BMC

reverse stock split

"stock consolidation" opposite of stock split combines shares into one

company a has a market cap of $100 m. it does a 10-for-1 split. then does a 1-for-16 reverse stock split. finally, a 35-for-1 stock split. what's the new market cap?

$100 m. stock splits and reverse stock splits have no impact on equity valuation, so the market cap stays the same

aggregate earnings and overall stock market (S&P market cap)

* turns in the earnings trend appeared to immediately come before the turns in the stock market

* economic indicators (PMI and job reports) --> real GDP growth --> corporate earnings --> share prices (equities)

*economic indicators = very important!

Why do companies borrow in the corporate bond market?

1. Discrepancy in tax treatment means that debt repayment is lower a company's tax bill by reducing pre tax projects through interest payments There is a corporation tax on company profits of over 20% in many advanced economies so being financed with debt saves a company money 2. Companies can borrow money for longer terms from the bond market than from banks

what does an analyst do when he/she looks at a company for the first time?

1. defines the industry or industries in which the company operates 2. sizes the market or markets in which the company sells 3. calculates the company's market share or market shares 4. estimates the breakdown of the company's cost base

2 reasons why share prices may go up

1. if P/E ratio stays same and E (earnings) goes up, P (share price) will go up (earnings growth drives share price) 2. if E stays the same but P/E increases, P will go up (when multiple expansion drives share price)

absolute valuation process

1. understand historic performance and then estimate long-term future cash flows from the firm 2. estimate the rate at which to discount those cash flows to derive today's value; known as the weighted average cost of capital WACC 3. take outputs from steps 1 and 2 and discount the estimated cash flows by the WACC 4. take the total firm value and derive the market cap by deducting the firm's indebtedness and adding the firm's cash pile to derive market cap 5. divide estimated market cap by number of shares to give estimated fair share price from the valuation

what do analysts look at in addition to drivers? (Delta)

1st must understand metrics and past company performance, then: how well was the economy doing? was the company gaining or losing market share to its competitors? how much were tickets selling for? what was the price of oil for the quarter? what guidance had management provided on company performance?

dividend yield %

= $ dividend per share / $ price per share

earnings yield %

= $ earnings per share / $ price per share *higher than dividend yield

Index weight %

= market cap of one stock ($B) /total market caps for all stocks in index ($B) tells you how much the performance of one stock will contribute to the performance of the overall index

WCDM

A country debt monitor analyzing the financial condition of countries for debt investors

GY

A historic yield chart for a selected bond

Why does the yield curve tend to invert shortly before a recession?

A inverted yield curve means that bond traders are predicting interest rate cuts, and interest rate cuts happen in response to a recession

SOVR

A monitor of global sovereign credit default swap spreads

CAST

A visualization of issuer capital structure

DDIS

A visualization of issuer debt repayment schedules

GC

A visualization tool for real time and historic yield curves

Central bank toolkit to deal with inflation/deflation

Adjusting short term interest rates Making statements about interest rate policy

Fixed income

Aka borrowing and lending (bonds)

SRCH

An encyclopedia of bonds

How does an individual bond work?

Basically an I.O.U note which promises to make regular fixed amount payments (coupons) and a large payment at the end of the loan (principal)

WBG

Big Mac index indentifiying potentially overvalued or undervalued currencies

GDP = C + I + G + (X-M)

C= personal consumption (food) I= private investment (a factory) G=government consumption (a battleship) X= exports M= imports (X-M) = net exports

RATD

Credit rating scales and definitions from various debt rating agencjes

Credit risk indicators

Credit ratings Credit default swaps

FXCA

Currency Conversion Calculator

FXCA

Currency conversion calculator

FXC

Currency rates matrix: finds currency pair values Triangular arbitrage: switching between currencies in a triangle fashion : can't gain/lose money (Ex Swedish crown to pounds to dollars to crown)

CRPR

Displays current and historical credit rankings by issuer from various rating agencies

ECFC

Displays economic forecasts

BYFC

Displays government bond yield estimates for various points in the future

GC3D

Displays how a yield curve moves through time

IFMO

Displays inflation tracking and data such as rates, targets, and forecasts

CSDR

Displays real time credit ratings for sovereign borrowers

WCAP

Displays stock market capitalizations of entire country stock markets around the world

ECOW

Economic data watch: finds most important data by country

ECOS (right click on survey amount)

Economic estimates function - shows how that number was developed

ECFC

Economic forecasts

Essential economic indicators

Economic growth Inflation Unemployment Business confidence Housing

ECSU

Economics surprise monitor US - 40 handpicked meaningful leading indicators (Surprise shows if it was above or below projected) Bloomberg ECO US Surprise Index: all surprise indicators are aggregated to make this number

High inflation does what to bonds?

