Economic Impact of Brexit on London’s International Markets

By: Aidan Levi-Minzi

Nearly seven months after the scheduled departure of the UK from the EU in March of 2019, leaders still struggle to come to an agreement over Brexit, and as a “no-deal” exit seems more and more likely, London-based firms are preparing for the worst.

The European Union has granted the United Kingdom another extension just days before its October 31st deadline to leave the multinational bloc after failing to reach an agreement. EU President Donald Tusk said that the 27 other nations of the union have now agreed to give the UK a more “flexible” extension, which will allow the island nation to remain in the EU until January 31st, or leave if it comes to an agreement before then. “This gives time for the UK to make clear what it wants,” said European Parliament President David Sassoli.

Since becoming Prime Minister in July, Boris Johnson’s aggressive efforts to leave the Union have not been successful, as Parliament is having trouble reaching an agreement with the EU. The biggest culprit for the stagnated negotiations are the economic ramifications of Brexit. Here is what a departure from the EU would look like for businesses in London, Europe, and the world:

London is the world’s largest international financial center, generating over £120B ($152B) annually in output due to the global scale of its asset allocation and risk management. It is home to 37% of the world’s currency dealing, with special ties to the rest of Europe. European nations are responsible for a little over a quarter of London’s income, and London provides nearly 25% of Europe’s financial services. For example, around 90% of European interest-rate swaps are bought by London-based bankers. Interest-rate swaps are used to exchange one stream of interest payments for another, which have been used to price bonds sold from the Union’s Central Bank, a critical piece of the EU’s financial standing.

The upcoming election poses two outcomes that will likely damage London’s stake as the world’s international financial powerhouse. If Jeremy Corbyn’s Labour Party wins, it would be the most left Parliament has been since 1945. Mr. Corbyn is planning on implementing financial-transactions tax, more political control over mergers and acquisitions, and capitalisation at below-market, all of which would damage London’s economy. On the other hand, a majority Conservative Party parliament would lead the EU to end the story with a “no-deal” conclusion, thanks to Boris Johnson’s audacious push to leave the union as quickly as possible. London’s economic prowess depends on openness to international financial and human capital, proximity to subsea data cables, elite universities, and, most importantly, stable economic regulation with America and near seamless ones to Europe. These close ties are in jeopardy with the current political landscape.

If Brexit were to take effect, the EU would remove all of the international businesses’ “passports” that allow them to operate across Europe. Businesses will move to other cities within the European Union, such as Paris, Brussels, and Munich. Major international car manufacturers Honda and Ford are already closing major plants in the UK, which has led to a loss of over 5,000 jobs, and UK car manufacturer Jaguar Land Rover announced in January that it would be cutting over 4,500 predominantly UK-based jobs if a “no-deal” Brexit came to fruition. Barclays bank has already moved £166B worth of assets from the UK to EU member Ireland. Lloyds of London, a global insurance company, British Steel, HSBC, and airliner Airbus have all taken the first steps in removing themselves from England.

One possible solution would be to allow London to maintain its financial power by granting it special privileges, allowing international companies to continue conducting their businesses. However, England does not want its largest city to be financially regulated by the EU, and will not agree to a deal that sees the Union taking jobs and tax revenue from the UK while maintaining its economic control over Europe. To put this into perspective, it would be as though New York City and Wall Street were divorcing from the rest of America without any prior agreement to do so.

As Switzerland has found out, an “equivalence” deal, where London-based firms would receive recognition from the rest of Europe, has its drawbacks. In June of this past summer, the bloc announced that the deal, which allowed Swiss equities to be easily traded with EU members, was to expire. Because this recognition can be withdrawn at any time, economic instability becomes a major factor in whether businesses decide to stay or go. This may sound good to the EU, but a group of balkanised economies throughout continental Europe would have to support major companies that have left London. In essence, the ramifications of a more fragmented economy may be more costly to the EU than its capture of business in London.

London still has close ties with America, and it will do everything necessary to remain amicable with Europe. Businesses based in London should also begin to increase their revenue from non-European business partners. According to Lord Ashcroft Polls, nearly 33% of those who voted to leave said they did so in order to “regain control over immigration and its own borders”. These 12,369 voters should keep in mind that, as London loses her business allies, having a diverse global industry is a blessing, not a curse.

Works Cited:

Image Link:

Ashcroft, Lord. (2016, June 24). How the United Kingdom Voted on Thursday…and why. Lord Ashcroft Polls. ted-and-why/

Dwyer, C. (2019, October 29). Rain Chexit: European Union Grants Brexit Delay To U.K. — Again. WBUR. Retrieved from /774031088/rain- chexit-european-u nion-grants- brexit-delay-to-u-k-again

Kuepper, Justin. (2019, April 15th). Interest Rate Swap Definition. Investopedia. Retrieved from

Mahmood, Basit. (2019, September 23). All the companies that have collapsed or moved abroad since Brexit. Metro UK. es-collapsed-move d-abroad-since-brexit-10795029/

The Economist. (2019, June 27th). Can the City Survive Brexit?. Retrieved from https://ww

Portes, Jonathan. Forte, Giuseppe. (2017, March 10). The economic impact of Brexit. Oxford Review of Economic Policy. Retrieved from uppl_1/S31/3066076

British Airways Loses Over £137 Million (176 USD) Due to Pilot Strikes

By: Lavinia Ding

Will widespread strikes take a toll on British Airways?

