Schlumberger Limited (NYSE:SLB), a competitor and rival to the ever-present Halliburton Company, is a leader in the technology of drilling, production, and processing of oil and gas. The company was founded by the Schlumberger brothers, who invented the wireline logging technique for obtaining data in oil fields and geographical systems. Schlumberger Limited works in 85 countries and employs over 100,000 employees to help drill, process, and refine natural resources. With revenues of $35.5 billion in 2015, Schlumberger Limited manages large amounts of capital and equipment. The company manages business in Latin America, Russia, the Middle East, Asia, Europe, and Africa (1).
Since the OPEC deal was announced, SLB’s stock has jumped 6%, and is likely to continue to grow as the barrel quantity decreases. Because SLB works largely in the US, there will be a greater demand for their services and products, as Saudi Arabia’s oil cutback will utilize fewer geographical technologies and even fewer drills. While Wells Fargo earnings per share estimate cuts shave SLB’s earnings per share, the company differentiates itself enough to be a necessity in the industry. Goldman Sachs, a leading investment banking company, has taken a similar bullish approach to the company, and refers to SLB as one of the top oil service stocks (2).
(2) Duggan, Wayne. "3 Oil Stocks to Claim After OPEC Deal." InvestorPlace. N.p., 5 Oct. 2016. Web. 5 Oct. 2016.
A name and brand that most consumers will recognize, Royal Dutch Shell (NYSE:RDS.B) was formed in 1907, despite existing unofficially before the 20th century. Shell is a current leader in the oil and gas industry, and has made a conscious effort to put the environment at the forefront of their efforts. As an industry leader, Shell reaches far and wide, as it drills in deep parts of the ocean and owns the largest floating natural gas facility. Operating in over 70 countries, Shell employs over 93,000 people and produces over 3 million barrels of oil a day. In 2015, Shell had income of $2.2 billion, capital investment of $28.9 billion, and revenue of $265 billion (1)
During the height of the oil collapse, Shell bought out BG Group for $52 billion, attempting to cut out competition and increase assets. Although other oil companies have been content with riding out the low prices, Shell has aggressively merged and does not have to cut its 6.9% dividend. Offering one of the best dividend yields in the industry, their proactive business strategies have allowed Shell to not cut their dividend in 70 years. This is a good indicator for the recent OPEC declarations, as Shell will continue to be a competitor in the energy market (2).
(2) Duggan, Wayne. "3 Oil Stocks to Claim After OPEC Deal." InvestorPlace. N.p., 5 Oct. 2016. Web. 5 Oct. 2016.
Oil’s Global Presence
Energy stocks, more specifically oil stocks, are volatile in their nature, as they are subject to economic, social, political, and environmental factors that other sectors may not be as heavily impacted by. Oil is regulated by governmental bodies, as it causes environmental damage in its production, sale and use. This makes it incredibly vulnerable to political influence, and its value can change in a heartbeat if a government changes its production or consumption. The politics this energy is subject to is global, as warfare and borders can change crude oil prices depending on the state of conflict between governments. The economics of oil are wrapped in global markets, where corporate investments are intertwined with conflicting party’s fiscal goals. These companies then determine the correct pricings depending on the demand, cost of transportation, demographics, and pervasive social conditions of a particular area. Thus, oil is not only traded as a commodity, but also serves as a necessary part of the political process, economic state, and social condition of a state.
On September 28, 2016, OPEC’s 14 oil-producing states agreed to moderately cut their total oil output. This is the first time that OPEC has placed a cap on their production since the market crash of 2008, cutting production by 700,000 barrels. Out of just over 33 million barrels produced per day, this is a small fraction of the total output from these countries (less than 1% of global production). This action is in response to the two-year oil price slump that has plagued the Middle East, and is more so a reversal of the previous decision to keep drilling. They are hoping to raise the price of oil in the winter months, as people drive less and the changes would only affect short term oil prices. Iran, however, is aiming to increase production as a result of the decision, despite Nigerian rebel attacks on pipelines, and political turmoil dismantling Venezuela’s production (1). The decision by OPEC not only affects the surrounding oil regions, but influences both global economic markets and the crude oil stock market in the United States.
As a result of this decrease in barrel output from Saudi Arabia, American shale and oil drilling companies saw increases in their stock prices. With less competition (granted, only 1% less), American companies will have the same supply with increased demand. It will drive their prices up, assuming acceptable market conditions. Higher prices can mean higher revenues, proving beneficial to both the American investor and manager of American oil companies. Three public companies that are expected to be impacted as a result of this announcement include EOG Resources, Inc., Schlumberger Limited, and Royal Dutch Shell. These three companies provide useful insight on the exploration, production, distribution, and consumption of the energy commodity, and the changes in the stock market that trail the OPEC deal.