Erodes the price of bonds and sends the yields up

Movements in the yield curve

Far left of the yield curve is the overnight interest rate set by central bank Far right if yield curve is driven primarily by inflation expectations Left hand end of yield curve is locked and right hand floats freely Steep yield curve signals improving times (bc bond traders think rates will go up to rein in inflation and so they sell longer term bonds in anticipation of price declines; prices down, yields up, curve steepening) Flat yield curve signals worsening times (bc bond traders think rates will go down so they buy longer term bonds in anticipation of price increases - prices up, yields down, curve flattening) Inverted yield curve often precedes a recession (bc bond traders may push the long end down so much that the curve becomes slightly downward sloping)

XAU Curncy

Gold US Dollar Spot: shows price of gold over time

Yield curve and consumer impact

Government bond yields include the affordability of homes and the overall level of activity in the housing market (consistent spread)6

Deficit/GDP

Higher the deficit as a percentage of GDP, higher the yield to compensate for elevated risk

Housing

House building = only 3% of us economy but is a strong indicator for how economy is doing because 1 before house is built, need to believe that consumers are confident enough to assume a 30 year mortgage 2 after buying a house, consumers buy everything else that goes with it - TVs, couches, landscaping services, etc

Why do companies do IPOs?

IPOs incentivize entrepreneurs to innovate as IPOs provide a way for entrepreneurs to monetize their work

IPO

Initial Public Offering: how companies list their stakes to the public

Long term yield drivers

Interest rate forecasts Long term gdp growth estimates Demographics Demand for long term borrowing Supply of long term borrowing Inflation expectations

Real GDP Growth (%)***

Isolates increases in production More insightful for investors

Yield curve - driven by?

Left hand side: short term interest rates (WIRP) Right hand side: inflation expectations (ILBE)

Winners and losers from inflation

Lenders. Borrowers Inflation. ): (: Deflation. (: ):

WB

Monitors major sovereign bond yields and spreads

Why do investors care about unemployment?

Overall increase in unemployment depresses GDP growth ^for US bc US is largely a consumer economy

DEBT

Ownership statistics of sovereign debt for select countries including the US

multiples

P/E ratio

Best leading economic indicator?

PMI: purchasing managers index

FOMC - Federal Open Market Committee

Policy decisions, news, and analysis of the federal open market committee

BUDG

Provides data and analytics on the US Federal Budget

Yield curve

Represents the cost of borrowing for various loan lengths Corporate bonds are priced using a spread off the government yield curve so the yield curve indirectly regulates company funding

ILBE

Shows break even inflation rates derived from inflation protected securities

GEW

Shows key economic stats by country

WIRP

Shows the probability ascribed by the market to future interest rate decisions

What impact will a tightening of the corporate spread most likely have on a company?

Tendency to expand the borrowing capacity of the company Tightening corporate spread is a core of confidence in the company. It will make the cost of borrowing come closer to that of risk free borrowing of the government aka enhancing the company's ability to grow

which of the following is the biggest pitfall of economic indicators?

They do not consistently presage turning points

GDP price deflator

This price index is used to remove inflation from nominal GDP

What is the main reason that investment banks create estimates of economic indicators?

To know when specific economic data points are a positive or negative surprise

ECTR

Trade Flows between major countries

Recession

Two successive quarters of negative real GDP growth

ECST

US GDP breakdown

GDP CYOY index

US year over year real GDP growth

IFMO

World inflation monitor

WIRA (type in currency reserves)

World international reserve assets: amount of currency reserves by country

YAS

Yields and spreads on government bonds

drivers

a company's activities can have many demand drivers (on bloomberg intelligence: downstream) ex platinum autocatalyst, jewelry, electrical, investment, etc

