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what is a zero floor limit | the term zero floor limit refers to a policy whereby merchants are required to obtain authorization for every transaction processed at their store regardless of its size by contrast some stores only require authorization for transactions that are above a certain size with that size threshold being known as the store s floor limit | |
how zero floor limits work | zero floor limits are an increasingly popular provision by taking advantage of the advanced computerized systems that are now responsible for processing payments transactions can be authorized within a matter of seconds in fact there is essentially no difference in the speed required to authorize a large transaction as compared to a small one for this reason zero floor limits have become common in recent years in the past merchants who wished to authorize a transaction would need to take a physical imprint of the customer s credit card this process would inevitably slow down the pace of transactions causing many merchants to impose floor limits minimum size thresholds below which transactions would not need to be authorized by switching to a zero floor limit policy merchants and customers alike can benefit from improved fraud protection although merchants have some discretion when deciding on their own floor limit credit card companies can also set their own rules which the merchants would then be obliged to follow if a merchant allows a transaction to be processed without adhering to the credit card company s floor limit policies that merchant may be penalized by the credit card company although zero floor limits are growing in popularity they were initially used mainly in situations where the merchant could not have access to the customer s physical credit card such as with online stores or mail order companies in these cases which are known as contactless transactions it has long been customary to authorize all transactions regardless of their size to protect against the risk of purchases being made with stolen credit cards real world example of a zero floor limit | |
when reviewing her monthly credit card bill emma was shocked to find several small transactions at stores that she did not recognize concerned that her card may have been compromised she contacted her credit card issuer to notify them about the potential theft | after investigating the matter emma s credit card issuer confirmed that her credit card information had been stolen and used by the thief to make online purchases because the purchases in question were for relatively small amounts the thief was able to avoid detection by deliberately making purchases from online merchants without zero floor limit policies thankfully the credit card issuer agreed to reimburse emma for the fraudulent transactions while also mailing her a replacement credit card in doing so they informed emma that going forward the credit card company would be requiring all merchants to impose zero floor limit policies in order to reduce the risk of such theft in the future | |
what is a zero gap condition | a zero gap condition exists when a financial institution s interest rate sensitive assets and liabilities are in perfect balance for a given maturity the condition derives its name from the fact that the duration gap or the difference in the sensitivity of an institution s assets and liabilities to changes in interest rates is exactly zero under this condition a change in interest rates will not create any surplus or shortfall for the company since the firm is immunized to its interest rate risk for a given maturity banks will continually monitor the maturity gap for their interest rate sensitive assets and liabilities understanding a zero gap conditionfinancial institutions are exposed to interest rate risk when the interest rate sensitivity also known as the duration of their assets differs from the interest rate sensitivity of their liabilities a zero gap condition immunizes an institution from interest rate risk by ensuring that a change in interest rates will not affect the overall value of the firm s net worth due to fluctuations in interest rates firms and financial institutions face the risk of a duration gap in the interest rate sensitivities between their assets and liabilities as a result a 1 change in interest rates may increase the value of its assets by a lesser degree than the value gained to its liabilities and this would result in a shortfall to mitigate such interest rate risks firms must make sure that any change in interest rates does not affect the overall value of the net worth of the firm this immunization of the firm from interest rate risks is practiced by maintaining the difference in the sensitivity of the assets and liabilities of the firm given the same maturity which is called the zero gap condition the zero gap condition can be achieved by interest rate immunization strategies also known as multi period immunization immunization is a hedging strategy that seeks to limit or offset the effect that changes in interest rates can have on a portfolio of fixed income securities including the mix of various interest rate sensitive assets and liabilities on a firm s balance sheet large banks must protect their current net worth and pension funds have the obligation of payments after a number of years both of these firms and others must protect the future value of their portfolios while also addressing the uncertainty of future interest rates immunization strategies may use derivatives and other financial instruments to offset as much risk as possible when it comes to interest rates taking into account both the portfolio s duration and its convexity the change in duration as interest rates move or the curvature of the duration in the case of fixed income instruments such as bonds immunization seeks to limit changes to the price as well as reinvestment risk reinvestment risk is the likelihood that an investment s cash flows will earn less when invested in a new security | |
what is a zero investment portfolio | a zero investment portfolio is a collection of investments that has a net value of zero when the portfolio is assembled and therefore requires an investor to take no equity stake in the portfolio for instance an investor may short sell 1 000 worth of stocks in one set of companies and use the proceeds to purchase 1 000 in stock in another set of companies understanding a zero investment portfolioa zero investment portfolio that requires no equity whatsoever is purely theoretical it doesn t exist in the real world but conceptually this type of portfolio is of interest to academics studying finance a truly zero cost investment strategy is not achievable for several reasons first when an investor borrows stock from a broker in order to sell the stock and profit from its decline they must use much of the proceeds as collateral for the loan second in the u s short selling is regulated by the securities and exchange commission sec such that it may not be possible for investors to maintain the right balance of short investments with long investments finally buying and selling securities requires investors to pay commissions to brokers which increases costs to an investor a real life attempt at a zero investment portfolio would involve risking one s own capitalthe unique nature of a zero investment portfolio leads it to not have a portfolio weight at all a portfolio weight is usually calculated by dividing the dollar amount that a portfolio is long by the total value of all the investments in the portfolio because the net value of a zero investment portfolio is zero the denominator in the equation is zero therefore the equation cannot be solved portfolio theory is one of the most important areas of study for students and practitioners of finance and investing the most important contribution of portfolio theory to our understanding of investments is that a group of stocks can earn investors a better risk adjusted return than individual investments can in most real world markets however diversification of assets cannot eliminate risk completely an investment portfolio that can guarantee a return without any risk is known as an arbitrage opportunity and academic financial theory usually assumes that such scenarios are not possible in the real world a true zero investment portfolio would be considered an arbitrage opportunity if the rate of return this portfolio earns equals or exceeds the riskless rate of return usually assumed to be the rate one can earn from u s government bonds arbitrage is the process of buying certain amounts of securities in one market while simultaneously selling the same amount of the same or similar securities in another market the principle of arbitrage can also be applied to buying and selling securities of like value in the same market the goal of an arbitrage strategy is to minimize the overall risk of losing money while at the same time taking advantage of opportunities to make money | |
what is a zero layoff policy | a zero layoff policy dictates that no employees shall be terminated as a result of business based purposes dictated by the economy this policy does not exempt termination as a result of poor performance or other violations of the employment contract such as ethical lapses such policies are enacted in recognition that the welfare of employees should not be harmed due to economic factors that are out of their control a zero layoff policy may also be referred to as a no layoffs policy | |
how a zero layoff policy works | a zero layoff policy means that an employer will do everything in its power to avoid terminating employees when the economy falls into a recession this may include salary cuts cuts to benefits natural attrition moving employees to part time schedules or other cost cutting means a zero layoff policy runs contrary to the current habit of treating employees like free agents almost devoid of any sense of loyalty on both sides such a policy is seen by some as a throwback to times of greater paternalism among employers having a zero layoff policy has a positive effect on employee morale especially during rough economic times as employees do not have to fear being unemployed companies that employ zero layoff policies frequently find themselves in lists of top places to work special considerationsa zero layoff policy is especially evident in recessionary times when most companies will cut headcount in order to improve their financial position companies that employ a zero layoff policy tend to treat employees like investments they hire carefully and tend to train their employees to cover a variety of jobs zero layoff policy examplesas of the third quarter of 2020 the following companies have never laid off an employee some have been able to maintain a zero layoff policy due to steady growth and lean operating principles as well as engendering a sense of teamwork among employees that makes occasional belt tightening more palatable however as the impact of covid 19 drags on some of the companies have warned that layoffs may end up happening | |
what is a zero liability policy | a credit or debit card s zero liability policy means the cardholder is not liable or financially responsible for unauthorized charges in most cases credit card issuers typically provide stronger protection though terms may vary many debit cards offer zero liability as well it s important to understand the limits set by federal law and if the issuer provides more coverage | |