EOG Resources (NYSE: EOG):
EOG Resources is one of the United States' largest non-integrated crude oil and gas companies, with reserves in the United States, the United Kingdom, Trinidad and China. Listed under the New York Stock Exchange (NYSE), the company is traded under EOG and attempts to earn the best rates of return on the market. By controlling operating expenses and capital costs, and maximizing output from reserves, EOG Resources successfully increases cash flow throughout each unit of production. Utilizing a cost-effective basis, the company focuses on its long-term shareholders and secure balance sheet. In 2015, EOG held reserves of 2,118 million barrel of oil equivalent, with 97% of the reserves in the United States (5).
As a general stock, oil E&P (exploration & production) companies have contrasting environments when compared to their risk-tolerance. The stocks themselves are very volatile and risky, yet they exist in a low-price energy environment. Likewise, when barrels reach a low of $50, the stocks have relatively weak cash flows and high debt levels. With current gas prices at a low, the OPEC deal will bring up the price per barrel, thus bringing up the stock. EOG in particular is a key stock that will play a role in this change. As an exploration and production company, EOG has well-performing assets, and has recently acquired Yates Petroleum, which will boost production 5%. With a debt to capital ratio of 33%, it is a reasonable investment even before demand begins to ramp up production (3). The stock is currently valued at $97.38, up $2.24 (currency on USD).
Schlumberger Limited (NYSE: SLB):
Schlumberger Limited (NYSE:SLB), a competitor and rival to the ever-present Halliburton Company, is a leader in the technology of drilling, production, and processing of oil and gas. The company was founded by the Schlumberger brothers, who invented the wireline logging technique for obtaining data in oil fields and geographical systems. Schlumberger Limited works in 85 countries and employs over 100,000 employees to help drill, process, and refine natural resources. With revenues of $35.5 billion in 2015, Schlumberger Limited manages large amounts of capital and equipment. The company manages business in Latin America, Russia, the Middle East, Asia, Europe, and Africa (4).
Since the OPEC deal was announced, SLB’s stock has jumped 6%, and is likely to continue to grow as the barrel quantity decreases. Because SLB works largely in the US, there will be a greater demand for their services and products, as Saudi Arabia’s oil cutback will utilize fewer geographical technologies and even fewer drills. While Wells Fargo earnings per share estimate cuts shave SLB’s earnings per share, the company differentiates itself enough to be a necessity in the industry. Goldman Sachs, a leading investment banking company, has taken a similar bullish approach to the company, and refers to SLB as one of the top oil service stocks (3).
Royal Dutch Shell (NYSE:RDS.B):
A name and brand that most consumers will recognize, Royal Dutch Shell (NYSE:RDS.B) was formed in 1907, despite existing unofficially before the 20th century. Shell is a current leader in the oil and gas industry, and has made a conscious effort to put the environment at the forefront of their efforts. As an industry leader, Shell reaches far and wide, as it drills in deep parts of the ocean and owns the largest floating natural gas facility. Operating in over 70 countries, Shell employs over 93,000 people and produces over 3 million barrels of oil a day. In 2015, Shell had income of $2.2 billion, capital investment of $28.9 billion, and revenue of $265 billion (6)
During the height of the oil collapse, Shell bought out BG Group for $52 billion, attempting to cut out competition and increase assets. Although other oil companies have been content with riding out the low prices, Shell has aggressively merged and does not have to cut its 6.9% dividend. Offering one of the best dividend yields in the industry, their proactive business strategies have allowed Shell to not cut their dividend in 70 years. This is a good indicator for the recent OPEC declarations, as Shell will continue to be a competitor in the energy market (3).
(1) Krauss, Clifford. "OPEC Agrees to Cut Production, Sending Oil Prices Soaring." New York Times. N.p., 28 Sept. 2016. Web. 05 Oct. 2016.
(2) Cho, Sharon. "OPEC's Deal Lifts More Than Oil as Mining Stocks to Metals Jump." Bloomberg.com. Bloomberg, 28 Sept. 2016. Web. 06 Oct. 2016.
(3) Duggan, Wayne. "3 Oil Stocks to Claim After OPEC Deal." InvestorPlace. N.p., 5 Oct. 2016. Web. 5 Oct. 2016.
Image: © Deaconbrown | Dreamstime.com - Energy Boom!
EOG Resources is one of the United States' largest non-integrated crude oil and gas companies, with reserves in the United States, the United Kingdom, Trinidad and China. Listed under the New York Stock Exchange (NYSE), the company is traded under EOG and attempts to earn the best rates of return on the market. By controlling operating expenses and capital costs, and maximizing output from reserves, EOG Resources successfully increases cash flow throughout each unit of production. Utilizing a cost-effective basis, the company focuses on its long-term shareholders and secure balance sheet. In 2015, EOG held reserves of 2,118 million barrel of oil equivalent, with 97% of the reserves in the United States (1).