SECF

a search tool that enables the discovery of securities by certain criteria

assessing fair market capitalization

absolute valuation: when an analyst estimates future earnings and then, in turn, estimates how much those estimates are worth in today's money relative valuation: when an analyst compares a company to another similar company or to the overall market to divine relative value; more intuitive than absolute valuation;

EQS

an encyclopedia of all the equities listed on world stock markets

BETA

applies a regression analysis to an equity against its benchmark to assess relative volatility

equity investors don't care about long term growth

bc WACC > nominal GDP growth

Difference between bonds and equities

both are claims on future cash flows bonds give the rights to known fixed repayments (somewhat of a guarantee) equities give the right to unknown residual earnings (no guarantee); confer full ownership; possibility of multiplying your money if things go well

What does the release of earnings announcements have in common with the release of economic indicators?

both are estimated in advance by analysts

CCB

breaks down a company's revenue along industry lines

Why might companies delist from the stock market?

company may have been bought by a private equity fund management may have been fed up with the regulatory burden of being a public company company may have gone bust whole industry may have died (camera industry aka Kodak)

McDonald's ex: relative valuation

compared to itself: earnings going up but most recently went down a little, share price going up ish, P/E ratio stagnant compared to peers: P/E ratio and growth estimates below peers (underdog?) compared to market: P/E ratio about the same and yield a little higher outcome: buy! (also new CEO) year later: earnings up, P/E up, and therefore share price up!

EV

depicts the breakdown of a firm value into its component parts

surprise

difference between the reported results and the estimates of a company beat: when actual results are above the estimates miss: when actual results are below the estimates

EVT

displays a calendar of corporate events for a single security

EVTS

displays a calendar of corporate happenings for a group of securities, such as an index

NI

displays news stories on a specific topic

differences between dividend yields and bond yields

dividend payments may vary year to year (depending on earnings of company) while bond payments usually do not (generally fixed by definition) dividend yields are easier to calculate than bond yields (calculated using 1-year or part-year dividend payment as basis for calculation)

why are equities volatile?

due to the residual nature of earnings high levels of borrowing

earnings

earnings = revenues - costs

a rise in which of the following inputs will increase an absolute valuation? number of shares beta earnings estimates 10 year government bond yields

earnings estimate higher beta or higher 10 year govt bond yield will reduce appraised value

equity valuation with earnings estimate and P/E

earnings x P/E = share price = P

GF

enables the graphing of financial data for a company or index

first thing analyst does when they pick up coverage of a company

examine previous earnings statements and read transcripts of recent company investor conference calls

RVC

generates a bubble chart of valuation measures for a set of peer group companies

how to calculate how many index points a certain stock contributed to an index's level how to calculate the points contribution to the index shift as a result of a percentage move in stock shares then calculate the index move contribution

index level x index contribution of that stock = points contribution of that stock points of contribution of that stock x (1 + % stock price move = new points contribution of that stock new points contribution - old points contribution = index move contribution

how to estimate future company earnings

industry classification suppliers and buyers revenue projections cost base

stock tips for interviews

look for proposed reverse stock splits that will happen the day after your interview; cite the current share price and then say "I reckon it will multiply or triple, etc" look up companies about to do stock splits: ideal if you think you are going to be asked for a short

you are building a financial model of a bifocal lens manufacturer. what driver should you use?

median age of society deterioration of vision increases with age so the casual, intuitive driver of a bifocal lens manufacturer is the median age of society

IPO

monitors equity offerings by stage, region, industry, and other criteria

relative valuation

not an effort to calculate an actual fair share price, but rather to determine whether a company is undervalued, overvalued, or fairly valued 2 step process 1. choose relevant metric (dividend yield or P/E) 2. compare favored metric to something else (self, peers, market)

PEBD

overlays a share price onto P/E ranges

P/E ratio

price per earnings ratio (reciprocal of earnings ratio) = $ price per share / $ earnings per share ex 19.3x

pros/cons of relative valuation

pros 1. relatable: a very similar item for a lower price is a better buy 2. simple: it's the comparison of one valuation metric to another 3. does not demand long-term forecasts: typically one year cons 1. directional: provides an opinion that a company is undervalued or overvalued but not an estimate of how much the company is actually worth 2. hard to find truly comparable companies: no two companies are alike 3. presupposes that the company you are comparing it to is itself fairly valued: uses other valuations as reference points

pros/cons of absolute valuation

pros: 1. precise bc rests on detailed assumptions about the future (ex price per gallon of fuel for an airline) 2. anchored to earnings: derived from the profit generated by the company ; makes analyst think about how a company makes money aka healthy skepticism of companies that have not yet made money 3. disciplined thought process: analyst needs to think through the full business model cons: 1. demands clairvoyance: have to predict the future! 2. laborious: demands a detailed model of all the company's major revenues and costs 3. prone to subtle manipulation: can manipulate the more sensitive assumptions in order to provide the desired answer

