Large FinTech Merger Announced Today - Expect More in the Months Ahead!

Finimize wrote today about the large $43B FinTech merger between US financial services tech firm Fidelity National Information Services (FIS) and payments processing company Worldpay.

What Does This Mean?

Worldpay processes card payments for merchants of all shapes and sizes – you’ve almost certainly chipped, tapped, or swiped on one of its branded machines. 

That fits in nicely with FIS’s retail and banking transaction software – and expands its physical payment capabilities. The takeover will see Worldpay shareholders receive both cash and a stake in the new, combined company – and values Worldpay at 14% above its stock price on Friday.

Today’s Worldpay results from a 2017 merger with US firm Vantic. But the company has British origins: it used to be owned by the Royal Bank of Scotland, which was forced to sell Worldpay in 2010 as part of a post-financial crisis bailout. Nine years on, Worldpay is now worth more than its former parent.

Why Should You Care?

For markets: Payments is an arms race.
The payments processing market is exploding as people spend ever less cash – currently valued at $1.4 trillion, it’s expected to top $2.4 trillion by 2027. Payments companies are busy clubbing together to increase their coverage and offerings(tweet this): PayPal bought iZettle last year, and Fiserv bought First Data in January. Size matters when it comes to payments processing, and acquisitions are one way to get bigger quickly. Perhaps Italy’s Nexi could be next: the payments company is going public, but may soon feature on a few shopping lists.

For you personally: Paying is paying.
No matter whose card terminal you use, payments companies typically charge the merchant, not the buyer, a percentage fee for processing them – so you’re not paying for the privilege of paying (most of the time). As the industry expands, the only thing likely to change in the near future is faster processing times... fingers crossed.

This time Goldman Sachs’ CEO, David Solomon, has it right. Writing is among the least appreciated, but one of the most valuable job skills to possess today.

Goldman Sachs’ CEO David Solomon said in a recent interview  that he's finding 'less and less' good writers – he noted that this is the one skill set that's becoming harder to find – and this is the ability to write well.

David Krause, Marquette’s Applied Investment Management (AIM)director couldn’t agree more, “Writing is among the least appreciated, but one of the most valuable job skills to possess today.”

David Solomon of Goldman Sachs
believes writing ability is a key to success

"I'll tell you one that we're finding less and less inside the firm that I think is an important skill set, is an ability to write," David Solomon said during a panel in response to a question from Yahoo Finance about the hardest skill to hire for today.

Is this deficiency because of texting? Some may argue that in today’s fast-paced world of instant messages, text messages and social media, our youth are not honing their writing skills. Does tech speak hurting our ability to write well?

Research also shows this may be true. While a bit dated, in 2012 the Department of Education published “The Nation’s Report Card: Writing 2011.” According to the study, only 24% of 8th and 12th graders were proficient in writing. In another survey of students, 64% of teens admitted getting lower grades on school work from using tech speak, and 58% agreed that their daily use of texting shorthand makes it extremely difficult for them to write properly in school. 

As Solomon noted,  the problem isn’t limited to teens’ tech speak. This decline in writing proficiency may begin to take hold in middle school, when many young people get their first smartphone, but scholars and others believe it persists throughout academia and even into the business world.

David Krause, Marquette University,
encourages his students to hone their writing skills

A survey published by the Association of American Colleges and Universities, 80% of employers polled said colleges should focus more on written and oral communication, indicating that those hiring for jobs today are seeing a weakness among candidates in this area. Supporting this thinking, a poll of corporate recruiters conducted by the Graduate Management Admission Council showed that 86% felt strong communication skills were a priority. 

David Krause, director of the Applied Investment Management(AIM) program at Marquette University, stated that “I have also noted that fewer of my students are turning in papers that are properly written and formatted. Beyond basic grammar, spelling and punctuation skills, students need to be able to write clearly and persuasively. I have also noted that fewer students over time understand style guidelines for writing professional,technical papers and reports.”

