Finance Paper

Question

U.S. stocks are overvalued This essay is very important to me, so pls do not plagiarize.
I already write my outline of this essay in the files, but you can add your idea in essay. 
Thank you very much. If you have some question you can send me email.
I think we will have a good cooperation.

Research Paper: Handout 1

Outline:

  1. Choosing a Topic
  2. Gathering Data

The research paper that you will write this term will be a challenge.  It will force you to come up with an original issue to analyze, a daunting task for professional economists!  It will force you to truly understand an area of financial markets in minute detail.  You will have to scrounge the library and the Internet for any information, whether main or tangential, that pertains to your topic.  Chances are, however, that you will enjoy it.  Besides of choosing an issue that interests you, rather than having me choose one at random, you will put more effort (of your own choosing) into the project.  You will also gain valuable research and writing experience, skills that will aid in college classes and in other areas of life.  Finally, financial knowledge never hurts anyone – only financial ignorance does.

Let me start with a few ground rules.  Two weeks past the last day of the program, no later than Friday, July 8th at 5:00pm, you will send me this project via email.  It will be approximately fifteen typed pages (about 3,000 words.  Don’t single-space the paper, with ¼ inch margins just so it fits on twenty pages!); this number can include graphs and tables, though it is permissible to go over twenty pages if you have included copious graph/tables.  If you do not turn in the final draft of your paper by the deadline stated above, you will receive a zero, and will most definitely fail the program.

  1. Choosing a topic

            a) Choosing a topic can be daunting, just because the choices in subject matter are overwhelming.  Banking and financial markets encompass so many aspects of our life and culture, from the mundane and highly local to international in scope.  Keep in mind that I would like you to choose a topic that interests you, not a topic that you may think interests me.  Some of the best projects that I have read have been on subjects about which I previously knew nothing.  Here is a small sample of topics (actual student Wall Street semester papers):

● The end of the NYSE? Electronic Trading and the Future of Financial Markets

● Dishonesty and Discrimination in Financial Markets

● Playing Close to the Hedge: An Overview of Hedge Funds, Hedge Fund Failures, and Hedge Fund Regulation

● Risk Aversion in Financial Markets

● Capital Controls: The Development of the World’s Dominant Financial Centers

● Predatory Lending and the Happy Homeowner

● Deconstructing the Asian Financial Crisis and Mexican Peso Crisis

● LBOs and Private Equity Groups

● Overregulation in the United States Financial Markets

● The Best of Both Worlds: NYSE’s Commitment to Ongoing Success

● The Sarbanes-Oxley Act: Why It Was Needed and What It Entails

● Private Equity: Angel or Barbarian?

● Inside the Scandal: A Closer Look at Insider Trading and Its Market Effects

● Argentina: What Caused the 2003 Implosion?

● Market Globalization: Links between the stock markets of the U.S., Britain, and  Japan

● How do Hedge Funds Affect Financial Markets?  Insight and Analysis

● International Lending and Its Effect on Sub-Saharan Africa

● The effect of financial markets on global economic development (focus on  India’s Grameen Bank)

● The effect of financial markets on local economic development (ie:    Red Bulls stadium, new Yankees stadium, etc.)

            ● A Parasitic or Symbiotic Relationship?  The Federal Reserve System and Wall                    Street

            ● How the Great Depression still affects America Today

            ● Are Big Corporate Wall Street Mergers good for America?

● Does International Agency Lending Help or Hurt Developing Countries?  The World Bank under a Magnifying Glass

I will say this once: BE ORIGINAL!!  (Do NOT limit yourself to one of these topics!)

            b) Bibliography

Once you have chosen a topic, you need to conduct a literature search.   You need to find out what other people have written on the subject.  There will ALWAYS be some papers that relate to your topic, no matter how indirectly.  Trust me on this one.  Come talk to me if you can find no hint of useful materials.

The first step to this process is to go into an electronic database called EconLit.  From an Internet browser such as Mozilla, go to the Drew Library home page (available from Drew’s main page – just choose Drew Community at the top of the page).  Go to Research >> Online Resources >> Economics (under ‘Social Sciences’) >> EconLit.  Then, follow the instructions in the database to conduct a search (keywords, etc.)  One useful property of EconLit is that you can email the results of your search to your account.  Even better, most of the journal articles that you find will be downloadable in .pdf format.  It may turn out, depending on your topic, that you will not have to visit the library at all! (unless you are focusing on an issue that is more historical in nature)

Other online resources include online journals and news articles. To get to these links from the Drew Library home page, go to Research >> Online Resources >> Economics (under ‘Social Sciences’ >>

Proquest – though it contains fewer ‘real’ economics articles, there are many online business articles here, dating back to the mid-1980s.  It would be good to motivate your topic, especially in the introduction. 