As a general stock, oil E&P (exploration & production) companies have contrasting environments when compared to their risk-tolerance. The stocks themselves are very volatile and risky, yet they exist in a low-price energy environment. Likewise, when barrels reach a low of $50, the stocks have relatively weak cash flows and high debt levels. With current gas prices at a low, the OPEC deal will bring up the price per barrel, thus bringing up the stock. EOG in particular is a key stock that will play a role in this change. As an exploration and production company, EOG has well-performing assets, and has recently acquired Yates Petroleum, which will boost production 5%. With a debt to capital ratio of 33%, it is a reasonable investment even before demand begins to ramp up production (2). The stock is currently valued at $97.38, up $2.24 (currency on USD).
(2) Duggan, Wayne. "3 Oil Stocks to Claim After OPEC Deal." InvestorPlace. N.p., 5 Oct. 2016. Web. 5 Oct. 2016.
What is P2P?
Breakthroughs in financial technologies have opened up new markets for income investors; trading stock and over-the-phone investing have influenced new means of acquiring money. Whether it’s creating a self-driven portfolio on e-trade, or simply trading currency over a smartphone, technology has ushered in a new era of financial literacy and efficiency. As businesses continue to incorporate technological advancements, these developments will lower overhead costs and increase accessibility, attracting both clients and investors.
This phenomenon has given rise to peer to peer lending (P2P lending), where online services connect lenders to borrowers with unsecured personal loans. Instead of going through a bank or financial institution, borrowers go through an online company (such as Lending Club), and borrow directly from investors (1). Lenders can charge a lower interest rate and still earn a higher return than if the borrower were to go to a bank, as this process removes the middlemen and reduces overhead. Even though the website managing the transaction charges a fee, this process is less expensive than using traditional banks. This new method of borrowing retains the same security in a bank loan, but increases returns and allows investors to become part of a new way to earn return.
Investing Made Clear
Media coverage on financial markets is mainly focused on short-term investments, such as stocks, where fluctuations in prices are obsessively monitored. These are riskier, and prevent coverage on long-term bonds and assets. With low interest rates, “income seekers” have struggled with accepting lower yields on matured bonds, and thus have to invest in stocks, real estate, and businesses (2). This bodes well for borrowers, and as unemployment decreases to 4.9 percent, more people will be able to take out a loan that they can pay back (3). Even with marginally decreasing unemployment, credit and debt are still daunting issues facing the American economy.
Surging household debt follows an increase in job availability (4). More people will be able to afford a down payment on a house, and thus, will need to take a mortgage for their house. With developments in financial technology (Fintech), lenders and borrowers will be matched rapidly and efficiently, and transactions will in return affect economic growth. The individuals then apply for credit cards, and continue to run up debt. In the American economy, the higher household debt increases the consumption sectors of the market, but results in a larger current account deficit (4). Imports increase, and online transactions continue to increase. In the end, the global economy is affected, where currency valuation strengthens and technologies continue to improve.
As technologies become much more adaptive to financial markets, transparency and trust in these changes becomes a great concern. In a bank transaction, there have been hidden aspects within loans that inevitably benefit the banker and not the borrower. Such was the case with the financial crash in 2008, where bundled subprime mortgages were entrusted to subprime borrowers. Loans that were once secure became toxic, as a result of a lack of transparency between the lender and borrower. Peer to peer lending allows for more clarity and efficient accessibility to people who are in need of immediate financial assistance, while providing more opportunity for investors. Likewise, as the technology and security sectors continue to grow, this loan acquisition method will allow for mortgages, student loans, and credit cards (1). With an expected growth at a compound annual growth rate (CAGR) of 53.06 percent from 2016-2020, it is apparent that this financial technology will shape future personal and professional transactions (5).
(1) "Is Peer-to-peer Lending Online the Future?" YouTube. CNN Money, 25 Oct. 2013. Web. 09 Sept. 2016.
Doorn, Philip Van. "Why Income Investors Should Consider Peer-to-peer Lending." MarketWatch.
(2) Marketwatch, Inc., 17 Feb. 2016. Web. 09 Sept. 2016.
(4) Bunker, Nick. "Here's How High Levels of Household Debt Affect Economic Growth - Equitable Growth." Equitable Growth. Washington Center for Equitable Growth, 29 Sept. 2015. Web. 09 Sept. 2016.
(5) "Global Peer-to-peer Lending Market 2016-2020." PR Newswire. PR Newsire Association, L.L.C., 16 Aug. 2016. Web. 09 Sept. 2016.
