Finance and Wealth Building


1. Capitalization
The term “capitalize” means registering the quantity of an entity in a balance sheet account against the income statement. Capitalizing can be different in different companies depending on their turnovers. But a big company would not do that. Moreover, in case of leased equipment, if it is a disguised purchase and not a rental agreement, then the lease should be capitalized. A process whereby anticipated future income is converted to one lump sum capital value. A Capitalization Rate is divided into the expected periodic income to derive a capital value for the expected income
There are basic differences between capitalization and depreciation.

Capitalization refers to adding the sum to the balance sheet. Suppose, a house is constructed after taking loans ,then some interests of it will be added to its cost, which in total with the cost will be shown as an asset on your balance sheet.

Whereas, depreciation is the reduced amount registered on the balance sheet. It refers to the systematic allocation of the price of an asset from the balance sheet and reporting it as depreciation expense on the income statement. In short, capitalization refers to the addition and depreciation refers to the subtraction of an amount from the balance sheet.

Though not distinctly different, following types of capitalization are predominant.
o Mega cap: it includes the companies, whose market capital is over $200 billion. The most publicly traded companies like the Exxon are the leaders, which is not applicable to the majority of companies.
o Big/large cap: their market capital is between $10 billion and $200 billion. The well noted companies like the Microsoft, Wal-Mart, General Electric and IBM fall into this category. The large capital stocks are considered to be steady and safe. These stocks are also known as blue chips.
o Mid cap: the companies under this category are considered to be more unstable than the mega and large capital companies. A considerable part of this capital is characterized by the Growth Stocks. Some of the companies under this category are on the verge of becoming the industrial leaders.
o Small cap: the comparatively new and young companies having the capital between $300 million to $2 billion. They offer the possibility of greater capital increase but leaving the risk factor.
o Micro cap: The companies primarily consist of penny stocks ranging between $50 million to $300 million. They have equal upward and downward potential and thus are risk prone. You should do a lot of research before venturing into this position.
o Nano cap: capitals below $50 million are the indicator of this category. This is the riskiest of the categories and offer for very meager gain. The stocks normally trade on the pink sheets or OTCBB.
o This categorization does vary with the variation in the actual market.

2. Unemployment rate nearing 700ks, it may get worse

The last statistics for the job-cut given by the Labor Department in February this year reflected the worse picture than was speculated in January. The previous one registered 598,000 job-cuts in the private sector, which the February stat projected 650,000. The figures according to Briefing.com were somewhat different, which anticipated a hike of 11% in the unemployment rate from January’s 614,000 to February’s 697,000. This burning scenario would create wrinkles in the forehead of President Obama and would dent his administration’s futuristic expenditure plans envisioning the dynamicity of the stumbling economy in the coming years.

The stark discrepancy between the White House’s statement as 3.8% decline of the economy and the daily life of the Americans was evident from the actual 6.2%, the worst since 1982. Economists though are neither ready to compare the severity with that of the 1930’s 25% and nor with the twin depressions of the 1980’s, https://wedmont.com/ yet some are forecasting of more worsening. They are emphasizing on the term “depression” to describe the much longer span of crisis, which cannot be connoted by the term “downturn”. The alteration of terms is much more decisive, when the govt. is strategizing to further straining of cash for the critical banks and the aid for the automobile industry.

Mark Zandi, chief economist of Moddy’s Economy.com, predicted that the unemployment rate would reach 10.5% by the end of 2011, from 7.6% of end January, the average home prices would fall 20% over the already reached 27% and the financial system losses would more than treble, to $3.7 trillion. The chief global economist of Decision Economics, Allen Sinai maintained that the economy is already at depression. He added that Washington’s assumption of the 3.2% hike in 2010 should only be a hope, not a confirmation. And in this situation, the government would be bound to reduce expenditure, increase taxes and run larger deficits. The Federal Reserve chairman, Ben S. Bernanke predicted the rise of unemployment rate to touch 8.8% next year as against the current speculated rate of 10.3%.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., censured Sinai for predicting so early and estimated the ratio to over 12%, the highest since 1948. Zandi gave the rate as 9.3%. The inseparable connection among the financial system, the job market and real estate has resulted in the pink slips even in stable companies. This in turn reduces the investment by the laid offs, further cutting on the revenue from different sectors. A downward spiral is thus set to act.

3. Relation between politics and Wall Street.

Since the December take over of the Wall Street Journal by Rupert Murdoch, it has developed a sharp edge on the political issues and asserted its influence on the presidential campaign. With the fresh approach to place journalism on a new trajectory of paramount, Murdoch stressed on a broader cover area in the newspaper. Along with the primary feature on the Federal Reserve’s endeavor to salvage the Bear Stearns from the seemingly inevitable crash, it also focused on the Finance Chairman Penny Pritzker and the burning Tibet issue.

In the time of bulk dismissal of the newspaper staffs and financial collapse, Murdoch has raised the volume of the journal and also expanded the Washington bureau, not leaving the foreign coverage. The 1940’s approach of the newspaper to focus only on the business news and discount the breaking news is now a history, and it was also called for at the most exciting campaign moment. In fact, politics now occupies double its earlier space in it. It got reflected from the campaign backbiting of the two advisers of Hillary Clinton to the advantage of Barrack Obama in Texas due to the strife between the blacks and Latinos.

With the increased co-existence of finance and politics, the legendary A-heads are losing their importance to be constricted to the page-bottom. Murdoch led the daily for extensive campaign coverage to make it the master of journalism. But this effort may raise the question in future of its becoming the jack of the business journals.
According to Charlie Cook, a political analyst, WSJ has been barely maintaining its stand in the business, save the business coverage and a fun story on the front page, though the standard has somewhat augmented. To add to the popularity, WSJ has started a weekly sports page, publishes recipes in the Saturday edition and has plans to commence a quarterly magazine on fashion and travel.

Murdoch once donated $1 million to the California Republican Party, had his New York Post go after selected liberal politicians, and yanked BBC News from his Sky TV satellite service in China to appease the Beijing authorities. Despite his well-spoken authority on news judgments, the journal does not seem to have evolved under the News Corp. takeover. According to him newspapers in Britain and Australia had sometimes endorsed Labor Party candidates.
Marcus Brauchli, the chief editor has stated that Murdoch allows independence to his editors to find the means to achieve the goals he has set for the journal. But at the same time, he also waves his hands to maneuver their decisions, whether visibly or not.

4. “Trend is your Friend”?

It is very crucial for you to follow the correct trend whether you are investing in stocks, dollar or interest rates. There are no such investments that are free of risks, not even the government bonds. 95% of the Americans, having net worth of less than $1,000,000 are not allowed the choices as the rich are. They are also not expected to be that savvy of the risks in stocks, stock options, futures, mutual funds and a whole lot of very high risk investments and presumed to be incapable of understanding the risks in hedge funds. The existing system which relegates most investors to second class status is economically wrong, philosophically decadent and politically discriminatory.
While a considerable time is given to track the accurate direction of the stock, a cautious observation to the support and the resistance lines can make the trend your friend, as shown below.


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