Business Source Premier – roughly similar to Proquest, but a) it includes business journal articles, and b) it goes back to the 1960s

Lexis-Nexis Academic – Contains full-text versions of articles from almost every U.S. newspaper.

One very important note: make sure that a portion of your bibliography (at least three, and preferably five or more citations) consists of articles from books and professional journals, such as the Journal of Monetary Economics or American Economic Review.  I won’t accept a bibliography consisting solely of articles from Time, Newsweek and Yahoo.  This is economics!  You need some semblance of models, not gossip from a chat room!

You must turn in your topic proposal (which should begin with a sentence stating the facet of banking and/or financial markets you have chosen to analyze, and a one-paragraph, more detailed explanation below) by the evening of Monday, June 20.

            c) Outline:  Suffice to say, everyone’s paper will be quite different.  Therefore, a          generic outline will hardly help many of you.  But I offer one anyway, so that you may get a handle on how to study your issue.

  1. Introduction (state issue and why it is of importance)
  2. Background (here you will want to go into the history of the subject.  For example, if you are looking at how the equity market structures of the U.S. and Canada differ, you would want to talk about the creation of these institutions in the eighteenth and nineteenth centuries, as well as how the two sets of systems have withstood financial turmoil)
  3. The Issue at Hand – an explanation of the current issue
  4. Policy Recommendations (or how you see the issue changing in the future, ie: the future of the U.S. equities markets)
  5. Conclusion (just a wrap-up of what you have talked about in the past ten pages)

2) Data

You WILL be required to analyze and discuss financial data in your project!  More about this, including data sources, will be forthcoming.

Deadline (once again):

Friday, July 8              Final Version of Paper Due, by 5:00 pm!  No exceptions!!

Answer

U.S. Stocks are Overvalued

Contents

Introduction. 1

Effects of Stock Overvaluation. 3

Relationship Between Globalization and U.S. Stock Overvaluation. 4

Recessions and Depressions in the United States. 6

Structural Changes in the U.S. Economy: The Effects of Technology and Globalization. 9

Technology and the Economy. 10

Globalization and Investment 15

Conclusion. 16

Works Cited. 18

Introduction

Stock valuation is the process of calculating the theoretical values of public companies and their stocks. The latter are basic units that represent the equity stake of the shareholders or owners. It is also a representation of the residual assets of a company after the settling and elimination of its liabilities such as debts and expenses. The stock of a company is then divided into shares which are declared at the beginning of the business formation. In most situations, each share is set at a par value that is used in accounting and company audit balance sheets. Moreover, they normally take the form of common or preferred stock. The former holds voting rights while the latter guarantee one to receive a specified dividend with the exclusion of voting rights. Other forms of stocks are derivatives which are financial instruments whose value depends on the price of the underlying stock, and which are further divided into futures and options.

Order now

The methods of stock valuation are applied to estimate or set the value of stocks based on performance, profits and general health of the business amidst other external market influencers. This is then applied to predict the future market prices that can be used to generate profits through price movements and adjustments. Overvalued stocks have a current price that is not simultaneous with its price to earnings ratio and whose price is expected to drop. Undervalued stocks have a current price that is not parallel to its price to earnings ratio with an expectation of prices rising.

To understand overvaluation in the context of U.S stocks, it is imperative to point out that there are various forms of stock valuation, the first of which is determined using cash flows and earnings analysis, and the second of which is influenced by the supply and demand. The price/earnings ratio is the most comprehensive method of stock valuation that uses earnings per share (EPS) held. This calculation is done by the division of the stock price by the annual EPS figure. Historical price/earnings (P/E) ratios are calculated through the division of the current price by the total sum of the EPS in the last year. The charts over the last year also provide adequate material to determine the stock valuation or to confirm previous calculations. Future P/Es are a representation of the future growth of the company. This ratio is computed by taking the current price and dividing it by the total EPS as projected or calculated for the next four quarters.