RV

provides a table of comparable valuation metrics for peer group companies

EA

provides an overview for earnings season performance for a specific index or industry

BI

provides analysis and data on a series of tailored industry dashboards

FA

provides historic financial statements and select future estimates for an equity or an index

CRP

provides the current and historical risk premiums for individual countries and regions

SPLC

quantifies the key suppliers, customers, and competitors of a company

dividend yields

regular, steady payments to shareholders that are usually paid in cash out of company earnings

actuals

reported historic financial numbers way to estimate earnings: analysts model historic company performance and project the drivers of revenues and costs and thereby earnings

DES

shows a tear sheet and facebook for a company

EM

shows actuals and estimates for a chosen equity

EEG

shows charts of the evolution of estimates over time

ICS

shows companies by industry including revenue estimates

**ICS = FAV FUNCTION ON BLOOMBERG

shows different industries and then breaks them down and shows the companies within each specific sector

TRA

shows index returns including reinvested dividends

GIP

shows price trends during one or several trading days

MRR

shows the best and worst performers in a given index over a given period

MEMB

shows the constituents of an index along with key data points on each member

DVD

shows the historic dividend payments for a company

SURP

shows the impact of surprise announcements on a stock's performance by comparing historical announcements for the stock against consensus estimates

WACC

shows the weighted average cost of capital

process to estimate cost of equity

step a: take 10 year govt bond yield step b: calculate historic overall market return (country risk premium CRP into bloomberg and look for market return) step c: calculate market risk premium (CRP far right column called premium) step d: consider how much riskier this stock is compared to overall market; "beta" - beta is the slope of the best fit line of the regression b/w daily returns of American index with daily returns for that specific stock higher beta = steeper and will move in exaggerated way relative to movement in the market lower beta = tend to be subdued relative to overall market step e: multiply beta by previously calculated expected market return which gives the "equity risk premium" step f: add back the risk free rate to the equity risk premium = cost of equity

Who gets paid before investors

suppliers employees lenders government (taxes)

PEG

table of currencies linked to other currencies

estimating discount rates: how much higher than US government bond yields?

the discount rate used for the overall firm is a blend of the discount rates for the equity and debt blended in proportion to the relative split of equity and debt financing

what is the main driver of earnings?

the state of the economy

enterprise value

total firm value which is divided up between shareholders and bond holders = market cap - cash + debt total equity value and net indebtedness of firm (total debt - cash)

did bulk of return come from dividends?

total return (#) : total with dividends - price you bought the stock total with dividends - price sold stock = #2 dividends contributed: #2 / #

***SPLC: supply chain function 2nd fav function!!!

visualizes a company's suppliers and customers!

calculating the rate at which to discount cash flows

what percentage rate? US government bond yields set baseline for discount rate for equity investors but then add more in order to reflect added risk of investing in a firm

stock split

when a company feels that its share price is too high for retail investors, so divides each share into two or more shares

WEI

world equity index monitor

3 Central bank mandates

- Happy medium: inflation subdued (~2%); provides stable backdrop for businesses and consumers - Inflation: typically caused by excessive economic growth - Deflation: typically caused by lack of economic growth

What makes bond yields move?

1. Credit risk 2. Macroeconomics

How do countries defend their currency pegs?