In early September, a strike involving over one hundred pilots resulted in 2,325 cancelled flights and around 30,000 inconvenienced passengers. British Airways pilots walked out for 48 consecutive hours in culmination of a long-running pay dispute, marking the first walk-out in roughly fifty years. The trade union responsible for the strike, British Airline Pilots Association (BALPA), had previously stated that British Airline’s management’s contemptuous treatment of its pilots and insufficient pay remuneration instigated the walkout.

The strike, which was supported by 93 percent of the airline’s pilots, came after the airline declined the union’s request for an 11.5 percent pay increase. In a statement, BALPA contended that the strike was a last-resort measure arising from “enormous frustration at the way the business is now being run.”

In a preventative measure to circumvent paying compensations to passengers under European air passengers’ rights rules, British Airways cancelled thousands of flights over two weeks in advance.

Although the strike was planned to continue until September 27, it was prematurely called off on September 18 in an effort to support bilateral negotiations on the part of BALPA pilots. BALPA released a statement that it “has tried to remain reasonable during this dispute and offered a compromise to [British Airways] on 4 September, and then on 18 September [they] called off the strike planned for the 27 [sic] September to allow for a period of reflection.” The company proceeded to reinstate roughly half of its flights.

These strikes could have a massive and unprecedented impact on the full-year profit of British Airways overall; 48 hours’ worth of strikes could mean a 6% decrease in profit. Additionally, the impact on IAG shares (International Consolidated Airlines Group), could adversely affect stock prices in the future.

British Airways pilots reportedly had a salary of an estimated £167,000 prior to the strike. In response, BALPA stated that pilots had taken pay cuts following previous financial crises to compensate for recessions and maintained that their request was “fair, reasonable, and affordable.”

BALPA claimed that an additional £5 million in salary would have been sufficient in preventing the strikes altogether. British Airways, however, contended that the demands would have actually cost the airline an additional £50 million.

Overall, strikes prove to be extremely damaging not just to airline profits, but to the overall economy and to customers as well – regardless of lenient cancellation policy.

Works Cited:

Image Source:

Strydom, M., & Walsh, D. (2019, September 27). British airways pilots strike knocks €137m off profit. Retrieved from The Sunday Times website:

Mallinson, H. (2019, September 27). British Airways: BA cancels 400 flights – despite pilot strike not going ahead. Retrieved from Express website:

Kollewe, J., & Topham, G. (2019, September 26). Blaming pilots for ailing profits could lead to more strikes, BA told. Retrieved from The Guardian website:

Disis, J. (2019, July 23). British Airways pilots threaten first strike since the 1970s. Retrieved from CNN website:

Berlinger, J., & Ziady, H. (2019, September 9). Nearly all British Airways flights canceled as pilots go on strike. Retrieved from CNN Edition website:

Liao, S. (2019, August 24). British Airways pilots will strike for three days in September over pay dispute. Retrieved from CNN Edition website:

Nguyen, T. (2019, September 11). A brief history of airline worker strikes. Retrieved from Vox website:

Topham, G. (2019, September 5). British Airways spurns olive branch from pilots’ union. Retrieved from The Guardian website:

Reselling Your Gucci Shoes

By: Esha Deokar

How will the expanding resale market affect luxury brand consumption and sale?

What does high fashion look like in the resale market?

If you keep up with fashion trends, chances are you’ve seen a couple of pieces you want, but they might be slightly out of your price range. You may decide to trade in a last season Gucci purse, and use the money for an Hermés. The advent of the resale market allows you act as both the consumer and the supplier. For most customers, if you can get a near-pristine handbag or pair of sneakers for cheaper, the “secondhand quality” won’t matter to you. Many consumers are opting for gently used designer items instead of purchasing them for full price at the stores. The resale market has expanded to luxury brands due to the consumer demand for faster, more convenient, and cheaper service, i.e. Uber or Postmates. 

The Economics of the Resale Market

It may seem odd that the newest trend in luxury clothing is the fact that it is secondhand. However, this trend actively decreases demand for the new goods market. The high fashion industry operates in a monopoly; haute couture brands –– official members of high fashion houses and their invited guests –– control trends and set expectations for the next season of fashion. Consumers see each season as relatively fluid, since the style is so similar, and thus the products are interchangeable by high fashion brand. If we assume that, over a period of time, the value does not depreciate — they remain luxury goods — and the demand remains the same, a problem rises. The high fashion pieces are seen as “good for one period,” which leads to resales. There are more than 25,000 resale shops in the United States. The resale industry has an annual revenues of $17.5 billion, projected to increase to $64 billion by 2028. For example, in 2018, The RealReal –– a fashion company solely founded on resale –– went public in the stock market, claiming nearly $1 billion of consignment payouts since its start.

Leading Resale Sector Players, ThredUp, James Reinhart, 2019, Graph,

Economics of the Fashion Industry

Luxury consumption can be explained using two main effects. The Veblen effect looks at consumers’ perceived value of the object as their impetus for purchasing it. In luxury goods, the Snob effect deals with the unique value of the product and its perceived exclusionary value from the public. While some argue that the two effects are one and the same, the value of the resale market is more dependent on the Veblen effect and its rule over luxury brands.