how zero liability policies work | in general zero liability policies reimburse you for charges when others use your credit card for without your permission zero liability policies may apply to personal and business accounts debit cards and credit cards the bank will investigate any claim you make of unauthorized use and it s possible your claim may not be valid for example if the bank finds that an authorized user used your account without your approval the zero liability claim may not be valid while the bank investigates the fraud it will likely offer a temporary credit within a few days after you make the claim if the claim meets the requirements the temporary credit is made permanent however the temporary credit is removed from your account if the claim isn t valid zero liability policy requirementszero liability policies frequently have exceptions the cardholder agreement should specify these exceptions so read it carefully you might not be covered by your zero liability policy if you credit cards offer better fraud protection than debit cards according to federal law credit card issuers are responsible for covering the costs associated with fraudulent credit card charges if you notice and report a charge that doesn t belong on your credit card you aren t liable for any charges but if you fail to report the fraud on time you may need to pay a maximum of 50 toward the charges 1debit cards are subject to a different set of federal rules with debit cards your responsibility is determined by how soon you reported the fraud and whether the physical card or card number was involved here s are come key federal protection rules 1if your physical card wasn t used to commit the debit card fraud just the card number you have up to 60 days from your statement mailing date to report the incident before you are liable 2however debit card issuers may voluntarily offer zero liability policies that are more consumer friendly than federal protections policies vary from issuer to issuer and card network to card network zero liability policy examplesbank of america offers a 0 liability guarantee for account holders which covers fraudulent transactions made by others using your bank of america debit and credit cards for this coverage you must report transactions made by other people promptly however you are not allowed to share personal or account information with anyone 3chase bank also offers zero liability protection this policy fully reimburses unauthorized debit card transactions if account holders report fraud promptly chase defines promptly as within 60 days for personal accounts and 30 days for business accounts 4if your capital one debit mastercard is lost or stolen you have no liability for unauthorized charges like other banks capital one expects you to report fraud as soon as possible after spotting an unauthorized transaction 5mastercard says that cardholders will not be held responsible for unauthorized transactions if 1 you have used reasonable care in protecting your card from loss or theft and 2 you promptly reported loss or theft to your financial institution however this zero liability doesn t apply to mastercard payment cards including unregistered gift cards 6visa s zero liability policy replaces funds stemming from an unauthorized credit or debit transaction within five business days after you notify them once again this policy doesn t apply to anonymous prepaid cards 7 | |
how fraudulent card charges happen | fraudulent charges can appear on a credit or debit card account in a few different ways such as through a data breach skimming or phishing hackers sometimes access organizations databases via a data breach stealing customer card information or other personal information these numbers are sold on the black market purchasing scammers use the numbers to make unauthorized purchases the fraudsters goal is to make card purchases before you report the fraud to your card issuer your banking institution or credit issuer might contact you to ask about suspicious charges to be safe it s always best to hang up and call the issuer directly to inquire if the scammer is calling to get more of your personal information through skimming criminals tamper with a credit or debit card swiping device at an atm store or gas pump to steal card information the information is then used to make unauthorized purchases using cards with embedded microchips or mobile wallets can help avoid this situation when using a machine inspect it well to ensure no skimmer devices are attached phishing scams use fraudulent emails or texts that pretend to be from a trusted company or government agency unsuspecting consumers hand over their personal information after requesting a login but inadvertently submit account information to a fraudster | |
how do you report credit or debit card fraud | contact your bank or credit issuer by phone when you see a suspected fraudulent charge from there the federal trade commission ftc also suggests following up immediately with a letter to the bank that includes all the pertinent details these details include your account number the date and time you think your card was missing and the date you reported the fraud this creates a paper trail to prove you reported the charges 1 | |
what is a validation code | a validation code often called a cvv code is a three or four digit number on the front or back of your credit or debit card the code adds a layer of protection in online or phone transactions thieves who attempt to use your card number without the physical card can t supply the validation code if asked | |
do prepaid cards have zero liability protection | prepaid cards typically do not have the same federal protections as credit and regular debit cards however some issuers and networks may provide liability protection if you register the card in your name 8the bottom linewhile federal law provides some liability protections to credit and debit cardholders whose cards or card numbers have been used in fraudulent transactions many card issuers go beyond that zero liability policies help further limit the cardholder s financial exposure so it s always good to have one just be sure you keep tabs on your accounts so that you can spot fraud and report it immediately | |
what is a zero lot line house | a zero lot line house is a piece of residential real estate in which the structure comes up to or very near to the edge of the property line rowhouses garden homes patio homes and townhomes are all types of properties that may be zero lot line homes they may be attached as in a townhouse or a detached single story or multistory residence understanding a zero lot line housezero lot line houses are built very close to their boundary lines to create more usable space for the residence because there is virtually no space left over they are called zero lot with a zero lot line house the buyer only has to pay for a lot large enough to hold the house such a home confers savings to purchasers who cannot afford a larger lot or do not feel they need one enough to justify the expense these homes are especially popular in urban renewal settings in places with high population density such as the urban core of a large metropolitan area zero lot line houses impart buyers with options beyond the typical lofts and condos while maintaining the ability to provide housing for large numbers of people in a tightly circumscribed area zero lot line house advantagesthough they cost less than homes with lots of extra acreage zero lot line homes are not just for low income homebuyers they are an attractive option for anyone who doesn t have the time or inclination to maintain landscaping not leaving room in the property plot for a yard allows for maximum square footage in the home zero lot homes offer many of the advantages of actualhouses without the time consuming demands of upkeep and the expense oflarge backyards or front lawns these homes are also an appealing alternative to condos because they offer greater privacy and independence while still being low maintenance a common complaint in condominium settings is that a homeowner shares walls with as many as five neighbors increasing the chances of noise disturbances from neighbors and eroding any sense of privacy while certain zero lot line homes such as townhouses and rowhouses still include shared walls there are fewer of them other zero lot line options such as garden homes offer homeowners the freedom of a standalone structure because zero lot developments often incorporate shared spaces into their design features such as shared back alleys and front porches right at the street many of these home encourage a real sense of community among neighbors zero lot line house disadvantageswindow placement noise and a lack of privacy can be issues with these types of homes since there is little to no buffer zone surrounding them moreover because zero lot line homes typically feature less setback from the road compared to homes on larger lots noise from passing cars may be of constant concern particularly if the home is situated on a busy thoroughfare zero lot line houses can create challenges among neighbors especially in areas where people are used to having larger buffer zones in traditionally dense neighborhoods where residents are used to living in close quarters smaller buffer zones are less of a challenge finally zero lot line homes might fetch less on the real estate market especially in boom times lots of land around a home still connote luxury and value and provide homeowners with flexibility to expand to some a zero lot line home could represent the worst of all worlds all the noise and lack of privacy of an apartment with the upkeep of a free standing structure but without compensatory acreage and space | |
what is zero one integer programming | zero one integer programming which can also be written as 0 1 integer programming is a mathematical method of using a series of binary functions in particular yes 1 and no 0 answers to arrive at a solution when there are two mutually exclusive options in the world of finance zero one integer programming is often used to provide answers to capital rationing problems as well as to optimize investment returns and assist in planning production transportation and other issues understanding zero one integer programminginteger programming is a branch of mathematical programming or optimization which involves creating equations in order to solve problems the term mathematical programming is connected with the fact that the goal of solving various problems is choosing programs of action assigning a simple yes no value can be a powerful way to establish a linear problem solving framework to identify inefficiencies fundamentally the most basic instructions executed by a computer are binary codes consisting only of ones and zeros those codes are directly translated into the on and off states of the electricity moving through the computer s physical circuits in essence these simple codes form the basis of machine language the most fundamental variety of programming languages these on and off positions can also be construed as assigning a yes or no to a logical function of course no human would be able to construct modern software programs by explicitly programming ones and zeros instead human programmers must rely on various layers of abstraction that can allow them to articulate their commands in a format that is more intuitive to humans specifically modern programmers issue commands in so called high level languages which utilize intuitive syntax such as whole english words and sentences as well as logical operators such as and or and else that are familiar to everyday usage ultimately however these high level commands need to be translated into machine language rather than doing so manually programmers rely on assembly languages whose purpose is to automatically translate between these high level and low level languages real world example of zero one integer programminga simple example of how zero one integer programming might be used in capital rationing would be in determining the number of product development projects that can be completed by a company by a certain date or within a certain budget for example a number of variables for each project can be given values that ultimately result in a 1 yes or 0 no binary decision about whether or not to include the project in a budget this can be helpful to companies that are unsure about a specific business decision and are looking for a straightforward way to assess the possibilities | |
