Too Much Dividend can be a Turnoff, say Investors

European Companies – Highest Amount of Dividends

European companies have been paying the highest amount of their earning by way of dividends in over 40 years fuelling fear among analyst on whether such kinds of pay-outs are viable. Investors have for a long time dealt with queries of what companies need to do with the escalating cash load, to return it to shareholders or spend it on technology, research and development, top staff or bolting on new business for the future growth.

For the past five years income-hungry investors received dividends from the European firms and the pay-outs offered a solution to the combination of sluggish economic growth, aggressive central bank policy, enabling what had pushed bond yields to record lows and changing stock markets.

However, the growing cut off between earnings as well as dividends together with worries which companies would be adding debt to fund the shortfall was urging a reconsideration of this proposal. Senior research manager at S&P Global Market Intelligence Julien Jarmoszko stated that they were seeing a lot of companies trapped into their dividend policy.As per Thomson Reuters’ data, almost 60% of Europe Inc.’s earnings per share had been returned to the shareholders as dividends.

Cautionary Sign to Companies – Investors to Stop Rewarding Capital Returns

Companies’ partiality regarding dividends is in no small amount fuelled by investors encouraging companies to part with cash due to restricted opportunities for capital spending. However a shift is in progress. Last month’s Bank of America-Merrill Lynch survey of global fund managers, in one of the cautionary sign to companies that tend to borrow to fund buybacks and dividends, had suggested that investors may stop rewarding capital returns to the same degree as done earlier.

Net percentage of fund managers saying pay-out ratios to be `too high’, had been at the highest level since March 2009. Fund managers instead are progressively searching for earnings and rewarding companies which are either reinvesting back profits in order to expand their business or those which have cut pay-outs to protect their balance sheets.

Tim Crockford, lead manager of the Hermes Europe Ex-UK Equity Fund had said that they like companies which do not essentially pay too much of their cash flow out since they have good opportunities of investing in fixed capital, generating higher returns in the future through these investments.

Leaner Balance Sheets Indicates Substantial Shift

Crockford pointed out Spanish Technology Company Amadeus IT and German laboratory equipment company Sartorius as good examples. For instance, Amadeus had spent money for investment in its IT business, making the services of the firm much more appealing to customers like airlines.

In the meantime, some commodity connected firms that had cut dividends in an effort todeal with the slump in metals prices had seen their share prices gathering. Glencore that had lost more than half of its value last year before suspending dividends in September, had profited by 13% since then. BHP Billiton had gained 30% since cutting its dividend in February.

The inclination of accepting lower or no dividends in favour of leaner balance sheets indicates a substantial shift. Besides, it would also signal to European firms that attempts to spend on themselves and getting in front of a pickup in growth would be compensated while stubborn reliance on pay-outs would not.

IMF Says World at Risk of 'Economic Derailment’

Global Economy Faces Rising Risk of Economic Derailment - IMF

The International Monetary Fund – IMF has advised that the global economy tends to face a rising risk of economic derailment. David Lipton, Deputy Director has called for urgent steps to increase global demand. He had mentioned in his speech to the National Association for Business Economics in Washingtonrecently, that they are clearly at a delicate juncture. He warned that the IMF’s latest reading of the global economy indicates once again a weakening baseline.

His comments have come up after weaker than expected trade figures from China portrayed that the exports had plunged by a quarter from a year ago, in February. With the second largest economy of the world often stated as `the engine of global growth’, weaker global demand for its goods seems to be read as an indicator of the general global economic climate. IMF have already mentioned that it would be likely to downgrade the present forecast of 3.4% for global growth when it tend to release in April, the economic predictions. International lender had warned last month, that the world economy seemed to be highly susceptible and had called for new efforts to spur growth.

Downside Risks Clearly Pronounced

Ahead of last month’s Shanghai G20 meeting, in a report, the IMF had mentioned that the group need to plan a co-ordinated stimulus programme since the world growth had reduced and could be derailed by market turbulence, the oil price crash as well as geopolitical conflicts. In his speech in Washington, Mr Lipton had stated that the burden to lift growth falls more squarely on advanced economics which tend to have fiscal room to move.

He added that the `downside risks are clearly much more pronounced than earlier and the case for more forceful and concerted policy action has become more compelling. Moreover risks seemed to have increased further with volatile financial markets and low commodity prices creating fresh concern about the health of the global economy’. A swing of weak economic data had lately been added to these apprehensions and the US ratings agency Moody’s had downgraded its outlook for China from `stable’ to `negative’.