Prestige seeking consumer behavior, Vigneron and Johnson, 1999, Graph,

In the figure, the value of the good is described through two factors: price perception as prestigious and public awareness. The Veblen consumer places high value on the price perception and the public’s awareness of the product. The Snob consumer, on the other hand, places more importance on solely the price. Thus, for the Snob consumer, when the price points decrease, their demand does as well. This is because more consumers will be able to buy it and the product would no longer be “private.” The resale market veers away from the Snob customer due to the fact that it makes these products more accessible and attainable. Veblen customers, conversely, would choose the resale market over the new goods market due to a discounted price that disproportionately affects secondhand products’ depreciation.

The Resale Market and Consumers

When a new product is released by a high fashion company, they control the price and quantity available. For most goods on the resale market, consumers have complete control over both of these facets. This creates a market known as perfect competition, where a theoretically infinite range of suppliers sell “identical” product. For this reason, a secondary market price manifests independent to individual demand: a designer jacket sold for $15 more than the commonly-sold price would attract no buyers. This is the case for most secondary market hubs. For example, a pair of Balenciaga shoes on a secondary market such as StockX are sold with a set equilibrium price displayed.

Balenciaga Speed Trainer Black White, StockX, 2019, Graph,

Resale hubs accurately display fluctuations in the price of a good: at any given time, nothing would sell above the maximum price, and anything sold below the price demonstrates inefficiency.

New Goods Market vs The Resale Market

The idea that consumers would go from one market with no price control to another may confuse some. However, the perfection competition price control ultimately benefits consumers attempting to experience high fashion since these price points more accurately affect consumers’ wants and needs. The consumers believe that the price more accurately affects the products’ merits: if the product in question looks damaged, the price will go down. Similarly, if the product is highly coveted, the price will rise. In a new goods market, however, the producers set the price independent of consumer beliefs. As a result, the resale market proves to be a growing way for many Veblen consumers to engage in high fashion.

Works Cited:

Image Source: On the Resale Market, Gucci is Now Out-Selling Even Chanel, Amanda Mull, 2018, Photograph

Burrell, Ian. (2014). How The Internet Has Helped Break the Big Name Monopoly. The Independent. Retrieved from

Cayseele, P. Van. (1993). Lemons, Peaches, and Creampuffs: the Economics of a Second-Hand Market. Journal of Economics and Management 38(1). Retrieved from

Verdon, Joan. (2019). The Rise of the Resale Market. U.S. Chamber of Commerce. Retrieved from

Friedman, Vanessa. (2018). Why We Cover High Fashion. New York Times. Retrieved from

Narts. (n.d.) Industry Statistics and Trends. Retrieved from

Reinhart, James. (2019). ThredUp 2019 Resale Report. ThredUp. Retrieved from

Global Market of Plant-Based Protein

By: Sylvia Lin

The plant-based protein start-up Beyond Meat’s shares price soared 163% on the first trading day. What does the future hold for this new company and the recently trendy plant-based “meat” market?

On their first trading day, shares of Beyond Meat, the plant-based protein start-up company, soared 163%. In the following month, the shares price increased by more than 600%. Beyond Meat is a California-based company that manufactures plant-based burgers and sausages; it is also the first company that only produces plant-based “meat” to go public. (1) However, the plant-based protein industry is about to get crowded. (2) Beyond Meat’s former investor, Tyson, sold its 6.5% share –  worth an estimated $79 million – a week before Beyond Meat went public, and opened its own plant-based protein line. (3)

Other traditional meat-oriented companies are following Tyson and launching their plant-based protein lines. For example, Nestle, the world’s largest food company, announced that it would launch its own plant-based protein line called the Awesome Burger; Hormel Foods, known for its Spam canned pork, is also launching a meat substitute under its new Happy Little Plants brand. (4) These leading companies in the food manufacturing industry clearly all see the potential of the market. Indeed, global sales of plant protein increased from around $21700 million in 2013 to $36300 million in 2018, which was a 67.3% increase in sales. Increasing supply comes with growing demand. Between March 2013 and February 2018, numerous new products that featured at least one plant protein ingredient entered the global marketplace.

Manufacturers responded to this trend enthusiastically, resulting in a double win for consumers – both the availability of plant-based food greatly increased, and the price for plant-based food dropped due to increased scale of production.

However, the plant-based protein market has to face the challenges that come with popularity. In the past when there weren’t many options for vegans and vegetarians, they had to accept the bland taste, strange texture, and long ingredient lists of plant-based foods. As more and more flexitarian(someone who mostly consumes a vegetarian diet, but occasionally consumes meat) consumers and even traditional meat eaters have started to turn to plant-based food, expectations have also changed. These groups of consumers are accustomed to high-quality food choices and hold the same expectations for plant-based food. They focus on the taste and texture of the food, as well as the nutritional value of it, and prefer a shorter list of ingredients that they can recognize and understand. What’s more, there are life-long meat and dairy consumers who are reluctant to turn to plant-based food, but feel like they “should” do it either because of the trend, advice from health professionals, or encouragement from environmental activists. These consumers generally expect plant-based meat to taste, smell and look exactly like real meat.

Another type of plant food consumers are the millennials, who have turned to plant-based food due to ethical concerns and social media trends. These consumers eat plant foods not just for sustainability reasons, but also because of the “feel-good” value associated with the lifestyle, enabling them to feel like they are living a purpose-driven life. This market segment responds to the appeal that plant-based foods generate social media attention by providing vegetable-based products instead of meat-substitutes. These  kind of plant-based dishes don’t pretend to be something they’re not; they want to look like they are obviously made  of lots of vegetables for the implications of consuming them.