what is zero percent | in finance the term zero percent refers to promotional interest rates used to entice consumers they are often used by businesses wishing to sell big ticket items such as cars or home appliances although zero percent financing might seem attractive consumers should be aware of any hidden fees embedded in the offer and should ensure that they are able to fully repay the debt once the promotional period has expired | |
how zero percent works | stores often offer aggressive financing packages to incentivize customers to purchase relatively expensive items for example a car dealership might offer zero percent financing for a certain number of years on its vehicles given that most cars are priced at 30 000 or more this type of low cost financing might make it possible for customers to buy the car despite not having the cash available to buy it outright otherwise it is important to note however that these offers may not be as affordable as they seem after all zero percent offers typically last for only a limited period of time such as six months or one year after the promotional period has ended any unpaid balance will typically incur a much higher interest rate if the customer has not managed to repay the debt by that time they might find themselves surprised by the sudden increase in monthly payments and may even be forced into default ultimately stores that offer zero percent financing are relying on the fact that many customers will have failed to pay off the balance of their purchase by the time the promotional period is over they therefore hope to benefit from the much higher interest rates charged afterward similarly stores will sometimes increase the upfront price of the product before offering it under flexible financing terms for instance they might increase the cost of a car by 5 before offering it to customers under a zero percent financing program in instances such as this the zero percent interest offer can be misleading real world example of zero percentkyle is shopping for a new tv at a local big box electronics store he is pleased to find that many of the high end models are being offered under very generous financing terms one of these models a 2 500 4k tv is being offered with zero percent financing for twelve months although kyle had only saved 1 500 toward this purchase he reasons that there is no harm in purchasing the more expensive tv since he can delay making payments on it for a full year even without paying interest unfortunately for kyle he had failed to adequately read the details of the offer one year later he receives his first bill from the electronics store because the promotional period has ended he is now being charged interest at a post promotional rate of 20 unless he quickly pays off the outstanding balance of the tv he may find that the true cost of the purchase was far greater than he had imagined in addition 0 financing deals often include a provision that will add any deferred interest back into the balance due if the entire amount is not paid off prior to the end of the promotional period it pays to read the fine print of any 0 financing offer | |
what is a zero plus tick | a zero plus tick or zero uptick is a security trade that is executed at the same price as the preceding trade but at a higher price than the last trade of a different price for example if a succession of trades occurs at 10 10 01 and 10 01 again the latter trade would be considered a zero plus tick or zero uptick trade because it is the same price as the previous trade but a higher price than the last trade at a different price the term zero plus tick or zero uptick can be applied to stocks bonds commodities and other traded securities but most often is used for listed equity securities the opposite of a zero plus tick is a zero minus tick understanding a zero plus tickan uptick and zero plus tick means the price of a stock moved higher and then stayed there albeit briefly it was for this reason that for more than 70 years there was an uptick rule as established by the u s securities and exchange commission sec which stated that stocks could only be shorted on an uptick or a zero plus tick not on a downtick 1the uptick rule was intended to stabilize the market by preventing traders from destabilizing a stock s price by shorting it on a downtick prior to the implementation of the uptick rule it was common for groups of traders to pool capital and sell short in order to drive down the price of a specific security the goal of this was to cause a panic among shareholders who would then sell their shares at a lower price this manipulation of the market caused securities to decline even further in value it was thought that short selling on downticks may have led to the stock market crash of 1929 following inquiries into short selling that occurred during the 1937 market break the uptick rule was implemented in 1938 and lifted in 2007 after the sec concluded that markets were advanced and orderly enough to not need the restriction it is also believed that the3advent of decimalization on the major stock exchanges helped to make the rule unnecessary 13during the 2008 financial crisis widespread calls for the reinstatement of the uptick rule led the sec to implement an alternative uptick rule in 2010 this rule stated that if a stock dropped more than 10 in a day short selling would only be allowed on an uptick once the 10 drop has been triggered the alternate uptick rule remains in effect for the rest of the day and the following day 2example of a zero plus tickassume that company abc has a bid price of 273 36 and an offer of 273 37 transactions have occurred at both of these prices in the last second as the price holds there a transaction occurring at 273 37 is an uptick if another transaction occurs at 273 37 that is a zero tick plus in most circumstances this doesn t matter but say the stock has fallen by 10 from the prior close price at one point in the day then the upticks matter because a trader could only short if the price is on an uptick essentially this means they can only get filled on the offer side they can t cross the market to remove liquidity off the bid this is per the alternative uptick rule established in 2010 | |
what is zero proof bookkeeping | zero proof bookkeeping is a manual bookkeeping procedure used in accounting in which posted entries are systematically subtracted from an ending balance to check for errors in zero proof bookkeeping a balance of zero when all entries have been subtracted is proof that the accounting entries have been entered correctly in this way this practice is quite similar to keeping a balance sheet which is a common financial statement issued by firms that balances assets with liabilities and shareholder s equity such that subtracting the left side from the right side of the balance sheet results in a sum of zero zero proof bookkeeping is employed as part of a double entry bookkeeping system where credits liabilities and debits assets are kept track of simultaneously understanding zero proof bookkeepingthis method used as part of a double entry bookkeeping system may be used to reconcile accounting differences in situations where the number of entries or transactions is not overly large a typical situation where zero proof bookkeeping is used is by bank tellers to reconcile differences at the end of a day zero proof bookkeeping is not practical where large numbers of transactions are the norm and many of the figures are rounded thus this practice is most often used by smaller businesses or for individual purposes because zero proof bookkeeping is carried out by hand it is a laborious and time consuming process it is also tedious in that the same sort of manual calculations must be carried out on a regular basis for example at the end of each business day of course this work can be augmented with the work of calculators or spreadsheets such as microsoft excel to start in the zeroing out process the bookkeeper will first engage in footing the ledger the footing here means summing up all of the numbers recorded in a single column of the accounting ledger the resulting sum which appears at the bottom foot of the column is then used to reconcile against the other columns by comparing and subtracting debits from credits cross footing an example of zero proof bookkeeping in practice is the use of balance sheets by firms where shareholders equity is used as a figure either positive or negative to balance assets with liabilities so that they add up to zero on net | |
what are zero rated goods | zero rated goods in countries that use value added tax vat are products that are exempt from that value taxation understanding zero rated goodsin most countries the government mandates a domestic vat requirement for goods and services in most reported data the total price of products sold in a country includes the vat and is an additional charge to sales tax in most transactions the vat is a form of consumption tax countries using vat designate certain goods as zero rated goods zero rated goods are typically individualized items countries designate these products as zero rated because they are leading contributors to other manufactured goods and a significant component of a broader supply chain also many food items are identified as zero rated goods and sell with 0 vat examples of items that may be zero rated include certain foods and beverages exported goods donated goods sold by charity shops equipment for the disabled prescription medications water and sewage services books and other printed publications and children s clothing in many cases buyers use zero rated goods in production and benefit from paying a lower price for the goods without the tax a food manufacturer may use zero rated goods in the manufacturing of a food product but when the consumer buys the final product it includes a vat overall the absence of vat on zero rated goods results in a lower total purchase price for the goods zero rated goods can save buyers a significant amount of money in the united kingdom for example the standard vat rate levied on most goods is 20 and the reduced rate is 5 1 | |