Time to Support Economic Activity

The rising unemployment is also another worry as Beijing tends to slowly shift its economy from over dependence on manufacturing and industry to more services and consumer spending. The economy of China seems to be growing at the slowest rate in 25 years which has resulted in considerable uncertainty in the financial markets all over the world leading to sharp falls in commodity prices.

Lipton has commented that `together with bank repair wherever needed and with adequate targeting on infrastructure, this approach could create jobs and probably reduce public debt-to-GDP ratios in the medium term by motivating nominal GDP as well as support credit and financial stability. On strengthening the global outlook, this coordinated action could hurry healing in the banking sector and prevent continent liabilities for the government which appear in case of inaction.

 Moreover it would also have considerable positive spill-overs to susceptible emerging economics comprising of commodity exporters which would be unable to participate in the fiscal expansion, directly. He added that at the recent G20 meetings in China, he thinks that `there was broad recognition of these risks and priorities and now is the time to support economic activity and put the global economy on a sounder footing’.

How Robots will Kill the 'Gig Economy

Gig Economy – Cease to Exist in 20 Years

According to new report from venture backed start-up Thumbtack, an online marketplace which tends to help skilled workers locate customers, the so-called gig economy would cease to exist in 20 years. The study has forecast that logistic companies from start-ups like Uber right to tech giants like Amazon would be replacing drivers as well as delivery workers with autonomous vehicles and drones.

The study discovered that extremely skilled workers like lawyers and accountants would no longer be assured of jobs at big firms - will be the new gig economy workers. Jon Lieber, chief economist at Thumbtack and Lucas Puente, an economic analyst at the firm had mentioned in a report that `the gig economy known will not last.

 In the past few years, analysts and reports have obsessively focused on transportation technology platforms such as Uber and Lyft and delivery technology platforms like Instacart and the workers required for these on-demand services. The fine focus on low-skilled `gigs’ tends to miss a larger story. The rather commoditized, interchangeable services seem to supplement income, not generating middle class lifestyles. Besides, these jobs are probably going to be automated over a period of time and performed by self-driving cars and drones'.

Autonomous Driving Technology – Reduce Death/Transportation Affordable

Uber had been frank with regards to its plans in replacing drivers with robots over a period of time. An Uber spokesperson informed CNBC that `autonomous driving technology has the ability to drastically reduce deaths in cars, making transportation even more affordable. That it is an exciting future and one Uber plans to be part of, but that transition for technical, regulatory as well as adoption reasons, at scale, would take some time. The spokesperson stated that `in the meanwhile, the focus is providing flexible work opportunities for many people in the world as possible’.

According to Oxford academics Car Benedikt Frey and Michael A. Osborne, around half of U.S. jobs seem to be at high risk of computerization over the next 20 years. Their discoveries had been published in 2013 and are unchanged, but there are some limitations like resistance from stakeholders and relative wage levels which would determine if a job is in fact automated, according to Osborne.

Estimates on how many jobs robots will ultimately displace would vary widely. Forrester analyst J.P. Gownder mentioned in a report that `forecast of 16% of jobs would disappear owing to automation technologies between now and 2025.

Supervised by `Robo-Boss’ by 2018

However that jobs equivalent to 9% of present day’s jobs would be created. Physical robots need repair and maintenance professional, one of the several job categories which would grow around in a much automated world’. From the global point of view, over 3 million workers would be supervised by a `robo-boss’ toward 2018, as predicted late last year by research and advisory firm Gartner.

Osborne has stated that jobs which are least likely to be automated initially are those which need a high level of creativity or emotional intelligence. For instance, school teacher jobs seem to be comparatively safe due to the elevated level of social intelligence needed to teach as well as mentor children.

 The Oxford study found positions which seem mostly susceptible to automation comprise of telemarketers, watch repairer, tax preparers, insurance underwriters, cargo and freight agents and others. In each category, some jobs would be automated very soon. Osborne states that `this gig economy is being pursued via digital platform and is actually getting individuals to automate themselves out of a job by delivering data back to the platform which could be utilised in providing an automated substitute.

After the sell off, stocks may actually be cheap

Sell Off Wall Street - A Silver Lining

Wall Street is finally breathing a sigh of relief after the S&P 500 Index managed to hold on to its first weekly gain of the year. One prominent market watchers had commented that inspite of signs of strength; stocks are still in store for a thundering reset. The ruthless sell off Wall Street had faced during the last few weeks could have a silver lining.

 According to FactSet, the S&P 500 Index is presently trading at around 15 times the earnings; analysts tend to expect constituents companies to post over the next year. This reading is known as `forward P/E on the popular measure of valuation which is compared to a 15 year average forward P/E ratio of 15.7. The conclusion collected from historical comparison is based on the timeframe taken into account.