Image: © Dwnld777 | Dreamstime.com - Crowdfunding Photo
Following the recent dismantling of cross-border sanctions, Russian state company Rostec has struck a pioneering deal with Iran in an effort of human survival. With recent technological breakthroughs in the field of salt water desalination, Rostec and Iran are working together to bring a €1 billion desalination plant to the port of Bandar Abbasa (1). This is the first deal between Iran and Russia since the “lifting of the Western sanctions against Iran” (2).
Subsequent to the 1979 Iranian Revolution, the United States placed sanctions on Iran with hopes of weakening their economy and preventing nuclear technology advancement. When Iran continued to research the capabilities of nuclear technology, the UN Security Council placed sanctions against Iran (3). Yet, even with sanctions from major Western powerhouses, Iran still hoped to be a key member in global politics with its energy influence. With Iran’s leverage in oil and gas, the United States responded by investing in alternate forms of energy, further weakening Iran (3).
Russia and Azerbaijan, two energy producing countries, see an opportunity in Iran, and have guaranteed safe passage for transportation for their exports. The sanctions that led to these plans will strengthen Russia, Azerbaijan, Turkey, and Iran so western sanctions will not allow “economic stagecraft” against the Eastern counterparts (3). As a result of the recent Atomic Energy Agency’s reports, Tehran’s compliance with nuclear pursuit codes has caused the UN, EU, and somewhat the US, to lift their sanctions against Iran (2).
With the ending of sanctions and formation of cross-border relations, Rostec and its subsidiary company Tekhnopromexport will build a 1.4 gigawatt power station in the port of Bandar Abbas. According to Russian newspapers, the plant will have “four 350 megawatt generators and a seawater desalination plant with a capacity of 200,000 cubic meters per day” (1). Though development will be handled by Rostec, ownership will vary, as 85% of the money will come from “a Russian state loan at 2.77 percent interest, with the difference provided by Tehran” (1). This desalination plant will take five years to construct, and will be the third largest Russian power plant in Tehran (1). The USSR began the power house projects in the 1980’s, using the country as a mule for energy.
As the devaluation of the ruble continues, development and attraction of foreign projects have become much more difficult to contract. Russian investment remains minimal, as foreign banks provide loans for projects and ultimately reap the benefits. According to Vladimir Sklyar from Renaissance Capital, the plant is “a totally political project, and the construction margin in very low” (1). Ignoring the environmental hazards of desalination, the projects alone cost an astronomical amount of money. It costs roughly $1 million per 1,000 cubic meters of water, only factoring usage costs and excluding overhead costs (4). With plans for ‘200,000 cubic meters’ of water per day, that roughly translates into a $200 million plant, withholding costs of infrastructure, management, and water distribution.
Indeed, public image and perception of Eastern European relations will better, as Moscow profits and investments are limited in this project. The project is built by Russian contractors and funded by Russian loans independent from the government. Desalination plants have low profits, and with Rostec funding 85% of the project from banks using the weak ruble, paying back notes will be difficult for the company. Very little return on investment to the Russian economy is expected, as most of the revenue will go towards maintaining the plant and paying back borrowings. From a numbers standpoint, the plant is not a financially sound development project, and could potentially create more harm than good. Nevertheless, this project could become a milestone in international projects and inspire other countries to overcome longstanding political differences to better their economies and their people.
(1) "Russia Lands First Major Deal with Iran Post Sanctions - Report." RT International. 1 Aug. 2016. Web. 23 Aug. 2016.
(2) “Both Russia and Iran Benefit from Lifting Sanctions against Tehran.” Sputnik News. 1 Janurary 2016. Web. 23 August 2016.
(3) Gvosdev, Nikolas. “From Iran to Russia, Trade Links Promise Protection Against Future Sanctions.” 12 August, 2016. 24 August 2016.
(4) McGovern, Ronan. “How much does a water desalination plant cost?” Quora. 19 May 2015. 25 August 2016.
Image: © Id1974 | Dreamstime.com - International Military Salon Photo
The United States tax system is broken down into federal and state taxes, where rates differ between both state and federal governments (1). State taxes vary, where California’s 1-13.3% tax rate vastly differs from Delaware’s 0-6.6% individual income tax progressivity (2). The government also takes 10-39.6%, creating another system of brackets, rates, and calculations (3). The common income tax is only one of many in the United States, creating a clout of political and social disagreements from the individual people to the single government. With great differences in taxing strategies, both state and federal governments must work to appease the people of each region, while simultaneously funding country operations. As conflict in policy can determine political party affiliation, taxes become intertwined in a financial dogma that can make or break legislation.