when a consumer brings a good from one country to another either individually or via a shipment there is generally an international vat charge in addition to any import or export tariffs due internationally designated zero rated goods are not subject to international vat so the cost of importing or exporting them is lower | some goods and services are also reported as exempt from vat these exempt goods and services are typically a focused group provided by a seller that is not subject to vat the european commission for example exempts goods such as finance and insurance services and some land building supplies other examples of exempt goods are those that serve the public interest such as medical and dental care social services and education 2zero rated goods exampleoften goods and services that are zero rated are those that are considered necessary such as food items sanitary products and animal feeds zero rating these items makes them more affordable for lower income consumers for example in 2018 an independent panel at the university of stellenbosch in south africa made the recommendation to add several items to the country s list of zero rated food items white bread cake flour bread flour baby and adult diapers sanitary products and school uniforms were some of the items the recommendation came on the heels of an increase in the vat rate in south africa from 14 to 15 a move that was opposed by many who saw it as harmful to lower income households the country s finance minister at the time nhlanhla nene appointed the independent panel which was headed by professor ingrid woolard who teaches economics at the university of stellenbosch the panel s recommendations expanded an existing list of 19 zero rated food items including brown bread fruits vegetables dried beans rice lentils maize meal milk eggs fish mealie rice and vegetable oil 3 | |
what is a zero sum game | zero sum is a situation often cited in game theory in which one person s gain is equivalent to another s loss so the net change in wealth or benefit is zero a zero sum game may have as few as two players or as many as millions of participants in financial markets options and futures are examples of zero sum games excluding transaction costs for every person who gains on a contract there is a counter party who loses investopedia laura porterunderstanding zero sum gameszero sum games are found in many contexts poker and gambling are popular examples of zero sum games since the sum of the amounts won by some players equals the combined losses of the others games like chess and tennis where there is one winner and one loser are also zero sum games derivatives trades are also often cited as zero sum games since every dollar earned has to be lost by another party to the transaction zero sum vs positive sum gameszero sum games are the opposite of win win situations such as a trade agreement that significantly increases trade between two nations or lose lose situations like war for instance in real life however things are not always so obvious and gains and losses are often difficult to quantify | |
when applied specifically to economics there are multiple factors to consider when understanding a zero sum game a zero sum game assumes a version of perfect competition and perfect information both opponents in the model have all the relevant information to make an informed decision taking a step back most transactions or trades are inherently non zero sum games because when two parties agree to trade they do so with the understanding that the goods or services they are receiving are more valuable than the goods or services they are trading for it after transaction costs this is called positive sum and most transactions fall under this category | many well known game theory examples like the prisoner s dilemma cournot competition centipede game and deadlock are also non zero sum a positive sum game is where the net result is greater than zero even though there may be some winners and losers in economics trade and exchange are thought to be examples of a positive sum game zero sum games and game theorygame theory is a complex theoretical study in economics the 1944 groundbreaking work theory of games and economic behavior written by hungarian born american mathematician john von neumann and co written by oskar morgenstern is the foundational text 1 game theory is the study of the decision making process between two or more intelligent and rational parties game theory can be used in a wide array of economic fields including experimental economics which uses experiments in a controlled setting to test economic theories with more real world insight when applied to economics game theory uses mathematical formulas and equations to predict outcomes in a transaction taking into account many different factors including gains losses optimality and individual behaviors in theory a zero sum game is solved via three solutions perhaps the most notable of which is the nash equilibrium put forth by john nash in a 1951 paper titled non cooperative games 2 the nash equilibrium states that two or more opponents in the game given knowledge of each others choices and that they will not receive any benefit from changing their choice will therefore not deviate from their choice example of a zero sum gamethe game of matching pennies is often cited as an example of a zero sum game according to game theory the game involves two players a and b simultaneously placing a penny on the table the payoff depends on whether the pennies match or not if both pennies are heads or tails player a wins and keeps player b s penny if they do not match then player b wins and keeps player a s penny matching pennies is a zero sum game because one player s gain is the other s loss the payoffs for players a and b are shown in the table below with the first numeral in cells a through d representing player a s payoff and the second numeral representing player b s playoff as can be seen the combined playoff for a and b in all four cells is zero | |
how zero sum games apply to finance | in the stock market trading is often thought of as a zero sum game however because trades are made on the basis of future expectations and traders have different preferences for risk a trade can be mutually beneficial investing longer term is a positive sum situation because capital flows facilitation production and jobs that then provide production and jobs that then provide savings and income that then provides investment to continue the cycle options and futures trading is the closest practical example to a zero sum game scenario because the contracts are agreements between two parties and if one person loses then the other party gains while this is a very simplified explanation of options and futures generally if the price of that commodity or underlying asset rises usually against market expectations within a set time frame an investor can close the futures contract at a profit thus if an investor makes money from that bet there will be a corresponding loss and the net result is a transfer of wealth from one investor to another | |
does zero sum game mean all or nothing | yes often the terms zero sum and all or nothing are used to describe the same phenomenon where there can only be one winner at the expense of the loser s | |
why is it called zero sum | the term zero sum comes from the fact that some situations require winners to gain at the expense of losers such that the net value of the system remains unchanged for example a winner with 3 would result in say two losers one with 1 and one with 2 the sum is zero 3 2 1 | |
what is a zero sum game in relationships | in the context of personal relationships a zero sum game implies that there can only be one winner at the expense of the other person or people this can create conflict and tension | |
what is a zero sum game | zero sum is a situation often cited in game theory in which one person s gain is equivalent to another s loss so the net change in wealth or benefit is zero a zero sum game may have as few as two players or as many as millions of participants in financial markets options and futures are examples of zero sum games excluding transaction costs for every person who gains on a contract there is a counter party who loses investopedia laura porterunderstanding zero sum gameszero sum games are found in many contexts poker and gambling are popular examples of zero sum games since the sum of the amounts won by some players equals the combined losses of the others games like chess and tennis where there is one winner and one loser are also zero sum games derivatives trades are also often cited as zero sum games since every dollar earned has to be lost by another party to the transaction zero sum vs positive sum gameszero sum games are the opposite of win win situations such as a trade agreement that significantly increases trade between two nations or lose lose situations like war for instance in real life however things are not always so obvious and gains and losses are often difficult to quantify | |
when applied specifically to economics there are multiple factors to consider when understanding a zero sum game a zero sum game assumes a version of perfect competition and perfect information both opponents in the model have all the relevant information to make an informed decision taking a step back most transactions or trades are inherently non zero sum games because when two parties agree to trade they do so with the understanding that the goods or services they are receiving are more valuable than the goods or services they are trading for it after transaction costs this is called positive sum and most transactions fall under this category | many well known game theory examples like the prisoner s dilemma cournot competition centipede game and deadlock are also non zero sum a positive sum game is where the net result is greater than zero even though there may be some winners and losers in economics trade and exchange are thought to be examples of a positive sum game zero sum games and game theorygame theory is a complex theoretical study in economics the 1944 groundbreaking work theory of games and economic behavior written by hungarian born american mathematician john von neumann and co written by oskar morgenstern is the foundational text 1 game theory is the study of the decision making process between two or more intelligent and rational parties game theory can be used in a wide array of economic fields including experimental economics which uses experiments in a controlled setting to test economic theories with more real world insight when applied to economics game theory uses mathematical formulas and equations to predict outcomes in a transaction taking into account many different factors including gains losses optimality and individual behaviors in theory a zero sum game is solved via three solutions perhaps the most notable of which is the nash equilibrium put forth by john nash in a 1951 paper titled non cooperative games 2 the nash equilibrium states that two or more opponents in the game given knowledge of each others choices and that they will not receive any benefit from changing their choice will therefore not deviate from their choice example of a zero sum gamethe game of matching pennies is often cited as an example of a zero sum game according to game theory the game involves two players a and b simultaneously placing a penny on the table the payoff depends on whether the pennies match or not if both pennies are heads or tails player a wins and keeps player b s penny if they do not match then player b wins and keeps player a s penny matching pennies is a zero sum game because one player s gain is the other s loss the payoffs for players a and b are shown in the table below with the first numeral in cells a through d representing player a s payoff and the second numeral representing player b s playoff as can be seen the combined playoff for a and b in all four cells is zero | |