 It is worth observing, in this case that the current valuation level tends to represent the premium to the average of 14.3 observed over the past five and ten years periods. Since the firm in the meantime is probably using various earnings estimates, IQ of S&P Capital current forward valuation number is 15.7 though they also observed that was under the 15 year average.

Broad Market Trading in Abyss

David Stockman who was the former OMB Director under President Ronal Reagan, is of the opinion that the broad market has been trading in the abyss after breaking beyond 1,870 in 2014, since then with a meagre one percent return. He had commented that they had been there for 700 days and had something like 35 attempts at rallies where all have failed for the `four no’s’. For him the four no’s comprise of a combination of no escape velocity, no earnings growth, no dry powder from the central bank and no reflation.Accompanied together, it leads him to the belief that the U.S. economy seems to be on the point of a full blown recession.

He further adds that they are getting to a point where the chickens are coming home to roost and there is no help from the central banks and that is why these rallies seem to get weaker as well as shorter. He is of the belief that the overflow of easy money from central banks all across the world has shaped a credit crisis which is so severe that it could probable take years to come out of what it has created.

High Powered Money – Enormous Expansion of Credit

Market watchers have pointed out a stunning $21 trillion collective balance sheet built up all around the globe, up from 2.1 trillion only 20 years back. He has said that this is high powered money which has resulted in an enormous expansion of credit as well as financial valuation bubble.

Stockman has observed that the speedy increase of credit has caused debt all over the world of over $225 trillion and has mentioned that they `are at peak debt’. Stockman, at this point considers that the hands of the Fed could be tied up after being on zero interest rates for almost a decade. There is nowhere to go but negative and it is time to get out of the market completely.

The S&P 500 has been progressively in correction territory in 2016and the large-cap index closed the week at around 11% from its 52 week high. However Stockman is of the opinion that it could plunge another 30% from its present trading which takes it back to levels not envisaged since 2012.

How to Create a Scalable Payments System

Creating Effective Fintech Payment System

Generating an effective fintech payment system is much more than removing the credit cards while indulging in transaction. There are several companies, in fintech which tends to build scalable payment methods and as per EY; the largest market in UK fintech is payments which is around £8bn a year.

However payment could be difficult and in order to make money, a new payment source is essential to scale rapidly for economics to function. A proposition is essential which could be considerably convincing for consumer as well as the merchant together with various other players in the value chain. Payment tends to work and though it is not impeccable by any means, all the same it tends to work.

Firstly, one needs to add value to a payment method in order to make an effective business. It was observed that just doing payments seems great though not good enough. Given the option of paying at a restaurant with the phone through contactless, rather than the credit card, the difference would not be big, and one will still need to go through the process of asking for the check and view it. Instead of paying with credit card, one would be paying with their phone and the incentive of using the phone is not strong.

No Need of Paper Vouchers/Loyalty Program

In one intends creating a compelling payment experience, like trying to comprehend the full process, one needs to understand where the discomfort points lies for the customer. For instance the technology has been integrated into restaurant apps enabling consumers in making payments for the total bill amount or split the bill with others through Apple Pay, PayPal or a registered card on a MyCheck account, without the need of waiting for the staff.

Moreover, it also permits sophisticated incentives together with loyalty programs that are designed to personalize the dining experience for the customers. When a customer tends to sit in a restaurant, they would want to check the menu and they can do that through the app of the restaurants which is powered by MyCheck and when he intends to redeem his coupons or offers or even participate with loyalty program, they could do the same through the app.

There is no need of paper vouchers or loyalty cards and the accumulation together with redemption seems to be automatic.

MyCheck Platform is Integrated

And when you want to pay, you don’t need to ask for the check since the MyCheck platform is integrated and one can pay as well as split the bill by utilising the smartphone.When it comes to monetizing an app it is based on what the app intends to achieve. Several of the payment apps have not been generating revenue and the merchant is paying them.

The amazing thing with regards to MyCheck is that they are in partners with chains that they are working with and the partners’ success becomes their success. It is not too difficult in persuading customers in using the app for the first time. The big challenge is on how one makes them loyal, how you tend to drive repeated visits and at the same time provide an improved customer experience.

According to their data, it has been observed that when a user tends to use the app more than twice, they get hooked to it. They need to be convinced to use them twice and then they tend to get used to the experience and appear to like it.

Equity Systematic Investment Plan - SIP

Stocks with good fundamentals are known to be some of the best ways of investment plans and investment in equity stocks has reaped phenomenal returns amongst various other assets if the same has been done in an organized manner with long time horizon. It is very important to select stocks and the right decision of the right price to enter in equity investment where most of the investors often tend to commit errors.

