That massive number is the reduction in home values caused by the 2017 tax law that capped federal deductions for state and local real estate and income taxes at $10,000 a year and also eliminated some mortgage interest deductions. The impact varies widely across different areas. Counties with high home prices and high real estate taxes and where homeowners have big mortgages are suffering the biggest hit, as you’d expect, given the larger value of the lost tax deductions. But as we’ll see, homeowners all over the country are feeling the effects.

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I’m basing my analysis on numbers from two well-respected people: Mark Zandi, the chief economist of Moody’s Analytics; and Hugh Lamle, the retired president of M.D. Sass, a Wall Street investment management company.

Zandi’s numbers are broad — macro-math, as it were. Lamle (pronounced LAM-lee) is a master of micro-math. It was Lamle who first got me thinking about home value losses by sending me an economic model that he created to show the damage inflicted on high-end, high-bracket taxpayers in high-tax areas who paid seven digits or more for their homes.

Lamle starts with the premise that homebuyers have typically figured out how much house they can afford by calculating how much they can spend on a down payment and monthly mortgage payment, adjusting the latter by the amount they’d save via the tax deduction for mortgage interest and real estate taxes. His model figures out how much prices would have to drop for the same monthly payment to cover a given house now that this notional buyer can’t take advantage of the real estate tax deduction and might not be able to take full advantage of the mortgage interest deduction.

After I showed Lamle’s model to my ProPublica research partner, Doris Burke, she steered me to Zandi’s research, which I realized could be used to calculate national value-loss numbers.

Ready? Here we go. The broad picture first, then the specific. This gets a little complicated, so please bear with me.

Zandi says that because of the 2017 tax law, U.S. house prices overall are about 4% lower than they’d otherwise be. The next question is how many dollars of lost home value that 4% translates into. That isn’t so hard to figure out if you get your hands on the right numbers.

Let me show you.

The Federal Reserve Board says that as of March 31, U.S. home values totaled about $26.1 trillion. Apply Zandi’s 4% number to that, and you end up with a $1.04 trillion setback for the nation’s home owners. That’s right — a trillion, with a T.

Please note that Zandi isn’t saying that house prices have fallen by an average of 4%. That hasn’t happened. What he’s saying is that on average, house prices are about 4% lower than they’d otherwise be.

Given that the Fed statistics show that homeowners’ equity was $15.76 trillion as of March 31, Zandi’s numbers imply that homeowners’ equity is down about 6.6% from where it would otherwise be. (That’s the $1.04 trillion value loss divided by the $15.76 trillion of equity.)

This is a very big deal to families whose biggest financial asset is the equity they have in their homes. And there are untold millions of families in that situation.

While Zandi and I were having the first of several phone conversations, he sent me a county-by-county list of the estimated home-price damage done to about 3,000 counties throughout the country. I was fascinated — and appalled — to see that the biggest estimated value loss in percentage terms, 11.3%, was in Essex County, New Jersey, the New York City suburb where I live.

In case you’re interested — or just snoopy — the four other counties that make up the five biggest-losers list are: Westchester County, New York, suburban New York City, 11.1%; Union County, New Jersey, which is adjacent to Essex County, 11.0%; New York County, the New York City borough of Manhattan, 10.4%; and Lake County, Illinois, suburban Chicago, 9.9%.

You can find Zandi’s county-by-county list in our Data Store. Eyeball the list, and you’ll see that counties throughout the country have home values lower than they would otherwise be.

Here’s how it works. Zandi took what financial techies call the “present value” of the property tax and mortgage interest deductions that homeowners will lose over seven years (the average duration of a mortgage) because of changes in the tax law and subtracted it from the value of the typical house. That results in a 3% decline in national home values below what they would otherwise be.

The remaining one percentage point of value shrinkage, Zandi says, comes from the higher interest rates that he says will result from the higher federal budget deficits caused by the tax bill. He estimates that rates on 10-year Treasury notes, a key benchmark for mortgage rates, will be 0.2% higher than they would otherwise be, which in turn will make mortgage rates 0.2% higher.