These consumers of plant-based food and beverages were first most common in North America and mainly consisted of millennials and younger women, but the consumer group has greatly expanded both in terms of gender and geographical location. Nowadays, plant-based foods have increasing appeals to men who seek health products too. Geographically, in other parts of the world, specifically in Asia Pacific, the Middle East and Africa, some well-educated young consumers are also adopting a plant-rich diet.

In general, well-educated, young consumers are leading the trend of plant-based food, with wellness seekers also contributing to the market. The rapid growth can then be attributed to changing lifestyle, growing trend of wellness and the awareness of environmental aspect of consuming meat, as well as people’s increasing consciousness of their health. Start-up companies like Beyond Meat seized the chance and went public, whilst traditional food processing companies such as Nestle, Tyson, and Hormel Foods also followed the trend for the potential of the market. However, since the plant-based protein market is still relatively new, it still has a long way to go.

Works Cited:

Image source:

Durbin, D.-A. (2019, May 2). Beyond Meat Goes Public as Plant-Based Foods Are on the Rise. Retrieved from

Zhang, N. (2019, September 14). How Beyond Meat’s Stock Surged 500% in 2019. CNBC. Retrieved from

Fassler, J. (2019, June 18). After ditching Beyond Meat, Tyson Foods announces plant-based brand of its own. Retrieved from

Siegner, C. (2019, September 5). Hormel grows into plant-based meat with its new Happy Little Plants brand. Retrieved from

Cassity, J. (2019, September 9). The State of the Global Plant-based Protein Market. Retrieved from

Global Plant-Based Protein Market to Reach $14.32 Billion by 2025, Growing at a CAGR of 8.1% – (2019, August 23). Retrieved from

US Manufacturing PMI Shows Sign of Slowdown and Recession

By: Aidan Levi-Minzi

The US-China Trade War to blame for purchasing managers’ poor outlook on future economic growth, specifically in the manufacturing sector of the economic indicator.

Although there is no one definitive way of accurately determining the economic future of the United States, tools such as the Purchasing Managers Index (PMI), a gauge for economic trends in certain sectors, allows us to get an idea of what could potentially unfold in the oncoming years. The PMI is considered a critical decision-making tool for managers and investors alike.

PMI is determined through the monthly surveying of Purchasing Managers spanning over 400 companies. By analyzing factors such as new orders, inventory levels, production, supplier deliveries, and employment, they project the direction their prospective sector is headed. Taking these factors into consideration, these managers are then asked to decide whether they believe the market is expected to improve, deteriorate, or have no changes.

The percentage of each answer is multiplied by a score of 0 (deteriorating), 0.5 (no change), or 1 (improvement), giving it a score between 0 and 100. The PMI affects both producers and consumers, as companies in a sector with a PMI of above 50 will usually increase their production, and investors will use it as an indicator of economic conditions. In essence, the PMI is an essential tool for those looking to see how the managers of a certain industry expect the future to unfold.

A reading of the United States’ manufacturing sector has shown its lowest reading in nearly ten years for the month of September. According to the Institute for Supply Management, the PMI for September was at 47.8, after an expected 50.2, marking the lowest reading since June 2009, a little less than a year after the 2008 market crash. Usually, any signal below 50 is expected to be a sign of a recession (not the first indicator of the past few months). In the past 12 months, the highest recorded PMI was in November of 2018, with a reading of 58.8, and the previous month (August 2019) was 49.1, the first below the 50-mark of since August 2016.

President Donald Trump has blamed the Fed’s high rates and a strong US Dollar (compared to competing currencies and markets in Europe and China) for the low score. However, a contraction in new imports has been ongoing since June 2019, which has caused a “cautious sentiment regarding near-term growth”, according to ISM Chair Timothy Fiore.

Another concerning aspect for investors was the measurement’s employment gauge, which had its lowest reading since January of 2016. Torsten Slok, the chief economist of a struggling Deutsche Bank, said that “the recession risk is real”, followed by, “there is no end in sight for this slowdown”, in a note after the report.

The negative outlook caused by poor readings on employment and imports has led many CEOs to implicate that the now escalating trade war between the US and China is playing a significant role. This is backed up by the Caixin/Markit factory PMI, or the Chinese equivalent of the Institute for Supply Management, being at 51.4 for the month of September. Experts believe this is caused by the increase in domestic demand for Chinese goods as foreign sales, specifically from the US, have taken a hit in recent months.

The Chief Financial Economist at MUFG Union Bank said, “purchasing managers are telling stock market investors to get out. Run. Run for your life.”



Institute for Supply Management. (2019). September 2019 Manufacturing ISM. Retrieved from

Li, Y. (2019, October 1). US Manufacturing survey shows worst reading in a decade. CNBC. Retrieved from acts-to-worst-level-in-a-decade.html

Lee, Yen N. (2019, September 29). Two indicators for China’s manufacturing activity beat expectations. CNBC. Retrieved from my-official-caixin- manufacturing-pmi-for-september.html




Sweet Nothings: The Cruel Irony of Quebec’s Maple Syrup Gold Rush

By: Roshni Rangwani

Since 2004, The Federation of Quebec Maple Syrup Producers’ (FPAQ) quota system has brought price stability to a notoriously volatile global market — but its long-term challenges are mounting.