how zero sum games apply to finance | in the stock market trading is often thought of as a zero sum game however because trades are made on the basis of future expectations and traders have different preferences for risk a trade can be mutually beneficial investing longer term is a positive sum situation because capital flows facilitation production and jobs that then provide production and jobs that then provide savings and income that then provides investment to continue the cycle options and futures trading is the closest practical example to a zero sum game scenario because the contracts are agreements between two parties and if one person loses then the other party gains while this is a very simplified explanation of options and futures generally if the price of that commodity or underlying asset rises usually against market expectations within a set time frame an investor can close the futures contract at a profit thus if an investor makes money from that bet there will be a corresponding loss and the net result is a transfer of wealth from one investor to another | |
does zero sum game mean all or nothing | yes often the terms zero sum and all or nothing are used to describe the same phenomenon where there can only be one winner at the expense of the loser s | |
why is it called zero sum | the term zero sum comes from the fact that some situations require winners to gain at the expense of losers such that the net value of the system remains unchanged for example a winner with 3 would result in say two losers one with 1 and one with 2 the sum is zero 3 2 1 | |
what is a zero sum game in relationships | in the context of personal relationships a zero sum game implies that there can only be one winner at the expense of the other person or people this can create conflict and tension | |
what is the zero volatility spread z spread | the zero volatility spread z spread is the constant spread that makes the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate treasury curve where cash flow is received in other words each cash flow is discounted at the appropriate treasury spot rate plus the z spread the z spread is also known as a static spread formula and calculation for the zero volatility spreadto calculate a z spread an investor must take the treasury spot rate at each relevant maturity add the z spread to this rate and then use this combined rate as the discount rate to calculate the price of the bond the formula to calculate a z spread is p c 1 1 r 1 z 2 2 n c 2 1 r 2 z 2 2 n c n 1 r n z 2 2 n where p current price of the bond plus any accrued interest c x bond coupon payment r x spot rate at each maturity z z spread n relevant time period begin aligned text p frac c 1 left 1 frac r 1 z 2 right 2n frac c 2 left 1 frac r 2 z 2 right 2n frac c n left 1 frac r n z 2 right 2n textbf where text p text current price of the bond plus any accrued interest c x text bond coupon payment r x text spot rate at each maturity z text z spread n text relevant time period end aligned p 1 2r1 z 2nc1 1 2r2 z 2nc2 1 2rn z 2ncn where p current price of the bond plus any accrued interestcx bond coupon paymentrx spot rate at each maturityz z spreadn relevant time period for example assume a bond is currently priced at 104 90 it has three future cash flows a 5 payment next year a 5 payment two years from now and a final total payment of 105 in three years the treasury spot rate at the one two and three year marks are 2 5 2 7 and 3 the formula would be set up as follows 104 90 5 1 2 5 z 2 2 1 5 1 2 7 z 2 2 2 105 1 3 z 2 2 3 begin aligned 104 90 frac 5 left 1 frac 2 5 z 2 right 2 times 1 frac 5 left 1 frac 2 7 z 2 right 2 times 2 frac 105 left 1 frac 3 z 2 right 2 times 3 end aligned 104 90 1 22 5 z 2 1 5 1 22 7 z 2 2 5 1 23 z 2 3 105 with the correct z spread this simplifies to 104 90 4 87 4 72 95 32 begin aligned 104 90 4 87 4 72 95 32 end aligned 104 90 4 87 4 72 95 32 this implies that the z spread equals 0 25 in this example | |
what the zero volatility spread z spread can tell you | a z spread calculation is different than a nominal spread calculation a nominal spread calculation uses one point on the treasury yield curve not the spot rate treasury yield curve to determine the spread at a single point that will equal the present value of the security s cash flows to its price the zero volatility spread z spread helps analysts discover if there is a discrepancy in a bond s price because the z spread measures the spread that an investor will receive over the entirety of the treasury yield curve it gives analysts a more realistic valuation of a security instead of a single point metric such as a bond s maturity date | |
what is the zeta model | the zeta model is a mathematical model that estimates the chances of a public company going bankrupt within a two year time period the number produced by the model is referred to as the company s z score or zeta score and is considered to be a reasonably accurate predictor of future bankruptcy the model was published in 1968 by new york university professor of finance edward i altman the resulting z score uses multiple corporate income and balance sheet values to measure the financial health of a company the formula for the zeta model is 1 2 a 1 4 b 3 3 c 0 6 d e where score a working capital divided by total assets b retained earnings divided by total assets c earnings before interest and tax divided by total assets d market value of equity divided by total liabilities e sales divided by total assets begin aligned zeta 1 2a 1 4b 3 3c 0 6d e textbf where zeta text score a text working capital divided by total assets b text retained earnings divided by total assets c text earnings before interest and tax divided by total assets d text market value of equity divided by total liabilities e text sales divided by total assets end aligned 1 2a 1 4b 3 3c 0 6d ewhere scorea working capital divided by total assetsb retained earnings divided by total assetsc earnings before interest and tax divided by total assetsd market value of equity divided by total liabilitiese sales divided by total assets | |
what does the zeta model tell you | the zeta model returns a single number the z score or zeta score to represent the likelihood of a company going bankrupt in the next two years the lower the z score the more likely a company is to go bankrupt the zeta model s bankruptcy prediction accuracy has been found to range from more than 95 percent one period prior to a bankruptcy to 70 for a series of five prior annual reporting periods 1z scores exist in so called zones of discrimination which indicates the likelihood of a firm going bankrupt a z score lower than 1 8 indicates that bankruptcy is likely while scores greater than 3 0 indicate bankruptcy is unlikely to occur in the next two years companies that have a z score between 1 8 and 3 0 are in the gray area and bankruptcy is as likely as not different z score formulations and zeta models exist for special cases such as private firms emerging market risks and non manufacturer industrials the zeta model was developed by new york university professor edward altman in 1968 the model was originally designed for publicly traded manufacturing companies later versions of the model were developed for privately held companies small businesses and non manufacturing companies and emerging markets | |
what is the zew indicator of economic sentiment | the zew indicator of economic sentiment is a simple sentiment indicator created out of the monthly zew financial market survey the zew financial market survey is an aggregation of the sentiments of approximately 350 economists and analysts on the economic future of germany in the medium term zew stands for zentrum f r europ ische wirtschaftsforschung which translates to the center for european economic research understanding the zew indicator of economic sentimentthe zew financial market survey covers a number of areas sectors and regions but only the questions related specifically to the german economy are used to create the zew indicator of economic sentiment from this data a simple indicator reading is given showing the difference between the number of analysts that are bullish on the german economy versus those who are bearish if the reading is a negative percentage it means the majority of analysts are bearish if the reading is positive it means the majority is bullish 1for example if 20 of respondents expect the german economic situation to deteriorate 30 expect it to remain unchanged and 50 expect it to improve then the zew indicator of economic sentiment would have a positive value of 20 this is a bullish reading and suggests that financial experts see positive signs for growth in the medium term as it is a sentiment indicator double digit readings are not uncommon in 2018 for example the zew indicator of economic sentiment went from a positive reading of 20 4 to 25 over a span of seven months during this time german economic growth slowed from 2 2 in 2017 to 1 5 in 2018 but the impact on the zew indicator of economic sentiment somewhat overstated the severity of this slowdown as sentiment indicators are known to do 2sentiment indicatorseconomic sentiment indicators are a popular means of gauging and forecasting trends in the economy and the markets various economic theories support the use of such indicators though they may otherwise disagree greatly in their assumptions and conclusions these include keynesian economics with its focus on investor and consumer psychology as fundamentally irrational driving forces of recessions and business cycles and rational expectations theory with its assertion that market participants in general use all available and relevant economic combined with a more or less accurate understanding of the structure of the economy to efficiently form rational expectations of future economic trends sentiment indicators usually take the form of surveys of opinions or intentions toward future actions and economic trends among various groups of people in the economy by surveying large numbers of people sentiment indicators are geared to leveraging the wisdom of crowds this is the idea that while individuals might often be mistaken the average thinking of a large number of people aggregates more dispersed information and is likely to be more accurate the groups surveyed may include investors ceos supply chain managers small business owners bank lending officers or consumers for example a survey of consumer sentiment might ask a sample of consumers whether they feel optimistic about the economy and whether they plan to make any big ticket purchases in the next six months some indicators are targeted at key participants who directly drive markets such as consumers and investors and some like the zew index of economic sentiment are targeted at experts who are expected to have better than average insight into future economic trends the data behind the zew indicator of economic sentimentas mentioned the zew indicator of economic sentiment takes the aggregate of around 350 economists and analysts sentiments to get a sense of germany s economic future these experts come from banks insurance companies and the financial departments of selected corporations they are asked about their expectations for the coming six months regarding the economy generally inflation rates interest rates stock markets exchange rates and oil prices the index itself is calculated as the percentage of experts who are optimistic regarding germany s economy in the next six months minus the percentage who are pessimistic for the german economy over that time period 1in addition to the questions about the german economy the zew financial market survey covers the economic futures of several other countries and regions including japan the united states the eurozone the uk france and italy 2 | |