Even though interest rates on 10-year Treasury notes are at or near record lows as I write this, they would be even lower if the Treasury were borrowing less than it’s currently borrowing to cover the higher federal budget deficits caused by Trump’s tax bill.

If Zandi’s interest-rate take is correct — it’s true by definition, if you believe in the law of supply and demand — even homeowners who aren’t affected by the inability to deduct all their real estate taxes and mortgage interest costs are affected by the tax bill.

How so? Because higher interest rates for buyers translate into lower prices for sellers and therefore produce lower values for owners.

You can argue, as some people do, that real estate taxes should never have been deductible because allowing that deduction is bad economic policy that inflated home prices and favored higher-income people over lower-income people.

But even if you believe that, there’s no question that eliminating the deduction for millions of homeowners inflicted serious financial damage on homeowners who had no warning that a major tax deduction that they were used to getting would be wiped out.

As a result, homebuyers who had taken the value of the real estate tax deduction into account when buying their homes had their home values and finances whacked without warning. Interest deductions on mortgage borrowings exceeding $750,000 were cut back, compared with interest deductions on up to $1 million under the old law — but that doesn’t affect anywhere near as many people as the cap on real estate tax deductions does.

(A brief aside: Among the modest winners here are first-time buyers who purchased their homes after the tax law took effect and benefited by paying less than they would have paid under the old tax rules.)

Now, to the micro-math.

Lamle’s model isn’t applicable to most people because it works only for taxpayers with a household income of at least $200,000 a year who paid at least $1 million for their homes. But the principle underlying Lamle’s model applies to everyone who owns a home or is interested in owning one. To wit: You calculate the tax-law-caused loss of value by figuring out how much a house’s price needs to fall for buyers’ or owners’ after-tax costs to be the same now as they were before the tax law changed.

“People buying large-ticket items typically focus on after-tax costs of ownership,” Lamle told me. “The amount that many buyers can afford is affected by limits on their financial resources. Therefore, as their tax costs increase substantially because of the loss of tax deductions, they have less money available to pay for homes and to take on mortgage debt.”

At the suggestion of one of my editors, I asked Lamle to use a modified version of his economic model to estimate the tax law’s impact on the value of a theoretical house in the New York City suburb of West Orange, New Jersey, purchased for $800,000 in 2017 by a theoretical family with a $250,000 annual income. Those home value and income numbers are very high by national standards — but middle class by the standards of large parts of suburban Essex County.

Real estate tax on that theoretical house would run about $28,900 a year, according to statistics from the New Jersey state treasurer’s office. That tax used to be fully deductible for federal tax purposes. Now, it’s not deductible at all if you assume that the house’s owners are taking the standard deduction on their federal returns. Or that even if they’re itemizing deductions, they’re paying at least $10,000 of state income taxes, which means they don’t get any benefit from deducting property taxes.

According to Lamle’s calculations, this inability to deduct real estate tax has reduced the home’s value by $138,720, assuming a 5% mortgage rate. At a 4% rate, the value loss is $173,400. (For the math and assumptions underlying these numbers, see his methodology below.) So if the family put up $200,000 — 25% of the purchase price — to buy the house, more than half of that investment has been wiped out.

Obviously, it’s impossible to prove that Zandi and Lamle are right about the impact they say the tax law is having (and will continue to have) on home prices, because there’s no way to gauge the accuracy of their numbers. But the logic is compelling.

The loss in home values is crucial because it turns out that lots more people have bigger financial stakes in their houses than in their stock portfolios, which have thrived as the Trump tax law turbocharged corporate earnings and stock prices.

In fact, 73.5% of households that own homes, stocks or both had bigger stakes in the home market than in the stock market, according to David Rosnick, an economist at the Center for Economic and Policy Research, who parsed Federal Reserve data at my request.

Now, let’s put things in perspective, set aside home value losses for a minute and talk about the cash that people are getting from Trump’s 2017 tax law. It isn’t all that much for most families. Households’ average federal income tax has fallen by $1,260 a year, according to the Tax Policy Center. That average is skewed by big savings realized by people with big incomes; the median family’s tax cut is only about half as much as the average cut, by the Tax Policy Center’s math.