Equity Systematic Investment Plan or SIP is an instrument that tends to help an individual in avoiding the risk of timing the markets and enable wealth development in an organised or disciplined manner by averaging the cost of investments. Saving which tend to be small could create the big corpus in the long run. SIP enables the individual in building a portfolio on a longer time basis with small investment that are done at regular intervals thus reducing the danger of market volatility.

Individuals have the option of choosing between Quantity based and Amount based SIPs, in Mutual Funds, Stocks, ETFs as well as Gold. Quantity based SIP is a type where a fixed amount of quantity of shares of a desired company is purchased at a predefined frequency while Amount based SIP is a fixed amount which can be decided by the individual intending to invest in selected share at predefined frequency.

Disciplined & Long Term Time Horizon

The formula for calculating Quantity is SIP Amount/Market price of the said share. Fractional value is ignored and the order is placed for the remaining quantity. In the case of Quantity based SIP the quantity which is to be purchased is specified by the individual and is fixed at the time of placement of order according to the desired frequency.

The order value is then calculated depending on the usual market price of the scrip while execution of the order. In order to have a long term wealth development through the equity market, it is essential to have a disciplined and long term time horizon that have integral features of SIP. The following features would make an appropriate choice for equity market –

• Disciplined and simple approach to investment
• Based on concept of Rupee Cost Averaging
• Investment possible with small sum of money invested recurrently to mount up wealth
• Flexible intervals like Daily/Weekly/Fortnightly/Monthly basis
• Flexibility with regards to Amount or Quantity based SIP

Avoid Majorly in Aggressive Funds

While investing in equity funds through SIP, though one will gain the rupee cost averaging benefits at the time of the volatile market phase, one should also avoid investing majorly in aggressive funds such as sector, thematic and mid-cap funds. One cannot guarantee better returns in excessive aggression.

On the contrary it could make your portfolio risky and probably disrupting the life stage with regards to investment goals. However, with mid-caps as a section of the portfolio, majority of it could comprise on large cap funds. Individuals often tend to start SIPs without a second thought on the amount they intend to invest comfortably. Often they try to make up for the lost time and then find it difficult to continue with their SIPs after a period of time.

This results in a stop of their investment and their long term life stage goals. Hence with systematic investment plans one should start conventionally and increase their investment amount gradually over a period of time ensuring stability.

SEC Introduces New Money Market Rules Which Might Deter Investors From Investing

The Securities and Exchange Commission has announced few major changes to its money market fund (also known as MMF) regulation. SEC Chairwoman Mary Jo White had emphasised that these new rules are inculcated with an aim of reducing the risk of runs in the money market funds. The new MMF regulation is expected much needed financial stability in the funds market.

However, the Ms. White’s assertion of reducing the risk factor in money market along with bringing in of financial stability is a highly debatable call from any corner.

Detailed Analysis of the New Money Market Rule

The two major rules announced by the SEC related to MMF are:

• a. MMFs can charge a certain amount of fee to withdraw your money or they might even delay paying during the times of stress. 
• b. Second rule allows the share price to change in accordance with the market conditions.

Money Market Funds in general sense are mutual fund with a share price fixed at $1. During the normal and not-so-happening times, the MMF share remains unchanged. Furthermore, MMFs simply invests only in short-term debt which are non-volatile in nature. MMFs also respond to small price changes by adjusting their yield in a dignified manner. But currently we are living in highly unpredictable times with another crisis looming at the horizon. MMFs are also feeling the heat of the moment and bound to face liquidity risk, it is a situation where investors does not buy more as they to sell for raising cash.

Liquidity risk poses a real problem for the borrowers. It basically affects a corporation selling short term debts in order to finance its business operations. At the maturity of each debt contract, the corporation or issuer is expected to sell a new one. If the market sizes up, the corporation could get into big trouble due to lack of investment.

Credit market is often described as a highly unpredictable and volatile where everyone is having it fun until some misses a payment. When they cannot sell up the debt contracts corporation gets into a fix.
How this affects MMFs

This kind of situation is posing a serious threat to the money market funds because they own debts and hold them as their assets. Currently the market value of the MMFs assets are depreciating or falling but their share price is fixed at $1. This simply puts that fund loses more with every redemption. If a large number of redemption is made the remaining investors would end up just holding an empty bag

SEC Comes To Rescue 

Through its second rule, it allows the share price to drop as per market conditions and it saves the investors from the threat o total loss. And with its first rule of imposing penalties it cleverly discourages withdrawals to certain extent.

Through delaying of payments, it prevents the runs, which might occur even with a floating share price and withdrawal penalties. The new rule would come into effect in 60 days, which gives an ample time to the investors to pull their money if they wish to do so.