Besides, a new approach has emerged, known as price-earnings to growth ratio (PEG), which is a new form of valuation arrived at through modification of the P/E ratio. It factors in the price, earnings and earnings growth rates. In this procedure, the forward P/E ratio is divided by the expected earnings based on the growth rate which is deduced as a percentage. Values over one hundred mean the price is overvalued and if below the one hundred marks then the stock is undervalued with respect to the deflection from the one hundred marks.

Meanwhile, in the U.S. economic context, the growth rate itself is also a strong indicator of the stock valuation at present and especially in the future.  This involves an analysis of the historical growth rate and an evaluation of the factors that surrounded those particular market modifications. This method is used as a rough guideline since completely relying on historical data to make crucial future choices would be misleading. Therefore, it is only used in combination with other more accurate methods of quantification. Upon application of these techniques, it emerges that U.S. stocks have been greatly overvalued leading to overstatements of financial and balance records which then affect the financial accuracy of individual companies and by extension the U.S. stock exchange. In a situation of extensive overvaluation, the negative effects are visible in the economy’s stability. The paper investigates the various financial factors that have contributed to and facilitated this overvaluation. It also outlines strategies to mitigate the effects while preventing further worsening of the situation. The solutions proposed have a bearing on aspects of governance, market regulation, and better equity analysis tools.

Effects of Stock Overvaluation

Researchers and economists have created a direct correlation between significant overvaluation and negative managerial or decision-making processes. Senior managers tend to fall victim to this inflation trend by making decisions directed at short-term gains at the expense of long-term goals of their companies. It is in these situations that such managers make risky decisions or become complacent following a deceptive picture of the company’s performance.  Overvaluation of stocks often occurs as a very temporary and conscious measure involving buying or selling stocks at exaggerated prices that do not reflect the earnings they bring in. Overvalued stocks are therefore largely incapable of creating any substantial profits. For the overvaluation strategy to succeed, a grounded and strong company governance structure is needed in order to ensure that sustainability and continued operations of the company are maintained within the required standards. Therefore, good governance tends to counters the aura of misconduct and negligence associated with overvalued stocks (Knoop 40).

At the same time, overvaluation of stocks leads to overstated gross margins and net profits on the one hand and understated net loss and cost of sales on the other. This misleads the operations of the company and often triggers an increase in expenditure that would otherwise be declared unsustainable by any prudent financial advisor upon carrying out a real valuation. Additionally, it leads to errors in taxation and preparation of financial statements. For example, the tax expense stated in these statements becomes overstated as does the tax liability figures. Equity would also be unfairly overstated depending on the extent of the error. In essence, all the financial statements would contain errors that render them ineffective and irrelevant.

Relationship Between Globalization and U.S. Stock Overvaluation

Globalization has led to the expansion of U.S. companies some of which are operating on a global scale. These corporations have a strong presence in all the markets and are making huge profit margins. Other smaller companies with global, national or regional dominance are also thriving, increasing their reach and acquiring more assets. It is in this context that U.S. stocks have been calculated to be greatly overpriced by about 80% (Krugman 154). In relation to this realization, investors are warning of a 50% market crash in the year 2016 (Hoover 23). James Dale Davison, a re-known author and economist has suggested that the market is set to crash either in 2000 or in 2008. Coincidentally, Davidson has also presented graphs that point to a looming market crisis that might potentially be the worst. He predicted the 1999 and 2008 market crisis which both came to pass.

Order now

Evidently, the problem of stock overvaluation in the United States has spanned for many years and has been slowly manifesting beneath the globalization trends and structures. With this prediction of a forthcoming market collapse, the real estate sector which seems to have stabilized might collapse, unemployment is likely to double, the US dollar faces the risk of falling accompanied by a similar trend on the value of savings. The first month of 2016 recorded major negative plunges in the equity market. In the following month, the prices seemed to stabilize by remaining at a fixed price. However, it has become a reality that the stocks will not move higher and those who had capitalized on inflation owing to the falling dollar will suffer losses. The slowdown in the global growth that is evident in other parts of the world such as Japan had made it impossible for America to smoothly slide down into the bear market. The Federal Reserve has attempted to remedy or neutralize the situation because the overvalued stock market has lost its previous supporting factors such as GDP growth.

In the meantime, the margin debt in proportion to the economy is higher today than it was in 2000 and 2007. At the same time, the median price-to-earnings ratio is higher today than it was in 2007; it remains the highest to date with the exemption of 2000 during which time the primary cause of the phenomenon was the Internet bubble (Hoover 122).  At the moment, one can only hope that the weakening dollar will continue to bail out and neutralize the global financial system despite the fact that it can only solve short-term problems. Arguably, a combination of actors that include inflation, currency destruction, and globalization continues to pose a serious threat of triggering the worst market crises in modern history.