Krause notes that fewer students understand
writing style guidelines

He continued, “We want students to think critically and be able to solve problems; however, they also need to be able to effectively communicate.  The AIM program curriculum emphasizes communication, both public speaking and writing. We know that these skills are highly sought by businesses today.”

David Solomon said in his interview that "How you communicate with other people, how you interact with other people, how you express yourself will have a huge impact on your success. And, when I try to point to things that have helped me, my ability to communicate, which was rooted in a lot of experience that I got here on the hill (at Hamilton College, a liberal arts school).”

Spring break is finished and it is time to focus on the U.S. economy! Cyclical downturn or secular stagnation?

Former Treasury Secretary and Harvard economist, Larry Summers, has generated considerable discussion by stating that the U.S. is about to enter  a period of secular stagnation and he warns that low interest rates may be signaling that this is a serious economic problem.

  

Larry Summers is signaling concern
about the U.S. economy

Spring break is over and its time to get serious about the U.S. and global macro-economic outlook – which is not rosy. 

The estimated GDP growth rate for Q1:2019 in the U.S. is currently much weaker than forecasted just a few months ago.  Is this just weather-related or is it the beginning of a cyclical decline?

It's neither according to former Treasury Secretary and Harvard economist, Larry Summers. He has recently generated considerable discussion by stating that the U.S. is about to enter  a period of secular stagnation and he warns that low interest rates may be signaling the beginning of this serious economic trend.

In a recent article by Summers and Lukasz Rachel ( “Public boost and private drag: government policy and the equilibrium real interest rate in advanced economies” BPEA Conference Draft, Spring 2019) they conclude that real interest rates would have declined by far more than what has been observed in the industrial world (see Figure 1 below) and would in all likelihood be negative if not for aggressive monetary and fiscal policies.

Summers in recent interviews has suggested that if secular stagnation is to be avoided in the years ahead it will take serious Keynesian stimulus (i.e. infrastructure spending) by the central government to offset the falling rates of private investment in the U.S. He also has been noting the falling productivity growth rates citing this as also leading to long-term economic stagnation.

U.S. interstate highway stimulus in the 1950's

Summers and Rachel conclude that to avoid a long period of secular stagflation that this should become an urgent priority for governments and that they need to find new sustainable ways of promoting investment to absorb the large supply of private savings and to devise novel long-term strategies to rekindle private demand. They have suggested infrastructure spending could boost overall economic activity within the U.S. in much the same manner that the interstate highway system and the space program did in the 1950's and 1960's.

CURRENT ECONOMIC OUTLOOK

Gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. The Atlanta Federal Reserve Bank’s  GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.

GDPNow is not an official forecast of the Atlanta Fed; rather, it is best viewed as a running estimate of real GDP growth based on available data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model.

Latest Atlanta Fed forecast: 0.4 percent — March 13, 2019

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in Q1:2019 is 0.4 percent on March 13, up from 0.2 percent on March 11 – and well below the 1.5% estimate by the Blue Chip consensus. After reports on durable manufacturing and construction spending were released by the U.S. Census Bureau this morning, the forecast of first-quarter real gross private domestic investment growth increased from -2.9 percent to -2.4 percent, and the forecast of first-quarter real government expenditures growth increased from 1.7 percent to 2.5 percent.

The Federal Reserve Bank of New York also reports a similar forward estimate of  GDP growth (referred to as Nowcast). This report is updated each Friday to reflect the impact of new data on its forecast.

The New York Fed Staff Nowcast stands at 1.4% for Q1:2019:Q1 and 1.5% for 2019:Q2.

Citi tracks a measure known as the "economic surprise index" for various locales, which shows how economic data are progressing relative to the consensus forecasts of market economists. 

News from around the global economy continues to disappoint, and Citigroup’s global surprise index, which measures whether data exceed or fall short of forecasts, has dropped through its 2018 low to the weakest since 2013. 

The latest move lower comes on the back of gloomy manufacturing numbers from the euro area, Japan and China.  The following table shows the weakening EU economic outlook.

The next several weeks will help determine whether this is the beginning of a cyclical downturn - or worse - whether it is the continuing trend toward secular stagnation that Summers wrote about recently.