The maple syrup industry is one that seems remarkably predisposed to the formation of cartels. Between the sugar maple’s naturally limited range along the Atlantic seaboard and its fickle yield season-to-season, producers have both the means and incentive to band together to weather boom-and-bust cycles. Enter FPAQ, a government-sanctioned private organization that exclusively regulates the production and sale of Quebec’s syrup. Given that the Canadian province yields 71% of the world’s output, this translates to enormous market power. By assigning each farm quotas, FPAQ restricts supply to stabilize prices and stockpile surpluses for the future. It also heavily markets its members products domestically and abroad (most recently experimenting with a children’s website for its caped mascot, “Siropcool”), charging them a fee for the service. 

While theoretically beneficial, the system is not flawless. For instance, when reserves ran dry in 2008, the panicked FPAQ was forced to ask producers to add extra taps to trees mid-season. Moreover, many producers resent that FPAQ and the local government enforce mandatory participation in a system that cannot guarantee when they will be fully paid for stockpiled syrup. Although both institutions insist that the majority of members benefit from quotas, a 2016 study by the independent Montreal Economic Institute disagreed. It concluded that ignoring the protests of “maple rebels” had supported the rise of a black market aimed at less regulated neighboring provinces and the U.S. In fact, FPAQ’s drastic countermeasures, including posting 24/7 guards at the expense of the farms being surveyed or issuing exorbitant fines per pound sold beyond quotas, have driven many producers into financial ruin. More bizarrely, the burgeoning black market and surplus system also fueled the “Great Maple Syrup Heist of 2012”, when over 12% of the stockpile was siphoned and replaced with water. Since a maple syrup barrel is worth about a whopping 20 oil barrels, this amounted to the theft of over 13 million USD!

Ironically, some of FPAQ’s efforts have given its competitors a boost in the industry. Thanks to its policies, producers in the U.S. and other provinces have been able to free-ride on the price stability assured by FPAQ without having borne any of the constraints faced by their Quebecois counterparts. Just as OPEC’s restriction of oil supplies can make unusual deposits profitable, FPAQ have helped their less experienced competitors secure easier loans and expand faster on the back of stable future incomes. The results are startling: while a mere 10 years ago, Quebec sold 78% of the world’s maple syrup, that percentage has already fallen to 69%. Since New England actually has four times as many maples as Quebec, it remains to be seen whether FPAQ can maintain its syrup supremacy in the future.

Works Cited:

Image Source:

Cohen R. Inside Quebec’s Great, Multi-Million-Dollar Maple-Syrup Heist. Vanity Fair.

Edmiston J, Hamilton G. The last days of Quebec’s maple syrup rebellion. National Post.

Moreau A. Maple Syrup: Quebec Is Hurting Its Producers and Encouraging Its Competitors. IEDM.

Shackford S. New York could reap $80M more a year in maple production. Cornell Chronicle.

Siropcool. Siropcool.

Smith SV, Lindholm J. How Quebec’s Maple Syrup Stockpile Can Impact An Entire Global Industry. NPR.

Statistical Overview of the Canadian Maple Industry 2017- Food Canada (AAFC).


Surveying the Current IPO Landscape

By: Sasha Aiev

In an era of startup proliferation and huge private valuations, the public markets seem to be at odds with the times.

The month of September was a rough one for New York City-based real estate firm WeWork. When the company first revealed intentions to go public over a month ago, its valuation was placed at $47 billion based off large investments from holding companies and banks. This $47 billion quickly turned into $30 billion, then $20 billion, and then no billion as the company cancelled its IPO due to pressure from lead investor Softbank.

This story received plenty of coverage in the media, and most pundits offered two potential explanations for WeWork’s collapse following press releases confirming the company’s plan to go public. First, heightened scrutiny of the company on the part of journalists and bankers revealed questionable management by CEO Adam Neumann, in terms of stock management and distribution of equity amongst his employees. Second, potential investors were deterred from taking positions in the IPO after close examination of WeWork’s company financials disclosed low net profits and substantial debts, neither of which supported an overall valuation in the tens of billions of dollars.

In terms of mismanagement, it is true that Adam Neumann made some poor executive decisions, such as selling stock options prior to the IPO taking place and taking questionable measures to increase his personal stake in the firm. Moreover, it is also true that the company had a staggering price-to-sales ratio of 27 with their initial valuation of $47 billion, while reporting a net profit of only $200 million in 2018 due to $1.6 billion in losses. Nonetheless, a valuation decrease of $27 billion is very significant and these facts do not single-out WeWork as a particularly bad investment, as net losses and irrationally high P/E ratios are somewhat commonplace in the modern business world. There are plenty of other companies with less-than-ideal management and financials which are doing well on the public markets. Amazon’s stock, for instance, has increased 50% from the beginning of 2018 despite having a current P/E ratio of around 80 (which has gone north of 300 in the past), and Dunkin Brands’s stock has grown 23% this year while maintaining a P/E above 25. These are just a few cherry-picked examples, but a few minutes of research will reveal plenty more companies whose stocks have performed fantastically in spite of precariously-high P/E ratios or excessive net losses.