This means that — for taxpayers of higher income and more modest income — the income tax savings are likely small beer compared with the hidden loss inflicted on many of them by lower house values.

Back to the main event. And some final — but important — numbers.

According to the Tax Policy Center, the Treasury will get $620 billion of additional revenue over a 10-year period because people can’t deduct their full state and local taxes.

That, in turn, covers most of the 10-year, $680 billion cost of the income tax break that corporations are getting. So you can make a case that my friends and neighbors and co-workers in New York and New Jersey — and many of you all over the country — are paying more federal income tax in order to help corporations pay less federal income tax.

That, my friends, is the bottom line.

Applying the formula devised by economist Mark Zandi, which estimates the effect of the tax bill on house values, the 30 counties below saw the biggest percentage declines. To see results for all counties and county-equivalents, visit our Data Store.

Lamle’s Methodology

Here are the assumptions underlying the calculations of the value loss of a theoretical West Orange, New Jersey, house purchased for $800,000 in 2017.

1. The mortgage our theoretical buyers took out is less than $750,000, so all the interest on it would remain tax deductible for a family that files an itemized federal tax return.

2. The family’s federal income tax rate on each additional dollar of income is 24%.

3. The real estate tax on the house is about $28,900.

4. Therefore, those now-lost federal tax deductions would have been worth about $6,936 a year: 24% of $28,900. Under the law as it existed before the 2017 tax bill, buyers would typically have included those federal tax savings in calculating how much they could afford to pay for the house. Now, they don’t include those savings because they no longer exist. That’s because the real estate taxes aren’t deductible if the family takes the new, larger standard deduction. Or if the family continues to take itemized deductions — and if, as we assume, it pays at least $10,000 of state income taxes — the real estate taxes don’t provide any federal tax benefit.

5. Running those $6,936 of lost deductions through Hugh Lamle’s economic model produces indicated value losses of $138,720 for a 5% mortgage and $173,400 for a 4% mortgage.

6. This is conservative math. When the house’s current owners purchased it in 2017, their federal tax bracket would have been 28% rather than the current 24%. So the value of their now-lost federal tax deduction was $8,092 a year. That would imply value losses about 17% greater than those in the article.

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Trump’s Trillion-Dollar Hit to Homeowners

Microsoft (briefly) becomes the world’s third trillion-dollar company

Microsoft is (once again) the world’s most valuable tech company after its market value climbed past the $US1,000,000,000,000 mark — for about half an hour.

Key points:

• Apple and Amazon were the first companies to be valued at $US1 trillion.
• Their values have since fallen as global markets entered into a correction in late-2019
• Microsoft’s surge in market value was driven by its cloud computing business

Apple and Amazon are the only companies to have previously cracked the trillion-dollar milestone, before their shares plummeted, along with global markets in late-2018.

The excitement that drove up Microsoft’s share price was generated by its quarterly earnings, released on Wednesday evening (local time), which smashed market expectations.

In extended trading, Microsoft was able to briefly join the exclusive 13-digit club when its share price jumped as high as $US130.87.

However, its after-hours share price then drifted back to $US129.35, which takes its market value to $US992 billion.

Profits up in the cloud

The technology giant’s revenue jumped 14 per cent to $US30.6 billion.

“Demand for our cloud offerings drove commercial cloud revenue to $US9.6 billion this quarter, up 41 per cent year-over-year,” Microsoft’s chief financial officer Amy Hood said, in a statement explaining the results.

Microsoft’s “commercial cloud” revenue includes business use of Azure, Office 365 and professional networking website LinkedIn.

Azure, in particular, experienced rapid revenue growth of 73 per cent.

LinkedIn — which Microsoft acquired for $US26 billion three years ago — saw its revenue lift 27 per cent during the quarter, and is growing much faster than Microsoft as a whole.

The results show that Microsoft has benefited from adapting its business model — a growing proportion of its software sales come from recurring subscriptions, as opposed to one-time purchases.