what is the zig zag indicator | the zig zag indicator lowers the impact of random price fluctuations and is used to help identify price trends and changes in price trends understanding the zig zag indicatorthe zig zag indicator plot points on a chart whenever prices reverse by a percentage greater than a pre chosen variable an analyst can set the percentage level to trigger the indicator straight lines are then drawn connecting these points the indicator is used to help identify price trends it eliminates random price fluctuations and attempts to show trend changes zig zag lines only appear when there is a price movement between a swing high and a swing low that is greater than a specified percentage often 5 by filtering minor price movements the indicator makes trends easier to spot in all time frames the zig zag indicator is often used in conjunction with elliot wave theory to determine the positioning of each wave in the overall cycle traders can experiment with different percentage settings to see what gives the best results for example a setting of 4 may define waves more clearly than a setting of 5 stocks have their own patterns so it is likely that traders will need to optimize the zig zag indicator s percentage setting to suit those securities although the zig zag indicator does not predict future trends it helps to identify potential support and resistance zones between plotted swing highs and swing lows zig zag lines can also reveal reversal patterns i e double bottoms and head and shoulders tops traders can use popular technical indicators such as the relative strength index rsi and the stochastics oscillator to confirm whether the price of a security is overbought or oversold when the zig zag line changes direction a momentum investor might use the indicator to stay in a trade until the zig zag line confirms in the opposite direction for example if the investor holds a long position they would not sell until the zig zag line turns downward the zig zag indicator formulazigzag hl c h a n g e x r e t r a c e false l a s t e x t r e m e true if c h a n g e x plot zigzag where hl high low price series or closing price series c h a n g e minimum price movement in percentage r e t r a c e is change a retracement of the previous move or an absolute change from peak to trough l a s t e x t r e m e if the extreme price is the same over multiple periods is the extreme price the first or last observation begin aligned text zigzag text hl change x retrace text false lastextreme text true text if change x text plot zigzag textbf where text hl text high low price series or closing price series change text minimum price movement in percentage retrace text is change a retracement of the previous text move or an absolute change from peak to trough lastextreme text if the extreme price is the same over text multiple periods is the extreme price the first or text last observation end aligned zigzag hl change x retrace false lastextreme true if change x plot zigzagwhere hl high low price series or closing price series change minimum price movement in percentageretrace is change a retracement of the previousmove or an absolute change from peak to trough lastextreme if the extreme price is the same overmultiple periods is the extreme price the first orlast observation zig zag indicator limitationslike other trend following indicators buy and sell signals are based on past price history that may not be predictive of future price action for example the majority of a trend may have already happened when a zig zag line finally appears traders should be aware the most recent zig zag line may not be permanent when price changes direction the indicator starts to draw a new line if that line does not reach the indicator s percentage setting and the price of the security reverses direction the line is removed and replaced by an extended zig zag line in the trend s original direction given the lag many traders use the zig zag indicator to confirm the direction of the trend rather than attempting to time a perfect entry or exit | |
what is zk snark | zk snark stands for zero knowledge succinct non interactive argument of knowledge it is cryptographic proof that allows one party to prove it possesses certain information without revealing that information this proof is made possible using a secret key created before the transaction takes place zk snark is used as part of the protocol for the cryptocurrency zcash understanding zk snarkfor many original members of the cryptocurrency community primarily the bitcoin community privacy was an assumed aim and feature of cryptocurrencies however privacy was always a second order concern given cryptocurrency s need to create a trustless system of guaranteeing the integrity of electronic currency and digital transactions in the early 2010s bitcoin users sometimes assumed that their transactions were anonymous because their offline identities weren t associated with users public keys but through the end of the decade coordinated efforts by data scientists hackers and law enforcement proved that it is not only possible but relatively easy to re identify people who had given pseudonymous data to multiple sources because of the perceived lack of privacy of some of the original cryptocurrencies like bitcoin developers started working on privacy focused coins the most prominent of these is zcash backed by a privacy concept known as zk snarks zero knowledge proofa zk snark zero knowledge succinct non interactive argument of knowledge utilizes a concept known as a zero knowledge proof put simply a zero knowledge proof is a situation in which each of two parties in a transaction is able to verify to each other that they have a particular set of information while at the same time not revealing what that information is the idea behind these proofs was first developed in the 1980s for most other types of proof at least one of the two parties must have access to all the information a traditional proof can be compared to a password used to access an online network the user submits the password and the network itself checks the contents of the password to verify that it is correct in order to do this the network must also have access to the contents of the password a zero knowledge proof version of this situation would involve the user demonstrating to the network via mathematical proof that they have the correct password without actually revealing the password itself the privacy and security advantages in this situation are clear if the network does not have the password stored somewhere for verification purposes the password cannot be stolen the mathematical basis of zk snarks is complex nonetheless proofs of this type allow one party to demonstrate not only that a particular bit of information exists but also that the party in question has awareness of that information in the case of zcash zk snarks can be verified nearly instantly and the protocol does not require any interaction between the prover and the verifier zk snark examplebecause zk snarks are tough to comprehend it s best to use a simple example of what they are imagine you have a safebox with a combination lock at a bank with a note in it the note has a signature and printed name on it you believe you re the only one that knows what it says you re discussing it with a friend but have not revealed anything about the note other than it exists in that safebox the friend tells you they know what it says and then tells you the name on the note they have provided proof that they know the combination and what s on the note without revealing it on a blockchain it is much more complicated but this is the general idea someone provides proof they know something without revealing it criticism of zk snarksthere are of course concerns related to zk snarks for instance if someone was able to access the private key that was used to create the parameters of the proof protocol they could create false proofs that nonetheless looked valid to verifiers this would allow that person to create new zcash tokens through a counterfeiting process in order to prevent this from happening zcash was designed to elaborate the proving protocols and spread them out over multiple parties while the construction of the zcash proving process was completed in such a way as to minimize the possibility of counterfeiting tokens via false proofs there is at least one other concern related to the cryptocurrency as well zcash was created with a 20 tax levied on all blocks created over the first several years of the token this tax is known as the founder s tax and it is used to compensate the developers of the cryptocurrency critics have suggested that the founders could potentially use this facet of the system to create an infinite number of zcash tokens without anyone else being aware of the existence of those tokens for that reason it s not entirely possible to know the exact number of zcash tokens in existence at this point since 2019 some developers have been working to improve zk snarks by removing the trusted setup in 2022 zcash developers implemented the halo 2 zero knowledge system eliminating one of the blockchain s most significant privacy issues halo 2 doesn t require a trust setup between users 1 | |
what is an example of a zk snark | in blockchains a zk snark is a proof that an entity has something knowledge data and so on but didn t reveal it to another entity for instance if a blockchain requires a public and secret key for a transaction a hashed solution could be generated by one party and the other could generate a solution that falls within a specified range proving they have the information needed | |
what is a zk snark circuit | an electronic circuit is sometimes used to describe how zk snark works or when designing a zero knowledge process because there are electronic terms like gates and chips used when creating workflows 2 | |
what is the difference between zk snark and zk stark | zk stark stands for zero knowledge scalable transparent argument of knowledge and is much more efficient when more witnesses are involved than zk snark the bottom linezk snarks serve as proof that one user has information without revealing it this is a confusing but computationally quick mathematical process used in blockchains to maintain user privacy | |