While the stock market seems to have recovered from the 2008 meltdown, a cursory reality check paints a different picture. After the market crash, the Federal Reserve provided multiple forms of finance to ease up the stock market and fund investors. This led to lower interest rates and an overflow of money into the stock market, setting the stage for extreme overvaluation of U.S. stocks. Seven years later, most investors seem poised to exit the market ahead of the feared crash. Already, there are signs of these exits with the New York Stock Exchange losing some of its value. The developing deterioration in the stock market is evidenced by falling revenue and profits, a situation that will lead to extremely high-interest rates in an attempt by the Federal Reserve to mitigate losses.

In the global scene, especially emerging markets, corporate debt has nearly doubled (Uguex 76). With an expected increase in U.S. interest rates and an already slowing trend and movement of commodities has been observed in many active markets. The inability and unpreparedness of these emerging markets to cope with high interests and huge debts, the global economic activity is bound to stagnate with a financial crisis that will hit the United States as well as all the newly industrialized markets all the way down to the developing markets (Smithy 53). The perceived damage o the predicted collapse set for this year threatens to destroy emerging markets as well as weaken U.S. corporations. At the same time, the U.S. stock market faces such great risk that it might permanently collapse to a point where it will not recover easily.

Recessions and Depressions in the United States

To understand the dynamics of recessions and depressions in America’s history, it is imperative to first understand the concept of correlation. The correlation coefficient between variables determines the relationship between them. A negative correlation will signify that the two variables are moving in opposite directions while a positive correlation will signify two variables moving in the same direction. The U.S. Dollar Index, which tracks the U.S dollar value against other major currencies, can be compared with the Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 (S&P 500), and the NASDAQ. For these economic indicators, all the correlation coefficients are currently positive at an average of 0.4 which translates to a 40% stock movement being associated with the U.S dollar (Krugman 98). Increased foreign investment has meant more investors have invested their money in American equities by first buying U.S dollars. This is the main reason why the stocks are closely related to U.S. exchange rates. Furthermore, the U.S. dollar is the currency used in most cash reserves and stock operations, thus, bearing a positive correlation.

Accordingly, the S&P 500 has one of the most impressive long-term stock statistics over the last thirty years. For instance, the 1980s and 1990s were characterized by returns averaging at 20% annually (Knoop 46). Another crucial observation is that annual returns for the last three thirty-year intervals show a progressive and consistent pattern. Despite some major historic occurrences during the individual periods, the market has demonstrated consistency and continued maturity. In the period between 1926 and 1956, the most significant occurrences included the stock market crash, Great Depression, World War 2 and several recessions. During the next thirty years after 1956, economic developments were heavily influenced by factors such as the Civil Rights Movement, oil price shocks, inflation, unstable interest rates and recessions. The final thirty-year period after 1986 has been characterized by three recessions, the 9/11 attack, wars in the Middle East and savings and loan crises (Krugman 67). This progression demonstrates the strengthening and growth pattern of the market despite the limitations encountered over the decades. Meanwhile, it is imperative to examine the various regional, national and global market crashes that have affected the U.S. stock market in recent times. The main ones include the Latin America sovereign debt crisis in 1982, the loans and saving crisis in the 1980s, the Black Monday in 1987, the Junk bond crash in 1989, the Dotcom bubble in 1999, and the 2007-2008 global financial crisis.

Latin America Sovereign Debt Crisis in 1982. This crisis arose as a result of huge accumulation by Latin America of foreign debts that they were soon unable to repay. Countries in this region acquired huge loans to finance their infrastructure and other development projects. Meanwhile, strong leadership and alternative methods such as transference of bonds enabled the region to slowly recover from this crisis.

Loans and Saving Crisis in the 1980s. Both banks and financial institutions in the United States were lending on long-term durations using short-term finances with fixed rates. Despite regulation solutions that were implemented over the decade to control the situation, many have suggested that the acts put in place contributed to the credit crisis and the 2008 financial turmoil. In addition, it has been associated with the U.S. stock overvaluation that is set to cause the 2016 market crisis.

