Category: Money & Finance

Is Apple Pay All Bark, No Bite?



Alternative forms of money transaction are all the rage these days. Or are they?

By most accounts, Apple is the new trendsetter in this space. CEO Tim Cook made an audacious prediction at their January earnings call with investors, namely, that “2015 will be the Year of Apple Pay.”

With that, Apple has reportedly gone full tilt in its effort to attract new retailers to this transaction tool. Questions abound though about whether Cook’s prediction was overly optimistic amid quiet skepticim among retailers, analysts and even consumers. Among the concerns being voiced are lukewarm customer demand, retailers’ lack of access to back-end consumer data and the technological cost borne by retailers in facilitating payments.

Simply An Attention Getter?

Some see Apple Pay as nothing more than a well-orchestrated branding strategy, designed to build loyalty to their iPhone and smartwatch markets. But other industry experts see this as a brilliant move that will slowly take the proverbial bite out of retail transactions facilitated by the likes of Square and others. In the end, it’s apparent that the current buzz around Apple Pay has been less than remarkable, despite the company’s distinction as one of the most preeminent global consumer brands.

Still A Tiny Subset of U.S. Retail Transactions

According to a January 2015 online survey conducted by Verifone and Wakefield Research, mobile wallets account for only about 4% of in-store retail transaction payments in the U.S.

But hold your horses….

It’s still pretty early in the game for Apple. In fact, there are indications at the time of this writing that Apple Pay’s market share is starting to gain traction at a very healthy clip, and that it will demonstrate positive returns by year’s end.

But whether all the pontificating will indeed come to fruition is anyone’s guess. So being the opinionated writer I am, here is my best WAG -“Wild Ass Guess.”

Apple Pay Might Have Bite

And here’s why….

1. Brand Awareness: Apple’s highly recognizable name and worldwide credibility will win out over time. Barring a public relations nightmare, they simply have too much momentum behind them to fail at this.

2. Convenience: Frankly, I am over having to carry all those plastic cards in a wallet that makes the back pocket of my pants bulge. Mobile is the hot ticket these days, and the innovations taking place with the iPhone in this space are too robust to ignore.

3. Security: I asked financial services expert Brett King, author of the book Breaking Banks, for his take on Apple Pay and mobile security. His response: “Hands down, far more secure than credit card transactions.” Okay Brett, we get it!

4. Declining Costs for Retailers: The history of “Moore’s Law” suggests that Apple’s technological advancements in this space will lead to a precipitous decline in costs to merchants and retailers. This will be the tipping point to widespread adoption among businesses and resultant consumer interest.

5. Speed, Efficiency, and Privacy: If they can pull off the triple trifecta of speed, efficiency and privacy, it’s a foregone conclusion that the world will be their oyster.

Now take a bite out of that!

Michael Scott is a libertarian oriented writer located in Denver. He is also a Book Marketing Content Expert for authors seeking to create collisions with readers one book at a time. His work can be found at


The Chinese Stock Market is a Bubble

China Finance and marketThe figures and stories on China’s stock market keep getting higher and crazier. The Shanghai index is now up over 140% in the past year, while the Shenzhen Index is up 185%! Among the slightly more than 1,700 stocks on the Shenzhen Index, only a mere five have declined this year; and individual stock rallies of more than 500% “are not unusual.”

IPOs in China are so hot that recently a company seeking $2 billion attracted bids totaling $273 billion, virtually equivalent to the entire economic output of Hong Kong. Further, shares of the 144 firms that went public this year have averaged a return of 539% so far.

Valuations are looking frothy as the Shenzhen index now trades at approximately 44 times projected earnings, compared to the Nasdaq’s current 23 and the MSCI World Index of 17. The entire market capitalization of the Shenzhen index is now $4.7 trillion, surpassing the U.K.’s entire stock market value.

What’s driving the index to these nosebleed levels? It doesn’t appear to be fundamentals or an improving Chinese economy; rather, it is individual investors opening new brokerage accounts and trading on margin.

Newly opened brokerage accounts have spiked in recent months, while margin financing (borrowing money to trade) has also gone parabolic. A recent Bloomberg story recounted a 28-year old office worker in northern China who travelled 1,000 miles to set up an account in Hong Kong in order to get cheaper trade commissions and lower margin finance charges saying, “I can make more money if I can borrow more.”