what is a zombie bank | a zombie bank is an insolvent financial institution that is able to continue operating thanks to explicit or implicit support from the government understanding zombie bankszombie banks have large amounts of nonperforming assets on their balance sheets and are kept afloat to prevent panic from spreading to healthier banks normally a bank running at a significant loss will eventually be forced into bankruptcy at which point its assets will be sold off to pay down as many debts as possible that is unless they are bailed out by governments zombie banks are creatures of financial repression when loans go bad a capital flight takes hold and the value of assets plummet central banks sometimes decide to keep debt burdened banks corporations and households on life support instead of allowing nature to take its course and creative destruction to do its work previously banks were left to die government intervention surfaced later on when it became clear that struggling financial institutions incite panic policymakers wanted to avoid healthier ones getting caught in the crossfire and decided to take action since then debates have raged about when is the right time to pull the plug governments might arrange for the creation of a bad bank to purchase bad loans and illiquid assets of a failing institution the term zombie bank was first coined by edward kane of boston college in 1987 in reference to the savings and loan crisis s l commercial mortgage losses threatened to wipe out savings and loan institutions rather than let them go under policymakers allowed many of them to stay in business 1 they hoped that keeping them afloat would pay off should the market rebound eventually policymakers gave up on this strategy when the losses of the zombies had tripled shutting down struggling banks can incite widespread panic however evidence shows that enabling them to continue operating comes with several drawbacks as well restoring banks back to health can cost hundreds of billions of dollars and weigh on economic growth by not liquidating zombie banks investors capital is trapped instead of being put to more productive use plus rather than strengthening healthy companies and supporting economic recovery zombie banks prop up rotting corporations by distorting market mechanisms the resulting misallocation of resources weakens the whole financial system zombie bank examples | |
when its real estate bubble collapsed in 1990 japan kept its insolvent banks going rather than recapitalizing them or letting them go bust as the u s did during the s l crisis nearly 30 years later japan s zombie banks still have large amounts of non performing loans on their books instead of helping japan to recover these banks locked its economy into a deflationary trap that it has never escaped from 2 | in its desperation to avoid becoming japan after the 2008 global financial crisis the eurozone made the same mistake zombie banks stuffed with toxic liabilities have increased lending to existing impaired borrowers instead of financially healthy or new borrowers this zombie lending behavior by distressed banks designed to avoid realizing losses on outstanding loans has led to a significant misallocation of credit which has hurt creditworthy firms no other economy has taken longer to recover 2the european central bank ecb has warned that debt sustainability is the biggest risk to financial stability if interest rates rise in other words zombie banks that are dependent on ecb liquidity may be unable to absorb the losses if zombie companies which have also only survived thanks to the ecb s regime of artificially cheap finance go under 3 europe s banks are still sitting on 1 trillion of bad loans 4 | |
what about the u s bank stress tests were more rigorous in the u s than in europe in the wake of the financial crisis they forced the weakest banks to raise private capital and sell off toxic legacy assets | however there may be just as many zombie firms whose interest expenses exceed the earnings before interest and taxes ebit stalking the economy in america as there are in europe according to the bank of international settlements bis so quantitative easing qe may have only postponed the day when banks in europe and america will have to write off bad debt 5 | |
what is zombie debt | zombie debt is debt that has fallen off your credit report but for various reasons someone is still trying to collect zombie debt has often been long forgotten and has probably been written off as uncollectible but zombie debt can rise from the grave if a debt collector attempts to collect on it all over again even when the debt is too old to legally pursue | |
how zombie debt works | zombie debt generally refers to debt that is more than three years old which has either been forgotten about already paid off or belonged to someone else it can also be the result of identity theft a computer error or a fraudulent attempt to collect on a debt that does not exist the original creditor will most likely have given up on the debt and sold it to a debt collection agency these debt collectors can be quite unscrupulous and often make harassing and threatening phone calls the statute of limitations on how long a lender can attempt to collect on a debt is three to six years in most states and even shorter in some while the debt is still considered valid even after the statute of limitations has passed you are not legally required to pay it however the companies that buy uncollectible debts are playing a numbers game they only need a few people to repay their debts to be profitable those on the receiving end of these efforts need to be careful there is no benefit in paying a debt that is beyond the statute of limitations because paying anything will restart the statute of limitations put the debt back on your credit report and enable the debt collector to take you to court | |
what to do if you are contacted about zombie debt | debtors can protect themselves from harassment under the fair debt collection practices act fdcpa 1 this particular law limits the behavior and actions of third party debt collectors and restricts the means and methods by which they can contact debtors as well as the time of day and number of times contact can be made the important thing is not to spend any time on the phone with the debt collector ask for their address and send them a certified letter within 35 days of contact dispute that you owe the debt and ask them to prove that you owe it if you continue to be contacted by the debt collection agency write them another letter and inform them that they cannot contact you unless it is by writing or if they are going to sue you if the debt is beyond the statute of limitations the collector will probably go away | |
what is a zombie etf | a zombie exchange traded fund etf is no longer growing and attracting money from new investors when an etf enters zombie territory it is usually only a matter of time before it is shut down by the company that issued it investors will get their money back or most of it however they may make less than they had hoped and taxes will be due on any profits they earned from the fund understanding the zombie etfthe popularity of etfs has led to a flood of niche offerings some of them fail to catch on with investors or they may have been tied to a once hot market trend that has petered out zombie etfs are a symptom of a saturated etf market there were 8 754 etfs to choose from as of 2022 according to statista 1etfs are investments that are designed to replicate the contents and the performance of a specific market index or sector they are not actively managed as many mutual funds are stocks are bought or sold only as needed to mirror the index and their shares go up or down in value with the index or sector the biggest and most popular etfs are tied to the biggest and broadest indexes like the s p 500 index others are tied to performance measures for a specific sector such as oil cloud services or emerging markets there is no hard and fast rule on when an etf will be declared a zombie and when or whether it will be closed down some issuers have a generous timeline for a new fund to start generating interest while others make quick calls based on the growth in other offerings as a general rule of thumb if a fund hasn t seen inflows for two or more successive quarters and the trading volume is low there is a good chance the issuer is at least thinking about pulling the plug on that etf etfs that enter zombie territory are more likely to close than they are to come back from the dead once seen as an admission of failure closures can be seen as a good thing for the issuing company and for the industry ridding it of rubbish and helping asset managers learn from their past mistakes and come up with better ideas 2etfs are popular with individual investors because they can produce results comparable to those of mutual funds or professional investment managers but with lower fees the industry average fee for an etf is 0 45 compared with an average expense ratio of 0 16 for a managed mutual fund the difference was far greater before competition from etfs forced managed funds to trim their fees etfs that struggle to attract new money can go into a downward spiral liquidity concerns associated with low trading volume can scare investors away meanwhile the cost of administering a fund that isn t attracting new capital erodes the profitability of the fund to the issuing company investors measure the success of an etf by its return the company issuing it measures its success by its profitability to the business for this reason some etfs have been declared zombies and shut down despite making good returns for their investors | |
how do i spot a zombie etf | look at the numbers a low number for assets under management aum indicates a fund that is not currently attracting strong interest from investors a low trading volume indicates the same it s not a question of whether it is a good or a bad etf if it s not attracting enough interest it s headed toward zombie land | |
why are there zombie etfs | zombie etfs are no longer a rarity the broadest and most popular etfs such as the spdr s p 500 etf trust spy have filled much of the market demand leaving few gaps left to capitalize on against this competitive backdrop providers are coming up with increasingly quirky ideas to stand out from the crowd increase market share and broaden their lineup of offerings this has resulted in a number of hyper focused etfs investing in niche areas of the market consider the global x millennials thematic etf miln an etf that focuses on companies that make products that are relevant to young americans while these funds might have good or even great returns they re not obvious picks for investors looking to diversify their portfolios across sectors the real issue is whether or not a fund fits a strategic need in enough investors portfolios | |
what is an example of a quirky etf | quirky etfs tend to follow hot investing trends unfortunately they can ride the trend to its bitter end at which time they become zombie etfs for example there is the obesity etf slim which invests in biotechnology obesity related disease and of course weight watcher s international or there s the healthshares dermatology and wound care etf which closed in 2008 due to a lack of investor interest | |