The United States’ ideologies on taxes is not unique, as India has retained a similar filing structure in its states and country. However, in recent events, India has “taken one step forward” and simplified its taxing structure to a single common market (4). On August 3, 2016, India passed the Goods and Services Tax (GST), thereby replacing the indirect taxes on goods and services by the Centre of States (5). To be completed by April 2017, the GST will simplify the tax system that has existed for generations. Instead of state and government taxes, all goods and services will be taxable with few exemptions (5).
GST will include a wide range of reforms, where it will affect the tax structure, incidence, the computation of taxes, tax payment, lawful compliance, and tax reporting. Likewise, it will affect all business acumen, where operations will be changed by product pricing, supply chain optimization, technology, and accounting (5). Essentially, in shorter terms, it is a complete overhaul of the old system. Where markets merged, states differed, and taxes were overseen by the Centre of States, there will now exist a single common marketplace with a single tax base. With aims to simplify the complicated tax system in India, the Indian government has certainly taking a step in the right direction.
Though the taxing structure of GST seems to be easy in writing, it will take months to be adopted by both corporations and citizens alike. GST is a value added tax, implemented at every point in the supply chain, “with credit allowed for any tax paid on inputs acquired for use in making the supply” (5). GST will be levied at both the Centre (CGST) and the States (SGST), where the design of the system will be the same throughout both entities. The tax at each level is going to be on the basis of destination principle, where exports would be zero-rated, and imports would have the same tax as domestic goods and services (5). Goods and services sold across state borders would attract an “integrated GST,” as the exact value is yet to be determined. Finally, an additional 1% tax will be levied by the Centre, where the revenue will be returned to the states for public purposes (5).
Not limited to just simplicity, GST offers a multitude of benefits to India. It will encompass a wider tax base to help lower the tax rates and eliminate classification disputes (5). The simplification of compliance procedures will bring about “rationalization of the tax structure” and dismantle the necessary complexity of the old system. It will help help state matters while the universal destination law will harmonize administration of state taxes and filings. Lastly, the new system ideally offers a solution to political turmoil and administrative matters that will inevitably benefit the people in lower taxes.
In order for this to come to fruition, the businesses and governing bodies must undergo significant change, as items are repriced and margins are readjusted for this simpler tax. Yet, in a world of constant pursuit of intelligibility, India is leading in a financial issue present in every government. Though speculation in numbers remain uncertain, the benefits this tax change are limitless in procurement, distribution, and cash flow in a rapidly growing Indian economy.
(1) Roach, Brian. "Tax Revision in the United States." 23. Bd. (1926): 390-412. Taxes in the United States. Tufts University, 2010. Web. 15 Aug. 2016.
(2) "2016 State Income Tax Rates." 2016 State Income Tax Rates. Money-Zine, n.d. Web. 15 Aug. 2016.
(3) Pomerleau, Kyle. "2016 Tax Brackets." Tax Foundation. N.p., 14 Oct. 2015. Web. 17 Aug. 2016.
(4) "Government Has Taken 'one Step Forward' on Retro Tax Issue: Arun Jaitley."The Economic Times. PTI, 2 Mar. 2016. Web. 17 Aug. 2016.
(5) "All About GST in India." EY. Earnst and Young, n.d. Web. 17 Aug. 2016.
Image: © Muan Simte | Dreamstime.com - <a href="https://www.dreamstime.com/stock-photo-rupee-indian-paper-currency-called-rupees-image47386491#res14972580">Paper currency</a>
For decades, American stocks, treasury bonds, real estate, and business investments have provided stable and attractive opportunities for foreign money to grow. The United States’ laws protecting an individual’s financial assets have incentivized foreign investors to trust U.S. markets, to the point where billions of dollars worth of foreign currency are entrusted to foreign wealth funds (1). These wealth funds, in turn, act as investors in American real estate, stocks, bonds, and other financial portfolios, to grow their domestic finances with common citizens' money. This system has been successful for the world economy as a whole, as foreign investors held $6.2 trillion in U.S. government bonds, $5.9 trillion of U.S. stocks, and equity holdings of roughly $6 trillion last year (1). The wealth funds that represent countries such as China and Norway are vital to the success of these American investments and are created with the hope to transfer wealth to their respective country.
Though the idea is to grow foreign national wealth in American markets, this has not been the case with a recent Malaysian wealth fund. Recent U.S. investigations on anonymously purchased, lucrative luxuries have led to a $3 billion case involving the Malaysian sovereign wealth fund and its prime minister, Najib Razak (2). The Kleptocracy Asset Recovery Initiative issued the forfeiture complaint, which revealed one of the largest money laundering cases and highlighted issues with foreign investment. The complaint stated that the “stepson, close friends, and associates of the prime minister diverted more than $3 billion from Malaysia’s sovereign wealth fund” for investment (2). Then, $1 billion of the embezzled funds from the sovereign wealth fund, 1 Malaysia Development Berhad (or 1MDB), were spent on “celebrity-studded parties,” “high-end real estate” (luxurious estates), financing movies (Wolf of Wall Street), and famous paintings (7). 1MDB served as a vessel for material spending, chasing social ranks, and entertaining “clients,” at the expense of the Malaysian government and its people.