Another consideration is that WeWork is only one of many disastrous IPOs in recent months. Uber, for instance, is currently trading 30% below its initial IPO price from May 2019. Slack’s stock has dropped nearly 40% in the four months that it has been public, Fiverr International’s stock has fallen 34% since its June 2019 IPO, and Peloton (a celebrity-endorsed fitness and personal health brand which went public just two weeks ago) has seen its stock fall more than 10%. The keen reader will note that all four of these 2019 IPOs involved established, popular private companies with huge customer bases, and all four were highly anticipated going into this year. Uber’s stock performance embodies this disparity best, as Uber has been able to disrupt the entire taxi and transportation industry while simultaneously struggling to gain value on the public markets.

Beyond Meat is one notable exception, as the company’s stock is currently trading at 110% above its initial asking price, and was at +251% at its peak.

However, if you look at the list of all IPOs in the second half of 2019, you’ll notice that the majority currently trade below their initial offered price. Not the great majority, but definitely the majority.

So maybe WeWork’s failed IPO was really just a reflection of poor management and business strategy, or perhaps it was a reflection of a greater problem in the world of private companies going public.

If the latter is true, then why is there such a disparity between private valuations and public stock performance, and what does this mean for the market at large?

The answers vary depending on who you ask. The New York Times claims the poor IPO performance stems from years of private investors in Silicon Valley “spoiling” emerging companies; in other words, there has been a startup bubble in the U.S which is slowly beginning to deflate. CNBC claims investors are becoming more conservative when it comes to companies selling stories of potential growth and earnings, rather than selling figures of current growth and earnings (WeWork is a clear materialization of this theory). Others postulate that it has nothing to do with the companies themselves, and has everything to do with an increasingly bearish market due to trade conflicts with China and imminent Federal Funds Rate hikes.

It could also very well be a product of all three theories. It seems investors are being more cautious about companies with dubious valuations backed by insufficient earnings, and this could be a product of greater apprehension in the markets. During time periods when the market is pervaded with positive sentiment, as it was in 2016 or 2013, investors tend to be less focused on carefully scrutinizing company fundamentals than they are on not missing out on widespread profits. In years like these, companies like WeWork would fare much better as they could ride the wave of market growth. So, when hot, trendy companies like WeWork or Uber or Fiverr fail to perform on the stock market, this is a signal that the stock market is not growing blindly. There’s certainly more nuance involved, but this is a general truth which cannot be ignored when analyzing the current market atmosphere.

While this is going on, the startup bubble is still alive and well, as there are around 200 startup unicorns globally with a combined valuation of $861 billion. This valuation seems great, until you realize that this year’s IPO class is the least profitable in terms of earnings since 1999, according to CNBC.

So, what this all tells us is that there currently exists a clear disagreement between the private market and the public market. Now, the question for investors to ponder is which market will follow which.

Works Cited:

Cover Photo Source:

Meisenzahl, M. (2019, September 24). WeWork: Timeline of Events Since the Company Filed to go Public. Businessinsider. Retrieved from

Rodriguez, S. (2019, September 9). Softbank Asks WeWork to Shelve its IPO. CNBC. Retrieved from

Hernbroth, M. (2019, July 19). Ahead of its IPO, WeWork’s Adam Neumann Reportedly Sold Shares he Owned in the Company and Took Loans Worth $700 Million. Inc. Retrieved from

Trainer, D. (2019, August 27). WeWork is the Most Ridiculous IPO of 2019. Forbes. Retrieved from

Olson, A and Bussewitz, C. (2019, August 14). WeWork: Finances Show Revenue Growth, Big Losses. USA Today. (2019, October 13). Fundamental Data [Data File]. Retrieved from (2019, October 11). Dunkin’ Brands PE Ratio 2010-2019 [Data File]. Retrieved from

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Saudi Arabia & The Pursuit of Tourism

By: Juan Pablo Rossi

In spite of Saudi Arabia’s release of a new tourist visa and the kingdom’s increased efforts to popularize tourism, there has been a great deal of international controversy over the kingdom’s human rights violations and hyper-conservative culture.

For the first time since its foundation, the Kingdom of Saudi Arabia has opened its borders to international visitors seeking leisure. Previously, Saudi Arabia only allowed visitors who came to the country for either business or religious reasons, and even then, they were restricted to accessing only a few cities, albeit influential ones. In spite of the limited access to the rest of the country, Muslim pilgrims from all over the world coming to the Kingdom to visit the holy sites of Medina and Makkah have made Saudi Arabia a very popular destination in the Middle East, receiving at least 16 million people every year since 2012.

The Kingdom is famous for its oil reserves and refineries, which continues to be the biggest economic activity in the region. However, just as many of its neighbouring countries such as Qatar,  Oman, and the UAE are doing, Saudi Arabia has started to diversify its main sources of income and has subsequently moved towards incentivizing the pursuit of tourism. This focus on alternative industries becomes apparent when one sees how their oil rents as a percentage of their GDP has fallen by 24 percentage points since 2012. In the same time period, unemployment has been steadily increasing and economic growth has remained relatively stagnant, making the untapped tourism market seem like a fruitful opportunity for the kingdom.

On September 27th, Saudi Arabia released a new type of tourist visa that allows all accepted tourists to stay for a maximum of 90 days per visit. With this new kind of visa, visitors from 49 different countries can apply electronically through an official Saudi website, including the United States, Canada, China, Japan, Australia, and most EU member states, among others. People of other nationalities can apply for a tourist visa through their local Saudi embassies.