Black Monday in 1987. This market crash was majorly associated with the growth of program trading at an extremely high rate. The market failed continuously for about a week and the weeks that followed. Yet this crash seemed to have a small effect and actually bore profits to people who were willing to take huge risks. By the end of the year, the market had self-adjusted and closed on positive market value for that year.

Junk Bond Crash in 1989. This crisis resulted in a huge recession in America and it was mostly linked to the US $6.75 billion buyouts of UAL (Magdoff & Foster 119). Another facilitating factor was the Ohio Mattress saga. Huge investment banks such as Drexel Lambert were forced into bankruptcy during this period. Banks and the government entities neutralized this situation by bailing out most institutions to avoid further progress of the problem (Magdoff & Foster 98).

Dotcom Bubble in 1999. There +was a huge bull rush into the sector of information technology and internet-related stocks in 1998. By the following year, the market had slowed down, the interest rate had shot up and most of these companies were forced to liquidate. This crash demonstrates the craze that certain trends cause in the market where individuals and companies hope to ride on these market trends that are obviously unsustainable in the long-term.

2007-2008 Global Financial Crisis. This crisis, which is the most severe financial collapse that America has experienced since the Great Depression, was triggered by a collapse of the housing market bubble. The crash had great effects on the U.S. stock market which has not yet fully recovered. However, the crash led to the tightening and regulation of banking, borrowing and lending practices that had facilitated the housing market collapse and subsequent commencement of the global financial meltdown.

Structural Changes in the U.S. Economy: The Effects of Technology and Globalization

Structural change is a shift in the basic functioning and operation of a market or economic system. This change is possible due to the dynamic nature and flexibility of a country’s economy, which is essentially a system of production, distribution of resources, exchange, manufacturing, and movement of goods and services. It is made up of organizations, agencies, financial agencies, distribution agencies, decision-makers, consumption patterns and modes of production all of which are susceptible to political, social and economic factors that evolve in accordance with prevailing macroeconomic conditions.

Order now

As such, the U.S. economy has undergone massive structural change more so in the last century which has recorded extreme economic, social and political turbulence. In the first half of the century, the economy’s major structural changes were related to two world wars, the Great Depression, changing political systems and dynamism in the availability of resources. During the second half, the U.S. economy has changed positively owing to the strengthening of the global social fabric, changes in aspects of labor and human capital, technological advancements, globalization and overall global economic development (Gordon 60). During this period, the U.S. economy has recorded its highest and lowest performance levels in addition to registering rapid shifts in its structural and functional organization. In particular, the changing nature of economic structure has been molded by the rapid technological advancements and globalization. Consequently, the economic environment in the country has changed in such a way that it is being understood in significantly different, sometimes completely new, ways. To understand these dynamics better, two aspects of structural economic change are examined next: technology and globalization.

Technology and the Economy

One of the most significant structural changes that the U.S. economy has faced is technological sophistication that has triggered a drastic shift from manufacturing and good-production to an economy that is more focused on service production. The service industry has made huge steps to overtake manufacturing. Between the Industrial Revolution and World War II, the U.S. economy was heavily reliant on its manufacturing power. The access and availability of an abundant amount of resources coupled with the availability and affordability of labor further strengthened a manufacturing-oriented economy. In the years that followed World War II, there was a rapid rise in the number of employees working in manufacturing with peak labor demand levels being experienced during the 1970s. Meanwhile, in the recessions that occurred after the war, the service industry seemed to be adjusting better to the prevailing macroeconomic environment than the manufacturing industry.

Over time, a new modality has emerged in terms of the composition of intermediate inputs and methods of sourcing them. With the recent growth in affluence levels among U.S. citizens a culture of consumerism has emerged.  An economy with a growing affluent class tends to spend more on consumption leading to a concentration on final demand (Gordon 123).

On a deeper analysis, it is evident that the strengthening and evolution of particular industries that are very specialized and demand-driven have further boosted the service industry particularly real estate, finance, and business services. Their extreme specialization has led to large commercial demand of the services and goods they produce as opposed to individual demand. In a chain reaction, the business service sector has undergone transformation through globalization, the emergence of cultures and philosophies that have influenced its structure and ethical reorganization. This situation has mostly yielded positive results of great coordination, communication, performance and mobility of labor.