When the dust settles and the accusations have all been leveled, those at fault will be confident that they have not done anything wrong. In the U.S. legal system, an asset forfeiture case does not result in criminal charges- only asset seizing (2). “Misinterpreting” or manipulating the flexibility of a law will allow these men to walk away with only their reputation damaged. There exists, then, a blurry line between lawful wrongdoing and justifiable punishment. In many cases such as these, it is the poor and middle class who are victims, as the wealthy are ultimately entrusted with additional financial power and autonomy.
In a technologically driven financial world, investment transparency and buyer identity have become focal points for fear of fraud and insecurity in payment. The 1MDB fund, though under investigation for money laundering, also became subject to $3.5 billion of fraud payments from an Abu Dhabi sovereign wealth fund (3). Likewise, the Malaysian parliamentary committee could not trace a $2.1 billion payment to Aabar Investments PJS Ltd., and another $1.37 billion was sent without the committee’s approval (3). Though this specific fund has a multitude of issues, this severity of financial loss is not only found in governmental entrusted funds, as even presidential candidates, banks, and insurance companies are subject to money laundering (4, 5, 6). Donald Trump, the GOP Leader and presidential candidate, is facing charges from his own real-estate students for fraud (4). Bank of America, the mega-bank on Forbes Global 2000 list, is “liable for countrywide mortgage fraud” (5). This issue is not just limited to foreign funds in the United States, but is apparently prevalent within the country as well.
The 1MDB scandal sheds light on the growing flaws in a new-age financial landscape—one where countless quantities of currency can be traded over a smart-phone or computer, without certainty of identity or confirmation. Buyer identification standards ought to increase, the sources of investment need to be understood, and tracing cash flow requires transparency. Online banking and other investment apps make it easy to transfer money, where fraud and theft can occur. In a recent research experiment, a hacker (hired by a bank) created a few simple lines of code that could have robbed $25 billion from the bank and its mobile app users (8). It’s not just an instance of app development gone wrong, but a trusting source of information in a flawed system. Electronic theft in coding is sometimes left unnoticed, just as embezzlement and other frauds are hidden under fake aliases and identities.
Though legal action and precaution are necessary, human greed and ingenuity are often the culprits in these cases. It is difficult to say what will arise in the legal field, but human nature will always persist. Leaving financial protection up to the law has not, and will not, protect against lost money, often untraceable and uncollectable. Where $1 billion in parties and luxury can make one person’s dream a reality, it can destroy numerous middle class citizens who have invested a large fraction of their assets with an entrusted investor. This Malaysian incident, then, is not only a cry for just action against embezzlers, but also a call for cultural change and systematic restructuring.
(1) Long, Heather. "Foreign Holdings of U.S. Stocks and Bonds Hit Record." CNNMoney. Cable News Network, 1 Oct. 2015. Web. 01 Aug. 2016.
(2) Story, Louise. "U.S. Targets $1 Billion in Assets in Malaysian Embezzlement Case." The New York Times. The New York Times, 20 July 2016. Web. 02 Aug. 2016.
(3) Adam, Shamim. "Malaysia's 1MDB Fund Says It May Be Victim of $3.5 Billion Fraud." Bloomberg.com. Bloomberg, 13 Apr. 2016. Web. 05 Aug. 2016.
(4) Lindseth, Nick. "Judge Tells Trump Lawyers to Prepare for Discovery in Fraud Case." Politico PRO. Politico, 2 Aug. 2016. Web. 03 Aug. 2016.
(5) Raymond, Nate. "Bank of America Liable for Countrywide Mortgage Fraud." Reuters. Thomson Reuters, 23 Oct. 2013. Web. 03 Aug. 2016.
(6) McDonald, Jay. "Insurance Fraud." Bankrate. Bankrate, Inc., n.d. Web. 04 Aug. 2016.
(7) "Wolf of Wall Street Complaint." Scribd. N.p., 20 July 2016. Web. 3 Aug. 2016.
(8) Khandenwel, Swati. "Hacker Finds Flaws That Could Let Anyone Steal $25 Billion from a Bank." The Hacker News. N.p., 17 May 2016. Web. 06 Aug. 2016.