1. FX Reserves 2. Lift/raise interest rates

3 main entities that trade currencies (largest to smallest)

1. Financial investors buying and selling securities in foreign currencies (45%) 2. Corporations conducting global business selling goods and services across borders 3. Travelers

3 main currency drivers (short term)

1. Surprise changes in interest rates 2. Surprise changes in inflation 3. Surprise changes in trade (Long term: relative prices aka Big Mac index)

Credit default swap

After Enron bankruptcy in 2001 Form of insurance against governments and corporations going bust Higher CDS spread, higher the risk

FXFM

An FX rate forecast model which displays a bell curve of implied volatility

Example of surprise change in trade affecting currency

Collapse/diminishing of exports of one country aka a collapse in the demand for that country's currency leads to a decline in the value of that country's currency Countries that are major net exporters have more attractive currencies (Russia: financial crisis - demand for oil collapsed, price of oil fell, which caused collapse in Russia's exports, which led to collapse in demand for ruble - decline in valuation of ruble)

T: reasury I: nflation P: rotected S: ecurities

Compensates the lender in the event of inflation, using CPI as a guide Higher the expected inflation, greater the investor demand for TIPS relative to normal bonds therefore the greater the difference in yield between the two bonds

What is the federal reserve's favorite inflation gauge?

Core PCE: personal consumption expenditure Consumer price index and gdp deflator are both affected by volatile food and energy prices and therefore are de-emphasized

A rise in what measure would typically send a government bond price up?

Creditworthiness When investors become more comfortable that a borrowers can repay, the risk and therefore the yield on the bond tend to go down, meaning the price goes up Rise in interest rates or inflation typically sends yields up and prices down

WIRA

Currency reserves

Credit risk factors

Debt/gdp Deficit/gdp Repayment schedules

When nominal GDP growth is below real GDP growth?

Denotes negative inflation aka deflation

Term premium

Difference between the yield on the longer maturity bonds and shorter maturity bonds (3 m and 10 y) When term premium is negative : yield curve is inverted (downward sloping) Since 1970 economy has dipped 6 times - all AFTER a yield curve inversion

FRD

Displays FX forward rates for currency pairs

FX24

Displays currency pair trading 24/7

ESNP

Displays economic statistics of over 60 countries

FXFC

Displays foreign exchange rate forecasts

FRD

FX Forward Calculator: shows the forward exchange rates for a selected currency pair Used for those looking to hedge (reduce risk) or to speculate (seek risk)

FX24

FX Session Chart: Euro/US currency pair over a 1 month period

FXTF: currency codes

FX Ticker Finder: list of unique currencies (not pegged) (floating currencies)

FXFM

FX rate forecast model: illustrates the chances of certain currency rates in a selected future timeframe Shown in a bell curve - wider the bell curve, more volatility

FDTR: interest rates

Federal funds target rate: shows main us interest rate over time

Perpetual Bonds

Fixed-income securities which have no stated maturity Principal is never repaid Price and yield are a perfect mirror image

Inflation

General increase in the prices of goods and services which diminishes the purchasing power of money Erodes value of bonds

What generally happens when a central bank unexpectedly increases interest rates?

Government bond yields rise, which attracts investment from around the world, spurring demand for that country's currency so the currency strengthens Currencies with higher interest rates are more attractive

Yield curve and global impact

Government bond yields tend to move in sync - world economics tend to be stimulated or depressed in sync

ISM: institute for supply management

Has index of business confidence - the PMI purchasing manager's index >50 = optimism <50 = pessimism Which correlates with GDP (very similar on graph)

Tools to assess currency risk

Historic volatility of currency pair values Analyst forecasts of currency pairs

NHSPSTOT Index

Housing starts index ; relationship with real gdp growth on graph

ECTR

Interactive trade flow map

When investors doubt the creditworthiness of a borrower, how do they alter their calculation of the bond yield to take into account these doubts?

Investors do not alter the calculation. As yield compares repayments to the price of a bond, and as the price will probably be very allow, the yield will probably be very high. When calculating yield on an ordinary bond, investors take into account the stream of promises repayments, no matter how unlikely they are to materialize.

What does fixed income mean?

It is the fixed amount of money returned *provided the borrower can pay you back at all

What is yield?

Latest calculation of APR (adjusted price ratio) Main input into the yield: price of the bond (which fluctuates) Other input: whatever bond repayments are yet to happen in the future *generally speaking: when price of a bond goes down, APR goes up When a price of a bond goes up, APR goes down Bond yield: the interest rate on an equivalent bank account for the duration of the bond

Yield curve and corporate impact

Lenders to companies face the elevated risk of the companies going bust bc companies are typically less creditworthy than governments So corporate bonds typically have higher yields than government bonds of the same maturity aka "the spread" - measures how much more a business pays to borrow money than the government does If government yield curve goes up, typically corporate yield curve goes up Yield curve affects economic growth through regulating the cost of company borrowing

FXTF

Library of all the world's currencies

Economic growth: gdp

Market value of all final goods and services produced in a country Broadest and most comprehensive barometer of economic activity

FXC

Matrix of currency exchange rates

Who are winners/losers when yields change?