In addition, changes in the legal and social structures of labor organizations have caused a significant structural change in the U.S. economy, with one of the outcomes being stocks overvaluation. Initially, additional legal adjustments and regulations that were made to protect the huge labor force created desirable working conditions in efforts that promoted the management and efficiency levels in corporate America. As more and more individuals gained more valuable skills, numerous changes started occurring primarily in through globalization, improved education systems, resource mobilization and enlightenment. Consequently, other regions of the world were able to gain these equally valuable resources.

Meanwhile, many U.S. multinationals have slowly moved their operations to foreign countries that now have wage rates that boost profit maximization. In addition, many of the American-made goods have been replaced by imported ones which are cheaper and easily accessible. At the same time, many other countries have established comparative advantage in manufacturing thereby capturing global attention by providing alternative, more economical manufacturing centers. Some of the raging debates that have emerged in regard to this situation relate to whether free trade will indeed work for or against America. The current fortification of technology has affected the situation both negatively and positively. Extreme technology has translated to the automation of processes and further specialization to boost quality. At the same time, it has created a situation where certain aspects of human labor have become obsolete (Barry and Slater 167). Therefore, this structural change has had profound effects on employment levels across America and by extension, the tendency towards overvaluation of stocks.

Besides, increased automation has led to a rise in unemployment levels. The 2008 crisis nearly crippled the economy following the retrenchment of many workers who joined an already struggling unemployed population. In a crisis that has recorded the biggest influence on the employment status of the U.S. economy, the country is yet to regain its prior standing given that the unemployment rate remains unacceptably high.

Evidently, the relationship between technology and the U.S. economy has been extremely intertwined such that both terms have almost become synonymous. In an attempt to demystify the theme of technology and its obvious impact on various aspects of the U.S. economy such as stock valuation, it is important to evaluate it in terms of its different manifestations (Barry and Slater 26). For instance, the most far-reaching effects are being experienced in the communication, logistics and distribution, foreign exchange and financial sectors. Technological influence took on a new face during the 1950s and 1960s when the first functional mainframe computers were produced.  This was a period of slow computer advancement and expansion. Limited companies specialized in the production of these computers due to high production costs and low demand. By the 1980s, there huge advancements were made in computer technology with the development of personal computers that were smaller and capable of performing more specialized tasks (Barry and Slater 157). In no time, it was possible to create local area networks that could link modem connections, telephone lines, computers and mainframes.

By the year 2000, computers and the Internet were widely recognized and available in virtually all American households. Since then, Internet coverage has spread extremely fast overtaking the rate of growth of erstwhile technologies such as the television and the telephone. Failure to fully acknowledge the tremendous power of the Internet in economic production greatly contributed to the bursting of the dotcom bubble in the year 2000.

Meanwhile, the biggest transformation has occurred in the telecommunication sector. The Internet, has made communication across oceans extremely simple and convenient through social media connectivity, instant communication and mobile technologies. Business operations have been simplified through the adoption of new structures such as e-commerce. A huge movement and exchange of goods and services is now possible online through the Internet payment distribution and payment platforms that are all accessible in cyberspace. This development has been of both beneficial and disadvantageous to the U.S. economy, although the benefits by far outweigh the drawbacks. Intellectual property has taken on a new shape, a new brand of entrepreneurs has emerged, and there is greater access to specialized goods and services. These entrepreneurs are thriving due to the wide market reach that has been facilitated by e-commerce and its consequent impact on the effectiveness of contemporary marketing strategies.

Besides, stock overvaluation in the United States is also strongly linked to technology-enabled IT developments. Today, even the most basic business structures contain elements of IT infrastructure. For example, inventory software are being widely used in retail stores In this way, a single centralized software system can be used to coordinate aspects of shelf capacity, inventory, purchases, storage and distribution in leading business establishments. Furthermore, these systems are mostly accurate and seamlessly efficient. Other functions such as accounting and book-keeping have also been revolutionized through software integration thereby enhancing simplification and accuracy.

On the negative side, this extreme technological integration has triggered a new form of sophisticated that is counterproductive. For example, many of these IT-dependent systems are now susceptible to IT-related crime and fraud (Barry and Slater 179). Many companies have been robbed and exploited through the manipulation of technological systems. Consequently, intellectual property has become a highly valued asset since it is viewed as a determinant of a business’s level of resilience in the face of growing threats of technology-savvy cybercriminals. Similarly, online-based firms which emerge successful in the high-risk, high-return online environment.

