Apple's share price and people's expectation

Apart from Apple's iPhone and iPhone 5's releases, the share price of Apple tends to decrease after new iPhone's releases. This is largely caused by the unbalance between the new iPhone and people's expectations about iPhone. The decrease in Apple's share price shows people's expectations are often higher than the actual products even when Apple was still very good at keep its secrets of its new products. Since Cook became the CEO of Apple, Apple has become not so good at keeping its secrets and some people even get their hands on new products even before releases. Under such circumstance, the share price would probabily more reasonable to be flat after the release since the product has already been shown to the public and there is not any surprise. However, this did not happen. This shows several things. Firstly, the pricing has been key elements for analysts to estimate Apple's future revenues. Not until the announcement, the prices are not certain yet. If price drop is caused by this reason, then we may conclude analysts often think Apple overprices its products. Secondly, the release of other products also matters. Is this really true? I think that this may be true only recently, when Apple's iPad performs quite well in the tablet market. However, since the first iPhone was released, iPhone is the dominated product among all Apple's products. Price drops mean investors do not other products' ideas. Thirdly, investors may expect more from the new version of iPhone they have already seen. This could be a very positive sign that shows the magic of Apple has disappeared yet. However, after too much disappointment, the magic will eventually vanish.

The share price of Apple dropped today after yesterday's release of two new versions of iPhone, The share prices for Apple's suppliers dropped even more sharply. This definitely shows many analysts are either unhappy about the new products or unhappy about the prices for new products. To be honest, I am personally a bit disappointed about the new products; however, I still believe the sales of iPhone could not be so different from previously. There are several reasons. Firstly, the scale of the company matters. Apple is defintitely one of the most valuable companies around the world (Goolge may be the only competitor to Apple). Therefore, the support from the financial sector is undoubted. Its cash flow is massive and the cut in taxes in America will make large companies like Apple more profitable. Secondly, its Appstore makes its existing customers harder to switch to other smartphones. When you are a longer iPhone user, you become more difficult to switch to other smartphones, as the applications purchased cannot be transferred to another un-iPhone smartphone and this increases consumers' costs of switching phones.  Thirdly, Apple could become the leader in the facial recognition sector, as it intorduces FaceID. Although this idea is not new, the previous technologies are not as good as Apple's FaceID, as they are often unfriendly with users wearing glasses unlike Apple's one. This may not be seen as a big thing in the smartphone sector, as using fingers to unlock smartphones is not harder than using facial recognisation (and during the keynote, iPhone even fails to recognise user's face for one due to the angle facing the camera); however, this could be transferred to other sectors, for example, for laptops and computers, it is more user-friendly to use facial recognition to unlock a computer. The benefit of becoming the leader in a increasingly popular sector does not need any more explanation.

Overall, the magic of Apple has disappeared yet, despite the announcement of "boring" products I think, and most financial institutions will still stand behind Apple and future American tax reforms seem to be benefiting these large companies; therefore, I think that Apple's stock may remain strong and stable.

The value of information

The cause of conflicts of interest is undoubtedly the information asymmetry. as people tend to hide the information they have control of from others. This is very common and sometimes information asymmetry tightly relates with privacy as if there is no existence of information asymmetry, the privacy will also vanish. However, in the market, we can see in some cases, control of particular information is used as money or exchange medium, as one party in the market can give up some of their individually controlled information to another party in order to bargain for better services or products. For example, when people are surfing the Internet, they tend to share their search history with their websites in order to get faster or more relevant feedback from the websites they use, for example, they tell news websites what they are more interested at, and the news websites put the information they are interested on the top of the pages and also use the information collected from their users to create extra values, such as allowing advertising. Back to the problem of conflicts of interest, as we see that to get more information needs to give away equivalent values, then if companies want to get more information from their workers, they can either buy from a third party to monitor their workers or buy information directly from their workers. Transfers of information is a trade.

Hence, we can see that information definitely has its value, can be used to buy extra utilities. However, there is a problem in determining the value of information. The use of information is like many goods that they have different levels of utility in the hands of different people. Therefore, it cannot be an exchange medium as money that has a commonly agreed value. Moreover, different types of information have different values, and same types of information about different individuals also have different values. It is always more valuable information costs more to collect. People can know news about celebrities from newspaper, it seems so easy to collect information about them; however, the costs of collecting information from celebrities is a lot more expensive than collecting information from an ordinary people, since the profits of getting the gossip of celebrities are higher than the costs, it makes people feel knowing information from celebrities is easy and not so expensive.

Therefore, if companies want to know their employees' information about their performances and attitudes, they have to spend awful a lot on collecting such information, and the benefits from knowing the information could be lower than the costs, under such circumstance, there is no incentive for companies to collect the issue of conflicts of interest, though it can create a lot more social costs (e.g. financial crisis).

The insurance industry and its development

The invention of the insurance industry is to reduce individuals' uncertainties; however, individuals have to pay some amounts to receive such receives, so they usually pay a bit slight higher than their expected losses from future uncertain events. In most cases, people are willing to pay a bit hgiher than their expected losses, as people are most likely to be loss aversion. Insurance companies are able to earn profits from the differences between the expected losses and the fees they are willing to pay.

However, the insurance industry partially relies on the governments' regulations, as people are made to buy certain insurances under regulations; therefore, governments' policies can have significant impacts on the insurance industry. In addition, though it is impossible to say we are facing less and less risk in the future since we may face much newly appearing risk, it is almost definite for the known risk to be lower and lower in the future according to our development and invention, for example, travelling by aircraft or ships has been much safer than a century ago. Therefore, the insurance industry is likely to receive lower and lower marginal profit or revenue from the currently existing insurance services, as the risk tends to be lower in the long term, they have to increase more receives to counter newly appeared risk and serve more and more groups of people who face different types of risk. For the newly appearing risk, the industry may have to bear more risk as it is more difficult to estimate the impacts of the newly appearing risk than to estimate the impacts of the existing and well-known risk.