Image: © Wee8088 | Dreamstime.com - <a href="https://www.dreamstime.com/editorial-photo-prime-minister-malaysia-najib-razak-sarawak-chief-minister-adenan-satem-feb-dato-sri-mohd-tun-tan-sri-datuk-patinggi-image71005811#res14972580">Prime Minister of Malaysia, Najib Razak and Sarawak Chief Minister, Adenan Satem</a>
As economic “turmoil” and speculative dismantling of the political system in the United Kingdom continues, the Brexit has created three alternative options for citizens of Northern Ireland (1). As Irish Prime Minister, Minister Enda Kenny, suggests, a vote will be held to decide whether or not Northern Ireland should leave the UK to become an independent state, soften the Irish border and become one territory, or remain in the UK and ride out the economic storm caused by the departure from the EU. All three of these results are a possibility, as voters from Northern Ireland were relatively split in their voting on the UK’s EU Referendum--roughly 55.8% were in favor of staying, while 44.2% voted to leave in a vote that saw a 62.7% voter turnout (8). As religious differences and taxation ideologies are dismantled in light of possible economic collapse, the Irish are engaged in “the most serious, difficult issue facing the country for 50 years“ (4).Though the Northern Irish have cast their ballots, the economic implications of that voting outcome have yet to be determined or experienced by Northern Ireland.
With regard to geography, Northern Ireland is the only country in the United Kingdom that is not physically connected to the rest of the sovereign state. Because of its nature as a colonial empire, the UK still maintains its entire territory as non-equal of its sovereignty. Therefore, Ireland must rely on trade and substantial dependency (20%) of the British economy as both a separate and symbiotic relationship (2). In the current market place, the UK plays a much smaller role (originally 50%) in the success of the Irish economy than they did during their entrance into the EU in 1973 (2). Thus, Britain and Ireland play on each others trades, foreign investments, and labor markets in pursuit of economic prosperity.
Irish exports of goods to the UK account for roughly one-third of their total output, and the separation between Northern Ireland from the UK poses a threat to future trade barriers and limitations (7). Northern Ireland, though physically closer to the UK, does not have the significant trading ports that Ireland possesses (6). With less accessibility to goods at a higher price, a departure from the UK could cause British import volume to decrease by 21.6% (7). With roughly 40% of all agricultural exports from Ireland going to the UK, both Britain and the Irish continue to rely on one another regardless of EU policy (4). In addition, though Ireland has adopted the use of the Euro, the country does £34 billion of trade with the UK alone (4).
This would subsequently affect the labor market, as roughly 10% of all workers in Ireland (assumes unemployment) are stationed in these docks or are involved with companies that ship through these ports (3). With decreasing positions and restriction of movement through the border, over 400,000 Irish citizens have found residency in Britain, seeking offshore jobs (7). Finally, increased pressure on earnings among unskilled and skilled positions could arise, as job competition increases in Ireland.
It is no surprise, then, that the Irish stock market has plunged, as the UK is the top destination for Irish services and second for its exports (4). Foreign investment only further intertwines the two economies, where both currency valuations and market stability affect industry investments. The pound remains 6% down against the Euro, making it less valuable and possibly less attractive for foreign investment (9). However, because of Ireland’s educational systems and market efficiencies, its economy remains as a vital investment opportunity for the British pound and foreign investors (7). Also, British and Irish economies are further connected through debt, as the EU, IMF, UK, Denmark, and Sweden chipped in €67.5 billion for the Irish bailout in 2010 after the international banking crisis (10). Ireland continues to repay its debt with the “second highest debt burden in the world,” but marginally decreased its debt to GDP ratio by roughly 18.1% per year (11). With debt decreasing and the Euro’s value increasing, Ireland still poses as an investment opportunity for the UK.
On July 18, 2016, after a Brexit meeting, Irish Prime Minister Enda Kenny stated the Brexit vote was “clear evidence of a majority of people wishing to leave the UK and join the Republic" (12). Four days later, he said, “There will not be a hard border from Dundalk to Derry” (13). A referendum on the reunification of Northern Ireland and Ireland would alter current tax laws, trade systems, and the currency ratios.
As an overview, Northern Ireland (now part of United Ireland) would have access to the Irish ports with little to no border controls, thus lowering the price of exports. Assuming stable market conditions, Irish exports would increase, thus GDP would improve. With increased GDP, the Euro would likely make a nominal increase in value against other currencies, assuming stable financial conditions. Following the Northern adoption of the Euro, United Ireland would then gain approximately €35.6 billion over the first eight years (14).
Change could begin in the tax system, where the North could adopt the South’s tax rates and regulations on commodities, foreign goods, and institutions. This would likely spur greater foreign direct investment in the North’s economy to stimulate growth (14). A Unified Ireland would assume that currency transaction costs and transport costs would significantly decrease, which would help increase per-capita income (14). The UK would no longer finance Northern Ireland’s fiscal deficit, as the debt would be assumed by the Republic of Ireland (14). Without the need for two separate governments, public sector savings could then be reinvested in infrastructure and government funded projects (14).