It is worthwhile to note that America is at the forefront of IT integration in the world. This leadership role has led to the elimination of traditional barriers and constraints and promoted the service industry. The U.S. economy has greatly diversified and allowed for extreme specialization and the emergence of completely new sectors (Uguex 76). This has particularly been reflected in the stock market where a growing number of companies are being listing under the technology category. One of the consequences of the resulting extreme complexity of the stock market has been the overvaluation of stocks. Interestingly, even the basic stock exchange procedures have not been spared the technology factor since most valuation- and exchange-related activities in the country stock market are heavily reliant on information technology.

Globalization and Investment

Globalizations has made such transactions possible and simplified the process through which business organizations get investment opportunities. In the global economy, maintaining competitiveness requires the outsourcing of labor, resources, and investment. Communication and interconnectedness has created more awareness and identity on the global stakeholders that can provide both financial, networking and intellectual investment. The newly accessible telecommunication networks have allowed for the creation of virtual networks aligned to particular areas of specialization. This has promoted the interaction of like-minded people and further facilitated the ease of connecting to potential investors. Businesses are also able to connect to other potential venture partners and obtain more relevant information that may be practical elsewhere and locally as well.

Due to its operations in the context of a high level of dynamism as an economy that is inclined towards globalization, it has been extremely difficult for Americans to deal with the problem of stock market volatility and overvaluation. On the one hand, aspects of cultural integration among countries, the creation of regional unions and better understanding between nations have become the norm (Reinert & Goldin p.49). On the other, valuation is increasingly being affected by economic shocks in the international markets. Similarly, economic strategies such as crowd-funding make stock valuation a global affair rather than a national one.

Conclusion

This analysis has demonstrated that U.S. stocks are greatly overvalued primarily due to the country’s macroeconomic environment is measured by income, GDP and models of economic growth. The U.S. GDP has been majorly stagnant with small negative fluctuations being the dominant phenomenon. Besides, throughout the last century, its economy has continued to exhibit a huge gap between the actual versus the potential/projected GDP, thus signifying huge faults in the employment and resource distribution factors. One of them is stock overvaluation, which is a reflection of the instability of the economy and the need for reforms that are not outpaced by constraints of technological change.

Notably, the Federal Reserve’s monetary policies are geared towards financial conditions that promote employment and price stability. As the economy continues to struggle to adjust to the looming financial crisis and the crashing stock market characterized by hugely overvalued stocks, they have implemented both old and new tools. Hopefully, its core strategy of lowering interest rates unconventionally with the expectation of conventional transmission to actual economic systems will lead to the intended outcomes.

To ensure accurate stock valuation, the federal government should work in cooperation with state fiscal agencies and international financial actors to synchronize measures aimed at creating a business-friendly environment characterized by low inflation rates and economic stability. For example, it is imperative to maintain low-interest rates that equal saving supply and investment demand at the federal level while adapting to and, where necessary, guarding against international market volatility. Therefore, the key is to achieve a balance between saving and the investment demand so as to harmonize the value of all assets and sectors that have been greatly overvalued.

Works Cited

Barry, Andrew and Slater, Don. Technological Economy. New York City,NY: Routledge, 2005. Print.

Gordon, Robert. The Rise and Fall of American Growth: The U.S Standard of Living since the civil war. New Jersey: Princeton University Press, 2016. Print.

Hoover, Scott. Stock Valuation: An essential Guide to Wall Street’s Most Popular Valuation Models. New York: McGraw Hill Education, 2006. Print.

Knoop, Todd. Recessions and Depressions: Understanding Business Cycles. Westport: Praeger, 2004. Print.

Krugman, Paul. The return of Depression Economicsand the crisis of 2008. New York: W.W Norton and Company, 2009. Print.

Magdoff, Fred. and Foster, John. The Great Financial Crisis: Causes and consequences. New York City: Monthly Review Press, 2009. Web.

Reinert, Kenneth and Goldin, Ian. Globalization for Development: Trade, Finance,Aid, Migration and Policy. Washington, DC: World Bank, 2007. Print.

Smith, Mark. A history of the global Stock Market: FromAncient Rome to Silicon Valley. Chicago: University of Chicago Press, 2004. Print.

Soskice, David and Carlin, Wendy Macroeconomics: Imperfections, Institutions and Policies. New York City: Oxford University Press, 2006. Print.

Ugeux, Georges. International Finance Regulation: The Quest for Financial Stability. Hoboken: Wiley, 2014. Print.

Get a 5 % discount on an order above $ 100
Use the following coupon code :
AUSW5