Perhaps Chinese citizens have just gotten stock market fever and are getting caught up in the euphoria. Alternatively, it also appears the Chinese government actually had a direct role in creating this hysteria. Last August the state-run media started urging the Chinese public to put their savings into stocks, “espousing the wisdom and patriotism of owning equities.” The government has also reduced fees and now allows individuals to open 20 accounts instead of only one.

But that begs the next question, namely, why does the government want its citizens in the stock market so bad? According to Anne Stevenson-Yang of J Capital Research, a Beijing-based research group, there are two main reasons. First, a bull market will allow heavily indebted firms, many of them state-owned, to swap out debt for equity which they won’t have to pay back.

The second is to provide an alternative to the sagging Chinese property market. It wasn’t too long ago that Chinese savers and investors were stashing their wealth into empty apartment buildings, trying to earn a return or at least keep their principal safe as they didn’t trust the banking system. But the real estate bull market has run its course and now they are turning to the stock market as an alternative.

This is the unfortunate outcome of a country that continually tries to centrally plan economic growth and inflate its economic statistics. Instead of allowing real wealth producing activities to take place, which is messy and takes time and hard work from entrepreneurs, the Chinese government bounces from inflating one asset to the next in order to juice GDP numbers. Chinese citizens are then forced to play the same game in an attempt to preserve their wealth and earn a return on their money.

Chris Kuiper, CFA is currently a student and researcher at George Mason University pursuing a Master’s of Economics. His previous experience includes asset management, investing and banking.

Tax Assessors Go Airborne

drone_tax_assessmentIt’s a plane! It’s a drone! It’s…..the property tax assessor? That’s right, as local governments start to look under the couch cushions for loose change, they have found a more high-tech and lucrative way to garner more tax revenue: use airplanes and high resolution aerial photos to detect property improvements. This method allows them to see improvements such as home additions, extensions, new garages and swimming pools that drive-by inspections could not observe before. They are also more likely to catch those giving false information on their tax assessment forms.

Local governments in the U.S. are now joining other international governments in using aerial and satellite imagery to find more taxable wealth. Already back in 2010 the Greek government was using Google Earth to find unreported swimming pools; they found in the suburbs there were not 324 pools as reported, but actually almost 17,000! The Irish Tax Commissioners also followed suit. Then in 2013, The Daily Mail reported that Officials at Her Majesty’s Revenue and Customs were using Google Earth and Google Streetview to find fancy cars, home additions and new construction in the UK to try to decide whether to investigate homeowners they suspected of paying too little tax. They even reported that tax officials would add extra details to their searches such as people bragging on Facebook about a new car or exotic vacation. The Long Island community of Riverhead also used Google Earth to find pools that were constructed without filling out the proper paperwork or paying the permit fees, bringing the town over $75,000 in fees.

It shouldn’t be surprising that even governments will eventually adopt the latest technology if it means more revenue for them. What is interesting is how these stories illustrate an embedded disadvantage to holding wealth in the form of real estate. Real estate, unlike other assets such as precious metals, almost always carry a real estate tax which is usually assessed annually based on its estimated value. So even if you fully own a piece of property or land, there will still be an annual cost to holding it. Further, if the perceived value of the land goes up, the tax will likely go up as well. Precious metals, held outright, do not have such a tax. Currently the only possible tax would be on the gain realized after selling it; but at least as the value of the metal appreciates, there is no annual tax also increasing.

The other variable with real estate is how the real estate tax or anticipated real estate tax can affect the property’s value. If it is believed real estate taxes are expected to increase significantly in an area, the value of the property will likely decline compared to other areas where the real estate tax is not expected to be as high. An interesting example of this we may see in the coming years could be in Chicago which has expected pension payments to spike in 2016. It is estimated that to fully fund these pension payments, Chicago would have to increase homeowner property taxes by approximately 50%! This isn’t to say real estate will not remain a good option for holding wealth, but it is important to note some of the advantages and disadvantages of location and other factors when comparing alternatives.

Chris Kuiper, CFA is currently a student and researcher at George Mason University pursuing a Master’s of Economics. His previous experience includes asset management, investing and banking.

Venezuela’s Currency Plunges…Again

The bolivar People exchange US dollars and Venezuelahas taken another sharp drop this past month, decreasing nearly 30% and falling as low as 423 bolivars per dollar, down from 279 at the start of the month as Bloomberg recently reported. The current exchange rate of nearly 400 bolivars means the currency has weakened 82% in the past year alone. This of course is the black market exchange rate, as the legal exchange rates still stand at 6.3, 12 and 199 bolivars per dollar (the government has instituted a three tier exchange system).