“We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow,” said Microsoft’s chief executive Satya Nadella.

The trillion-dollar club

Apple was the first publicly-listed company to cross the $US1 trillion mark last August — its share price surging more than 50,000 per cent since 1980, when it debuted on Wall Street.

This was followed (briefly) by Amazon in early-September, which only took 21 years to reach the milestone.

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But the euphoria among investors was short-lived as the tech giants — along with global stock markets — saw their values plunge into correction (then bear market) territory by the end of the year.

The sell-off was caused by rising US-China trade tensions, and investors panicking that the Federal Reserve would aggressively hike interest rates due to its confidence in the US economy, raising the cost of borrowing money.

However, the geopolitical and economic environment has undergone a complete reversal since then.

Washington and Beijing are reportedly close to signing a deal to end their protracted trade war, in which both sides imposed tariffs on hundreds of billions of dollars of each other’s imports.

In a stunning reversal, the Fed said it would abandon plans to lift interest rates in 2019 due to concerns about slowing growth in the global economy.

Many analysts and traders are even expecting the US central bank to go further by cutting rates this year.

This has caused share markets to rebound and, earlier this week, Wall Street went back to hitting record-highs and tech stocks are back in fashion.

Apple and Amazon are now worth $US981b and $US945b respectively, according to their after-hours share prices.

Amazon is set to announce its quarterly earnings after the closing bell on Friday, while Apple is scheduled to report on April 30.

If both companies unveil stellar results in the coming days, they will be within striking distance of rejoining the trillion dollar club — and possibly staying there for longer than a few weeks (or minutes).

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Microsoft (briefly) becomes the world’s third trillion-dollar company

The Trillion-Dollar Market

Forget financial markets for a minute, and think about the directions money moves in retail markets. While much of it moves up and down the supply chains, the first source is customers. The money that matters most is what customers spend on goods and services.

Now here’s the question. Where is there more money to be made — in helping supply find demand or in helping demand find supply? Substitute “drive” for “find” and you come to the same place, for the same reason: customers are the ones spending the money.

For the life of the commercial Web, most of those looking to make money there have looked to make it the former way: by helping supply find or drive demand. That’s what marketing has always been about, and advertising in particular. Advertising, last I looked, was about a $trillion business. Now ask yourself: Wouldn’t there be more money to be made in helping the demand side find and drive supply?

Simply put, that’s what VRM is about. It’s also what Cluetrain was about ten years ago. It wasn’t about better ways for the supply side to make money. It wasn’t about doing better marketing. It was about giving full respect to the human beings from whom the Web’s and the Net’s biggest values derive. When Cluetrain (actually Chris Locke) said “we are not seats or eyeballs or end users or consumers. we are human beings and our reach exceeds your grasp. deal with it.“, it wasn’t saying “Here’s how you market to us.” It was saying “Our new power to deal in this new marketplace exceeds your old powers to drive, lock in, or otherwise control us.” When Cluetrain said “The sky is open to the stars”, it wasn’t issuing utopian palaver. It was speaking of a marketplace of buyers and sellers whose choices were wide open on both sides. [Later… Chris Locke, who wrote that line (and those that followed), offers a correction (and expansion) below.]

On Cluetrain’s 10th anniversary, we have hardly begun to explore the possibilities of truly free and open markets on the Internet. They are still inevitable, because supporting those markets is intrinsic to the Net’s essentially generative design. Lock down users, or lock one in and others out, and you compromise the wealth the Net can create for you. Simple as that.

And that wealth starts with customers.

This is also what How Facebook Could Create a Revolution, Do Good, and Make Billions, by Bernard Lunn in ReadWriteWeb, is about.

I just wrote a brief response in Gain of Facebook, on the ProjectVRM blog.

No time for more. Not because it’s the Fourth of July, but because I’m in a connectivity hole (with latencies and packet losses that start at 1+ second and 15% packet losses and go up from there), but because I’m at my daughter’s wedding, and I need to get ready. Cheers.

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The Trillion-Dollar Market