1. Economics for Journalists
Week 4: Circles & Cycles: How economies work
Jeffrey Timmermans
Monday, 25 February, 13
2. Review: Corporate disclosure
✤ Three main types:
✤ Profit & Loss Statement (also called P&L or income statement)
✤ Balance Sheet
✤ Cash Flow Statement
Monday, 25 February, 13
3. Reporting on earnings
✤ Always focus on net profit, and how it changed from a year earlier
✤ Make sure to include revenue, so reader can judge the “quality” of
earnings
✤ Make sure to include year-earlier figures!
✤ Look for any dramatic year-on-year changes in figures in disclosure,
or big asset sales/purchases
✤ Is cash flow from operations positive, growing?
Monday, 25 February, 13
4. HK’s Hutchison Whampoa reports 12pct rise in profits
01-Apr-2010 | AFP | 7:01 AM
Hong Kong’s Hutchison Whampoa said Tuesday net profit rose 12 percent last year, as gains
from property sale and the sale of assets more than offset losses at its energy and 3G
technology units.
The port-to-telecoms conglomerate, headed by Hong Kong’s richest man Li Ka-shing, said in a
statement to the city’s stock exchange that net profit was 14.17 billion Hong Kong dollars (1.8
billion US) in 2009, up from 12.68 billion dollars in 2008.
The result was lower than the average forecast for a net profit of 15.54 billion dollars in a poll
of six analysts by Dow Jones Newswires.
The group’s total revenue dropped 14 percent to 300.55 billion dollars, mainly because of a
business slump at its Canada-listed affiliate Husky Energy resulted from sharp declines in oil
and gas prices last year, it said.
And income at its ports division dived 16 percent due to lower trading activity amid the global
financial crisis, the statement said.
Losses in its third-generation technology operations slumped 67 percent to 5.28 billion dollars,
primarily due to the merger of its 3 Australia with the Australian unit of British mobile phone
giant Vodafone.
Li said in the statement that its 3G results were expected to improve and make a positive
contribution to earnings.
The company was one of the world’s first to introduce 3G mobile business and has operations in
Italy, Britain, Ireland, Australia, Sweden, Denmark and Austria.
The group’s earnings have been dragged down since 2003 due to the cost of the 3G business.
But last year’s losses were partially offset by a 50 percent jump in profits from the completion
and sales of several residential projects.
The gains also came from a 12.47 billion Hong Kong dollar total profit from the disposal of
investments including its equity interest in three power plants in mainland China and its
telecoms assets in Israel and Indonesia.
Li said the company performed satisfactorily despite the challenging conditions last year and its
operations “are well placed to benefit from a recovering economic environment.”
Source: AFP via Intellasia
Monday, 25 February, 13
6. Types of economies
Command Free-market
Economy Economy
Total No gov’t
intervention intervention
U.S.
Hong Kong
N. Korea
Sweden
Monday, 25 February, 13
10. Economic Growth &
The Business Cycle
Real output
Peak Trend line
ry
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Rec
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Re
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Rec
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Trough
Time
Monday, 25 February, 13
11. U.S. Economic Growth
(1940-2010)
Source: St. Louis Federal Reserve Bank
Monday, 25 February, 13
12. U.S. Business Cycle (1970-1980)
Source: St. Louis Federal Reserve Bank
Monday, 25 February, 13
13. Why do economies grow over
time?
✤ Population growth
✤ Investment
✤ Accumulated knowledge
✤ Improved productivity
✤ Better technology
Monday, 25 February, 13
14. What causes a downturn?
✤ An external shock, like a sharp rise in oil prices (1970s)
✤ Over-investment (and subsequent plunge in investment) (2001)
✤ A financial crisis (2008)
✤ High interest rates (when central banks step in to slow things down)
Monday, 25 February, 13
15. The Regulatory Cycle
Crisis in un- or under-
Recession regulated area Deregulation
Politicians respond to Politicians respond to
people’s anger companies
Regulation,
followed by quiet
period Lobbyists/companies Growth
seek deregulation
Monday, 25 February, 13
16. Market Cycles:
Dow Theory
✤ Charles Dow (1851-1902)
founded Dow Jones & The Wall
Street Journal
✤ Dow noticed that prices on
markets follow both long-term
and short-term trends
✤ Short-term trends are
reactionary and won’t
necessarily derail long-term
trend Source: Library of Congress
Monday, 25 February, 13
17. Dow Theory: key assumptions
✤ The theory assumes the price of an asset traded on a market reflects
all available information
✤ A market price is the sum of all fears and the sum of all hopes
✤ Because a market price reflects everything market participants
expect will happen, prices are forward looking
✤ Prices are news!
Monday, 25 February, 13
18. Remember...
✤ Journalists can provide perspective and context:
✤ A recession isn’t the end of the world
✤ A growth & recovery phase won’t go on forever
✤ This time isn’t different!
✤ Regulatory response isn’t always appropriate and is influenced by
political considerations
Monday, 25 February, 13