On the same day, the Saudi government signed an agreement to invest 4 billion Riyals ($1.07 billion) with Oyo Hotels & Homes to build luxury and mid-scale hotels around the Kingdom, further expressing its desire to boost interest in its tourism sector. The country’s fixed exchange rate policy, which has remained at 3.7500 Riyals/Dollar since 1986 also serves as an attractive tool for foreign investors. This is because multinational companies (particularly in the hotel and entertainment sectors) will face less risk of uncertainty as the Riyal is protected from currency speculation and inflation.Picture2

The World Travel & Tourism Council (WTTC) has also signed a partnership with the Kingdom, with the expectation for it to become “a top-five inbound destination, with 100 million international and domestic visits by 2030.” This ambitious goal is backed up by a massive advertising campaign, which has soared around the globe in the past couple of days. Many ads started to appear frequently on websites such as YouTube and Facebook, and there’s even a giant billboard on the One Times Square building all advertising the new tourist visas. On Friday, October 11th, one of the most famous K-pop bands, BTS, held a concert in Riyadh, selling out the 60,000 people stadium.  Similarly, many influencers and Youtubers have been paid to visit and make posts about the country’s culture and natural beauty.

However, many of these advertising initiatives have received massive backlash on social media. Influencers such as Alyssa Bossio, Lana Rose, and Tara Whiteman, as well as various YouTubers and the aforementioned BTS, have received criticism for promoting tourism in a country that has been condemned for various human rights violations such as the mass execution of 33 Sunni terrorists in April and last year’s assassination of Washington Post’s journalist Jamal Khashoggi.

In addition to these violations, another concern about visiting the country arises from its hyper-conservative culture, which practices Sharia Law based on Wahhabism, and has criminalized  acts such as drinking alcohol, the free display of religion other than Islam, and homosexuality. Earlier this year, Saudi Arabia announced a new “public decency code,” which will allow officials to issue fines for offenses related to immodest dress code, public display of affection, queue skipping, playing music during prayer time, amongst others. Even though the country has recently relaxed some of these laws, as it now allows non-married heterosexual couples to share a room in a hotel, many speculate these changes will not be enough to incentivize large-scale tourism in the country. Other countries in the region, such as the United Arab Emirates, have successfully developed their tourism sector by relaxing some laws in relation to alcohol and religious freedom, increasing the number of visitors in the cities of Abu Dhabi and Dubai.

Nevertheless, in spite of these concerns regarding human rights violations and Saudi Arabia’s hyper-conservatism, the kingdom of Saudi Arabia has reported that it had already received 24,000 tourists through the new visa system in the first 10 days after they have become available. Whether the implementation of tourist visas makes a significant change in the economic structure of the country or not will be something to look out for in the months to come.

Works Cited:

Image Source:

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Hamdi, Raini (2019, October 8) Saudi Arabia’s New Tourism Frontier Explained. Skift.
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World Bank Data (2017) Oil rents (% of GDP) – Saudi Arabia Retrieved from

World Bank Data (2017) Unemployment, total (% of total labor force) (national estimate) –Saudi Arabia Retrieved from

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Mzezewa, Tariro (2019, September 27) Saudi Arabia Invites Tourists: What You Need to Know. The New York Times. Retrieved from

Ray, Cory (2019, October 7). Influencers Face Backlash for Saudi-Sponsored Tourism Posts. Rogue Rocket. Retrieved from

BBC News. (2019, October 11) K-pop stars BTS perform in Saudi Arabia.BBC News. Retrieved from

WTTC (2019, September 27) World Travel & Tourism Council and Saudi Commission for
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Comeback Story: AMD’s Revival of Consumer Electronics and Mindshare in the Industry

By: Zachary Xue

With past setbacks and rumors of bankruptcy at their feet, semiconductor corporation Advanced Micro Devices (AMD) is here to stay under new management from CEO Lisa Su and her vision of the consumer electronics industry.

In 2012, semiconductor corporation Advanced Micro Devices (AMD) was at a crossroads between bankruptcy and stagnation. At the turn of the century, AMD was one of the world’s leading developers in computer processors for both the consumer and business markets. They produced central processing units (CPU), graphics cards, motherboards, and a variety of other components for consumer electronics, even surpassing Intel in processor speed and efficiency. This lead wouldn’t last long. The company was focused on the unimportant markets, such as the tablet and smartphone markets, while remaining overly dependent on the personal computing market as their main source of revenue. Persistent roadmap and strategy changes were plaguing AMD with an unfettered sense of disorganization and miscommunication; they were nearly $2.5B in debt and revenue had been negative since 2007. Furthermore, AMD’s management has been haphazard at best for a while. According to The Verge, “CEO Hector Ruiz stepped down in July 2008 in the middle of a series of layoffs, and was later implicated in an insider trading scandal that caused him to step down from AMD spin-off Globalfoundries in late 2009” (Hollister 4). Following this predicament, the company experienced a period of rapid leadership turnover. This included the firing of CEO Dirk Meyer, who was credited with jumpstarting AMD’s profitability a few years before. These conflicts brought AMD vulnerability and staggered confidence within the industry.