Though a Northern vote could push them to join the Republic, the people could also vote the opposite and choose to become an independent entity from both the UK and Republic. Because Northern Ireland would forgo UK policy, its political structure, financial allocation, and resource accessibility would undergo transformation.
Following the Brexit, the British pound plunged, along with the Gibraltar pound. Even with its independence, Northern Ireland would continue the use of the British Pound, despite the pound falling 8% in value (15). The weaker pound will help increase exports, but the trade reforms from Ireland could increase costs of shipping by limiting the number of products passing through (16).
Home to 8.3% of the global market, Ireland is “the most popular destination for offshored business services” (17). With complete independence, Northern Ireland would attract less business entities, and thus less capital. Despite Northern Ireland’s position as a leader in Information Technologies and Software, their global market presence could decrease without access to ports or cheap land.
Future implications of Ireland’s economy have yet to be determined as negotiations continue throughout the UK, but there are limitations within the Irish territory that need to be addressed. When considering reunification, the 310-mile border between Northern Ireland and the Republic pose a threat to trade restrictions, tariff controls, and political conflict (4). If the Northern Irish vote for complete independence from both the UK and the Republic, economic, political, and even geographic conditions must be considered.
(1) Leahy, Pat. "What Does ‘Brexit Nightmare’ Mean for Ireland?" The Irish Times. 24 June 2016. Web. 24 July 2016.
(2) Linnane, Ciarre. "Irish Economy To Be Hurt By Brexit In The Near Term, Says S&P." Fox Business. Fox, 24 June 2016. Web. 28 July 2016.
(3) McHugh, Robert. "'BREXIT' COULD CUT IRISH/UK TRADE BY 20%."Business World. NewsAccess, 5 Nov. 2015. Web. 24 July 2016.
(4) Doyle, Dara. "Brexit Fallout Affecting Ireland More than Any Other EU Country. "The Independent. Independent Digital News and Media, 18 July 2016. Web. 23 July 2016.
(5) "Ireland: Trade Statistics." Global Edge. Michigan State University, 2014. Web. 23 July 2016.
"Sea Ports of Ireland IE." SeaRates. SeaRates LP, 2016. Web. 28 July 2016.
(6) Tracy, Thom. "How Brexit Would Impact Ireland's Economy." Ivestopidia, LLC, 23 June 2016. Web. 28 July 2016.
(7) "EU Referendum Results." BBC News. BBC, n.d. Web. 28 July 2016.
(8) "Brexit: David Cameron to Quit after UK Votes to Leave EU." BBC News. BBC, 24 June 2016. Web. 28 July 2016.
(9) Barbieri, Rich. "EU Unveils Irish Bailout." CNNMoney. Cable News Network, 2 Dec. 2010. Web. 28 July 2016.
(10) Reddan, Fiona. "State’s Debt Ratio Falling at Fastest Rate in the Euro Zone."The Irish Times. 24 Mar. 2016. Web. 28 July 2016.
(11) "Border Poll: Enda Kenny 'Brexit Talks Must Consider Possibility'" BBC News. Northern Ireland, 18 July 2016. Web. 28 July 2016.
(12) "Brexit: 'No Hard Irish Border', Says Taoiseach Enda Kenny." BBC News. Northern Ireland, 22 July 2016. Web. 28 July 2016.
(13) Raphael, Steven. "Modeling Irish Unification." HISTORY OF THE FOUNDATION AND THE RISE OF THE COLLEGIUM TRILINGUE LOVANIENSE 1517-1550: PART THE FIRST : THE FOUNDATION (1951): 659-62. Harvard Club of New York, 17 Nov. 2015. Web. 24 July 2016.
(14) "Pound Plunges after Leave Vote." BBC News. BBC, 24 June 2016. Web. 28 July 2016.
Campbell, John. "How Will Leave Vote Affect Northern Ireland's Economy?" BBC News. BBC, 24 June 2016. Web. 28 July 2016.
(15) Barry, Frank, and Adele Bergin. "Offshoring, Inward Investment, and Export Performance in Ireland." Oxford Handbooks Online (2013). IIS Discussion Paper. Institute for International Integration Studies, Feb. 2012. Web. 24 July 2016.
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Bradley Woolf is a current Junior at the University of Southern California in the Marshall School of Business. He is majoring in Business Administration with an emphasis in Real Estate Finance and minoring in Real Estate and Development. Bradley has worked in both the real estate and financial sectors, where he interned at City National Bank as an underwriter, interned at Strategic Development Advisors, and most recently as a financial advisor for New York Life. He hopes to go into commercial real estate brokerage and is attempting to gain financial experience through Global Intelligence Trust.