Unsurprisingly, Bloomberg noted inflation stood at 69% last December, but a recent report by investment bank Bank of America/Merrill Lynch indicates inflation may have reached just over 100% year-over-year this past April. Of course, the analyst of the report had to use both official and private sources to compile the data, as Venezuela’s central bank stopped publishing the consumer price index in December. Even more troubling is a recent analysis by the Cato Institute’s Steve Hanke who found that, using the principle of purchasing power parity, Venezuela’s year-over-year inflation will likely be 510%!

This is nothing new as the bolivar’s severe debasement has been going on since as early as 2011 (and even in the 80’s they were experiencing double-digit inflation already.) What is new according to the Bloomberg article is that the black-market rate is no longer tracking the so-called “implicit rate” which is the number of bolivars in circulation divided by foreign reserves. Starting last year, the black-market rate began to diverge sharply from the implicit rate and is now about three times higher.

Why? Venezuelans believe the debasement will continue far into the future, perhaps even at accelerating rates. As Bloomberg News notes, “To put it simply, it appears that Venezuelans have lost all faith in the bolivar and seem willing to pay whatever it costs for greenbacks.” Indeed, when the last vestige of faith disappears from paper currency, nobody wants to hold any of it at any price. Some people may wonder why you wouldn’t want to hold a currency that is “undervalued” compared to the reserves (such as gold) the country has in the bank to back the currency. Wouldn’t this be like buying a company that is trading for less than what it holds in cash? Yes, in a sense. But if a company is selling for less than the value of its assets or even the cash it holds, then the market is saying something – namely they expect the company to burn through most of that cash or assets, making it worth even less in the future. The same is true for Venezuela. Its citizens now believe its government will continue to print money and deplete any remaining reserves.

The bad news is this will continue to be a disaster for Venezuelans who have already been coping with food and essential goods shortages. But perhaps a silver lining is that the end appears to be near, which will hopefully bring about change and an end to their worthless paper money.

Chris Kuiper, CFA is currently a student and researcher at George Mason University pursuing a Master’s of Economics. His previous experience includes asset management, investing and banking.

Privacy in a Cashless Society

Denmark is quickly approaching the point where cash might no longer be necessary. Legislators recently proposed a law Mobile paymentthat would allow some retailers to only accept digital payments via a credit card or mobile device. If it passes, it’s likely that many brick-and-mortar shops will gladly free themselves from the burden of paper and metal money. Some citizens, on the other hand, are worried about the trackability of non-cash transactions.

This trend is not especially new. Already a third of Danes use MobilePay, an app created by the nation’s largest bank, for making transactions. One report even said that in 2012, 84% of Danish transactions took place with credit cards. Several other European countries have also expressed a desire to do away with cash. For example, in Sweden’s larger cities, the bus systems already restrict payments to digital forms like credit cards and prepaid passes.

Some people are worried about how their privacy will hold up in a cashless society. Right now, paper money is often used as a way to avoid tracking. Records are not essential for cash transactions because they involve the transfer of physical objects. With relative certainty, we can always know who owns the money because we can see who holds the actual paper bills.

Digital money, however, has to be treated differently. Banks and payment processors almost always attach an identity to artificial transactions. In our legacy financial system, that’s the only way to ensure that money doesn’t get lost, duplicated, or misdirected. Many argue that the authorities would have a field day with this kind of information. Electronic databases are extremely easy to search, analyze, and preserve, so the government could theoretically watch where all of our money goes.

Privacy is definitely a legitimate concern, but it’s important to remember that digital transactions do have some serious benefits for businesses.

close up of man counting money and making notesPhysical money is notoriously difficult and expensive (and even unhealthy) to handle, which I can illustrate with a personal anecdote. Like many others, I spent a decent portion of my teenage years working in a fast food restaurant and I remember muttering all the time about how annoying cash was. Without exaggerating, I can say that it often took five to ten times longer to sort bills and count change than it did to swipe a card. That’s a huge factor when you’re trying to serve 120 cars in an hour and it’s only a fraction of the full cost. The owner of the restaurant also had to pay the managers to count money drawers (and the entire safe) several times a day. Then there’s the cost of having bills and heavy change delivered and picked up by armored trucks, and how about touching dirty paper while serving food!

Daniel Brown is the editor-in-chief of You, Me, and BTC.  He’s also the “Everything Elf” at