With the arrival of new CEO Lisa Su in October 2014, some much-needed transparency was brought back to the company. Su focused on revitalizing the company’s culture by forming the Radeon Technologies Group (RTG), which provided a more vertical focus on their graphics and immersive computing divisions, allowing for specialization and minimization of downtime within the company. She identified a streamlined roadmap and product cycle–new graphics processors every year and new computer processors every 1.5 years. AMD’s new business model determined a new procedure/business strategy of trading with “stickier”, high-growth, price-inelastic markets, such as the cloud computing and gaming console markets. In addition, streamlined R&D initiatives and Intellectual Property (IP) monetization strategies were established to increase market opportunity. A prime example of this continued evolution is present in AMD’s collaboration with Microsoft and Sony as the official silicon partner for their respective gaming consoles. This partnership was possible as a direct result of Su’s focus on RTG.

As a result of Su’s performance as CEO in the two years following her appointment in 2013, AMD experienced their third subsequent revenue increase in desktop unit share for Q3 2015, more than doubling their stock price since 2013. In the following years, AMD launched a new enterprise, server level chipset known as EPYC, and coupled with deals involving companies such as Cisco and HP, AMD saw a nearly 50% increase in processor volume in Q2 2018. In late 2018, AMD’s market share for desktop CPUs was sitting comfortably at 17.1%. Compared to 2017, AMD realized a 4.8% gain in desktop unit share. Q1 2019 saw AMD release their highly-anticipated 7 nanometer manufacturing process-based “Zen 2” microarchitecture chips for the Ryzen 3000 series. Following the wildly successful launch, AMD unit share jumped to 31.9%.

However, despite all the gains made by AMD in recent years, the company is still in the process of ramping up production and spending. Intel’s massive, multi-billion dollar market development fund (MDF) is a lucrative incentive towards attracting investors and partners. Without a substantial MDF like Intel’s, AMD needs to further expand R&D and market spending, as well as increase mindshare over Intel. Arguably more important than market share, AMD will never reach into the heart’s of consumers and the general public without a more prominent image as a reputable and formidable opponent to Intel. Although Intel has been unable to innovate past a 10 nanometer manufacturing process onto a smaller node (i.e. 7nm) for years and has faced multiple issues with their Core i9 processors overheating and damaging Apple’s Macbook Pros, they are still known as the go-to semiconductor manufacturer for the world’s computing needs. AMD’s R&D division might be skyrocketing in terms of innovation and performance, but their marketing team needs to undergo drastic changes in order to allow their image to sink into the minds of consumers.

Works Cited:

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By: Aaron Puthan

WeWork slashes its IPO as skepticism rises over its risky business model

You probably know WeWork, which recently changed its name to The We Company, as an office space with an idiosyncratic aesthetic. The glass walls, plants, cafes, mid-century-style furniture furnish its spaces. WeWork’s basic business model is to lease large spaces, transform  them, and then rent them out to individuals and companies at a higher price. As of 2018, the company operated more than 35 million square feet of space globally, and it currently occupies 528 locations in 29 countries around the world. To cover the costs of the renovations and leases, WeWork charges individuals and companies through four different member options. For one of the cheaper plans, a member can bring their laptop and sit in a common area if space is available, and for the most expensive plane companies can rent out full offices, suites or entire  floors. WeWork also offers a service called Powered by We, full custom big-outs for larger companies.

Although at first glance, this seems like a sustainable business model, the question arises —why are analysts and investors skeptical? One possible reason is growing concerns about the lease obligations. When WeWork signs a lease on a building in the U.S., they commit to an average of 15 years, but WeWork’s members only commit to an average of 15 months. WeWork’s obligations top $47.2 billion, but its customers have only signed leases on $3.4 billion worth of space. Recently, WeWork’s IPO was postponed after the company announced that it would withdraw its request to go public. Swirling questions over corporate governance, valuation and its business model catalyzed this delay. A lot of numbers are churning around, but to really understand WeWork’s business model let’s look at $47 Billion, which is how much the company is on the hook for in lease obligations as of June 2019. This significant amount reveals a lot about how the company works, and why investors have become wary of the risks.

Although the company has started signing more long-term clients, such as Yelp, Lyft, Goldman Sachs, and Pinterest,with 528 locations, there is a lot of time and space to fill. It’s unclear how much space WeWork needs to break even, but the company’s occupancy rate fell from 84% to about 80% in the final quarter of 2018. The company claimed that the drop was caused by expansion. New offices traditionally take up to 18 months to fill, but it’s unclear what would happen in an economic downturn, when fewer start-ups and freelancers look for a  workspace. It’s also not lucid as to what would happen if existing clients started to default. One place investors are looking for precedent is International Workplace Group, formerly known as Regus, a Swiss company with a similar business model to WeWork. During the economic downturn in the early 2000s, IWG’s U.S. unit filed for bankruptcy, as its revenue fell but long-term leases remained in place. WeWork has said its flexible business model would help keep it safe in a downturn. The company’s rapid expansion has helped it stay out in front  of competitors, but some investors are concerned that this is not a strong enough reason for the company to stay afloat. Ultimately, WeWork’s business model is easy to replicate. The company has filed for some industrial design and furniture patent protections, but in theory, anyone with enough cash can lease out industrial office space and flip it — which is exactly what has occurred in the recent past. A New York-based rival, Knotel, hit an estimated $1 billion valuation following a recent round of funding and in 2017, Blackstone acquired a majority share in The Office Group, a flexible workplace provider in the U.K. If the WeCompany decides to move forward with its IPO down the line, investors will have to decide if WeWork’s design and size is enough to keep it afloat in times of economic uncertainty.


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