To conclude, the insurance industry has to be innovative and willing to bear risk in order to maintain or expand their current revenues and profits.

Information in the financial market

Information is definitely one of  the most important elements in the financial market without any doubts. Analysis in the financial market is basically a process of accessing information and executing information and give weights to different sources of information.

In the financial market, the access to information is not the same to everyone; therefore, any participants have to use the information they have access to to analyse or estimate the information they do not have access to. In statistics, there are many methods for model selection corrections, that samples may not be selected randomly; similarly, in the financial market, the information that is not received is also not random. Participants have to use the information they already have to estimate the weights for their information and others' information. Moreover, information also has the likelihood to be wrong or inaccurate; therefore, participants may use the existing information to estimate the probability of their information being accurate.

Overall, although people may not know they are estimating the weight and probability of missing information, people executing the information hold in order to get more information from analysis.

The ECB and its possible end of the QE program

The chairman of the European Central Bank said the asset purchasing program which has lasted for 7 years would possible end next month. The asset purchasing program has impacted the European financial market as well as the European economy significantly. The function of this monetary policy program is to supply more cash flow into the economy as well as the financial market in order to lower the costs of financing thus stimulating investment, consumption and production.

The end of the asset purchasing program means the European Central Bank is going to lower its money supply to the market. When the money supply is cut, it could add deflationary pressure, and appreciation pressure. Therefore, once the program ends, the inflation in the Eurozone is very likely to be lowered, and the exchange rate of the Euro is likely to stay strong or even appreciate further.

In addition, recently during the recent period, the interest rates are relatively low for most countries in the Eurozone; however, there has been a period that the financial institutions are very conservative about their lending and investment decisions, once the asset purchasing program ends, small and median companies may find it even harder to seek investment or lending from financial institutions. Therefore, the investment may be lower after the program ends.

The economic growth rates of many Eurozone countries stay low; therefore, they cannot benefit further from the expansionary monetary policy, and when the Euro appreciates further, countries with high public debt levels, like Greece, will become even more difficult to pay back their debts. There is one more event for the Eurozone, which is Brexit. There is definitely no turning back for Brexit and Brexit could cause lowering trading for some Eurozone countries. Since Britain is one of the major trade partners of the Eurozone, when Britain leaves the EU, the trading is quite likely to drop to some degree, this could hurt some economies in the Eurozone.

Overall, I still think the end of the asset purchasing program of the ECB will further slow down the economic growth of the Eurozone in general, and the inflation in the Eurozone is likely to be lower and the Euro is likely to further appreciate.

What a natural disaster influences the financial market?

Summer and winter are the two periods with the highest likelihood of natural disasters. This summer, the US has been suffering serious storms and had significantly serious effects not only on ordinary people's life but also on the US economy as well as the US financial market too.

Natural disasters do not only bring direct losses to ordinary people, but also natural disasters have incredulous high social costs as well. Its impacts on the financial market partially come from the social costs and damage it brings to our society and economy. Moreover, one of its most significant damage or social cost is that it destroys a large amount of resources in a particular geographical area, and creates a vacuum in this area. To fill this vacuum, governments and individuals have to quickly relocate resources from other areas to this particular area. When there is a very rush redistribution of resources, such redistribution is more likely to be more inefficient and insufficient, this could easily lead to waste of resources. Any ineffective use of resources will lead to a drop in the financial market.

Moreover, natural disasters will lead to a drop in the potential production of the economy, though such drop may seem insignificant when the size of the economy is massive. In addition, recently we could see a rise in oil price, it does not lead to an increase in the share prices of any petrol companies or solar companies as the market normally does. This is because the price of oil or petrol is increased by the rush redistribution that I discussed in the previous text, this increases does not provide a sustainable increase and fails to locate oil effectively. And these companies may also suffer losses due to the natural disasters. Therefore, natural disasters are certainly something that mutually costly for everyone in the society. Even some people tend to earn massive profits from the sharp changes in the market prices, they may survive and earn some profits, their public images are damaged and in some societies with large governments, they are likely to be punished by the governments as well.

What is the maximum willingness to pay?

Usually economists believe that increasing market supply tends to lower the market price; however, in the real market, supplier do not supply exactly the same product, and they tend to differentiate their products and many large companies tend to increase their revenues years by years. Therefore, the products in the market are not necessarily to compete with each other, and the market demand seems infinite.

The market demand is because the world population is large and some proportion of the population are not currently unable to afford products and are getting wealthier and going to be able to afford one in the future, it is also because these products are not permanent, they need upgrades or replacements frequently. To individuals, from my personal experience, I feel that our willingness to buy a product is not a strict conditional function that when it meets the condition, we buy the products, if it fails to meet certain conditions, we do not buy the products. Of course,if the price is over our budget (including our credit budget), we are unable to afford the product, so we will not buy it. However,if the price is within our budget, we may buy the product and we may not buy the product. People argue that then the decisions of buying or not buying the product merely depend on the utility it gives to us.However, utility is something that we cannot have exact and accurate valuations. Therefore, I think the decision of whether or not the buy an affordable product is a distribution of probability.

For affordable goods or services:

The market price locates in the area where is the variation of probability is the largest, as the market price can send strong signals to individuals and influence their valuations of the product.

For unaffordable good or services:

The probability is 100% until the price exceed the budge, this is because this product is unaffordable, which means the market price is greater than the budget, if the individual is able to buy the product with its budget and resell it in the market, this individual can gain profits.