New lenders. New borrowers High (: ): Yields Low D,: :D Yields * yields/interest rates = high: prospective lenders are happy bc as they get relatively more repayments for their planned loans but prospective borrowers are unhappy bc have to promise to pay back relatively more to secure a loan

What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the US?

Nonfarm payrolls go DOWN, PMI indicator goes DOWN, housing starts goes DOWN

Output gap

Output gap % = (actual output $B - potential output $B) / potential output $B When actual is below potential, there is a negative output gap aka the economy has slack and the central bank will be on the lookout for deflation When actual is above potential, the economy is tight and the central bank will be on the lookout for inflation

PEG

Pegged currencies: table of currencies that are linked or pegged to other countrys' currencies

Short term interest rates

Powerful weapon that central banks have to combat, in particular, a positive output gap, which usually coincides with inflation When short term interest rates go up, it becomes more attractive to deposit cash thereby dissuading consumption and investment So rate hikes slow growth and contain inflation

Why is low but positive inflation good for economies?

Protects consumers' purchasing power Keeps borrowing costs low Provides a stable backdrop for businesses to make investment and hiring decisions

ECOW

Provides comprehensive data on economic indicators by country

ECST S

Provides economic data with context and customizable graphs

Macroeconomic environments that effect bond valuation

Short term interest rates Inflation

IFMO Inflation monitor

Shows actual and targeted inflation rates for countries

Tradeweighted: USTW$ Index

Shows trade weighted basket for us currency to see whether it is strong or weak historically, whether it has strengthened or weakened Dollar had strongest value under Reagan: bc business friendly policies and deregulation

Nominal GDP growth (%)

Takes into account increases in production and increases in prices of goods and services

All else equal, what generally happens when inflation surprisingly rises (due to excess money supply, printing more money)?

The currency weakens (laws of supply and demand - scarcity drives value while abundance diminishes value) Countries with lower inflation are more attractive

"Misery index"

To measure consumer pain Inflation rate + unemployment rate

Debt/GDP

When a government borrows and spends, it drives GDP growth But when debt comes due, debt repayments inhibit GDP growth Greater the debt as a proportion of GDP, the greater the debt repayments and therefore greater the drag on the economy

Credit risk and bond yields

When lenders doubt the creditworthiness of borrowers, yields move sharply upwards bc will pay less

BIG MAC: WBG

World burger function: see current prices of Big Macs in major countries expressed in US dollars in first column Far right column calculates difference of that country's Big Mac price versus the price in the us (to indicate whether over or undervalued) Shows how currencies may be over or undervalued

WECO

World economic calendar Click US to see list of chronological list of economic indicators to be released after Jan 1st 1st inkling: PMI bc published on the first business day of the following month (for January) Actual = published economic indicator value On right side: Surv(m) = median estimate by analysts of what the value of the economic indicator will be upon release * if actual > estimate = pleasant surprise if actual < estimate = unpleasant surprise Nonfarm payrolls: published on the first Friday of the following month (same as actual and survey values as above) Housing starts: comes out middle of following month (actual and survey) CPI (inflation) : published middle of following month (actual and survey) GDP: released at every quarter (a month after the end of a quarter)

Consumer price index

an index of the cost of all goods and services to a typical consumer Monthly Inflation baskets- different for each country Also as technology improves and tastes change, the goods/services in the baskets change as well in order to most accurately represent inflation rate

ECFC

displays economic forecasts for identifying trends in global economies

GP

price chart used to identify trends and market patterns

ECOS

provides full details behind economist estimates for calendar releases

WECO

shows economic calendars, events, and releases by country

Law of One Price

the notion that a good/service should sell for the same price no matter where they are in the world (in the long run)

Vicious cycle of deflation

—> prices decline —> consumers defer purchases to await lower prices —> company revenues decline —> companies let go of workers to cut costs—>

Vicious cycle of inflation

—> workers expect prices to increase —> workers demand pay increases —> company wages go up —> companies raise their prices —> repeat