are thematic etfs at risk of becoming zombie etfs | a thematic etf invests in current megatrends that are seen as transformative not to mention lucrative in 2023 the list could include etfs that focus on artificial intelligence the blockchain and alternative energy sources a thematic etf is probably never going to attract as high a total of assets under management aum as an etf that is tied to the s p 500 that does not mean it s headed for zombie territory some will perform very well for the informed investor who wants to put some money into a hot area but wants the diverse selection of related assets that an etf offers as always in investing there will be winners and there will be losers the bottom lineowning shares in a zombie etf is not the end of the world it s not called a zombie because it s losing money it s a zombie because it has failed to attract a steady stream of new investors at worst the company that issued the etf will shut it down in that case you ll get your money back or most of it then you can invest the proceeds in another etf that shows some real signs of life look for reasonably high trading volume and an aum number that reflects good demand | |
what is a zombie foreclosure | a zombie foreclosure occurs when a home is left vacant by homeowners who have defaulted on their mortgage and either incorrectly believes they have to immediately move out after receiving a foreclosure notice or choose to abandon the property for other reasons more commonly the former scenario where the owner mistakenly believes that the foreclosing lender is now responsible for the property even though the homeowners still hold title to the property for example let s say a homeowner defaults on their mortgage and vacates their property and the lender doesn t complete the foreclosure process so the title is still held by the original homeowner the property becomes unoccupied for an extended time and the lawn driveway etc is not taken care of as a result the state of the property falls into disrepair creating safety concerns and resulting in an appearance that may lower property values in the surrounding community | |
how a zombie foreclosure works | zombie foreclosure results from a homeowner s misunderstanding of the foreclosure process during a typical foreclosure the homeowners notice the institution holding the defaulted mortgage that the house is entering foreclosure after this notice is issued there is a mandated waiting period during which the homeowners can pull the house out of foreclosure by paying a large lump sum of money the required payment may range from a few back payments to the total amount the homeowners owe in arrears or the entire balance of the mortgage until a foreclosure goes through the homeowner continues to hold the title to the property if the homeowners do not pay the lump sum the process continues and a court will rule that the house belongs to the lender it is only after this point that the house legally becomes the lender s property that the homeowners must vacate the property in the fourth quarter of 2020 zombie foreclosures rose to 3 8 of all foreclosures but overall they have fallen by more than half since 2016 according to attom data solutions 1sometimes a lender will decide not to complete a foreclosure one reason might be that it s too expensive to pay for repairs and back property taxes that are owed on the property the lender won t take title to the house but is under no obligation to notify the homeowner of this in this circumstance when the title of a home in zombie foreclosure remains in the name of the original homeowner who is often unaware that the foreclosure wasn t completed it is known as a zombie title | |
how zombie foreclosures impact homeowners | zombie foreclosure escalates a bad situation default on a mortgage making it a problem for the entire neighborhood not just the homeowner a homeowner who leaves a property upon receiving a foreclosure notice is abandoning the property without understanding the legal and financial ramifications of the notice or their actions the owner of a zombie foreclosure is likely still responsible for maintenance upkeep homeowners association hoa fees and property taxes 2 these requirements do not end just because someone has abandoned their home eventually local authorities could attempt to recover unpaid property taxes or fees or charge the owner expenses for maintenance to protect against the impact of a home falling into zombie foreclosure homeowners who have defaulted on their mortgage and are facing foreclosure should stay in the residence until an official notice to vacate arrives afterward they should follow up to ensure that the title of the property is no longer in their name | |
what does zombie foreclosure mean | a zombie foreclosure refers to an incident in which a homeowner is presented with a pending foreclosure notice and abandons their house before legally necessary because the foreclosure process can be a long one homeowners are still responsible for taxes and home insurance if an owner leaves their home and it becomes zombie foreclosure it often means the house can fall into disrepair will a zombie foreclosure impact my credit a zombie foreclosure will impact your credit because when you walk away from your mortgage you are defaulting on loan | |
where do zombie foreclosures happen | foreclosures can happen in any state but zombie foreclosures often happen in lower income communities according to a q1 2022 report from attom data solutions the midwest and northeast are home to states with the most zombie foreclosures 3 | |
what is a zombie title | a zombie title is a real estate title that remains with a homeowner who is mistakenly under the impression that the property has been lost to foreclosure and that as a result the title has passed to the lender zombie titles are the result of lenders initiating foreclosure proceedings by issuing a notice of foreclosure and then unexpectedly dismissing it if the homeowner is unaware of a foreclosure dismissal they will be left holding a zombie title a lender may decide to dismiss the foreclosure for a variety of reasons including a surplus of inventory or unjustifiable costs a zombie title can pose a significant financial risk to the homeowner who continues to be shown on the property title since they remain liable for property taxes and code violations understanding zombie titleszombie titles are often the result of confusion on the part of homeowners regarding foreclosure rules a homeowner who has defaulted on a mortgage may abandon the property and move out upon receiving a foreclosure notice from the lender the lender will assess the property prior to the foreclosure sale if the property is in disrepair and needs a substantial outlay for repairs and unpaid taxes before it can be sold the lender may choose to not take the title based on the premise that there is no point in throwing good money after bad if the lender cancels or dismisses the foreclosure process the homeowner is left with a zombie title zombie titles arise for two reasons first a lender or financial institution is under no obligation to take the legal title of a property in foreclosure even if the homeowner has defaulted on the loan if the costs of selling the property or potential liability associated with the property are too high the lender may walk away rather than take the title of the property second the lender is also not required to let the homeowner know if it has decided to dismiss the foreclosure even if the lender does decide to inform the homeowner it may not have an address or contact information for the homeowner who is now living elsewhere a homeowner in this situation will unknowingly still hold title to the property along with all of the associated costs and responsibilities of owning a home without any of the intended benefits ownership does not change until someone else s name is on the title recent trendsthe 2007 2008 mortgage lending crisis resulted in millions of homeowners facing foreclosure 1 while the majority of those foreclosures were carried through many were left dangling in the middle of the process or unexpectedly dismissed resulting in tens of thousands of homeowners unknowingly holding zombie titles in the years after the financial crisis as the u s economy and housing market gradually strengthened the number of zombie foreclosures began declining however with inflation and interest rates ticking up in 2022 vacancies have again seen a tick up according to industry data in the third quarter of 2022 around 1 3 million residential properties in the united states sat vacant or 1 3 of all u s homes 2according to property data provider attom data solutions of approximately 270 500 homes that were in the process of foreclosure during the third quarter of 2022 just over 7 700 or 2 85 were sitting empty as zombie foreclosures 2financial impact on lenders and homeowners | |
what are the financial implications for the lender by walking away from such mortgages banks can at least reap the insurance tax and accounting benefits arising from such losses 3 a lender may also sell the unpaid debt to debt collectors to recoup all or part of the loan | while the financial impact of zombie titles on deep pocketed financial institutions may thus be limited they can lead to significant and often catastrophic financial problems for homeowners who thought they had moved out and moved on a zombie title represents a double whammy for a homeowner who is already financially stressed due to bankruptcy and may be faced with a hefty bill for back taxes and code violations just as they are getting back on their feet financially an unoccupied home for example can easily fall into disrepair not only does the homeowner remain liable for property taxes but they can also be held liable by the local government for maintenance and repairs on the property if the house is derelict and has to be demolished these costs have to be borne by the zombie title homeowner the homeowner also has to contend with the host of problems that arise in connection with an abandoned property these may range from public nuisance issues arising from the property developing pest infestations or being used for criminal activity to complications arising from illegal squatters or adverse possession neighborhood effectsabandoned properties also have a negative impact on the value of other houses in the neighborhood complaints from neighbors and area residents about abandoned and neglected houses often forces the local municipality to step in and perform basic maintenance such as trimming overgrown yards or trash removal since neither the lender nor the absentee homeowner will take responsibility for the property s upkeep the costs of such third party maintenance and the penalties levied for code violations can mount up over time if those costs are left unpaid the homeowner could incur penalties and fees and even face legal action in addition holders of zombie titles may have their wages and tax refunds garnished and their credit destroyed resulting in more financial trouble in the future many homeowners do not realize they hold zombie titles until they find themselves being pursued by mortgage servicers debt collectors and local governments buyers who unwittingly buy homes with zombie titles can also be left in legal limbo as the previous homeowner may be unable to transfer title to the buyer due liens on the property arising from unpaid taxes and penalties caveat emptor should be the main guiding principle before buying a house the biggest purchase decision for most people some real estate professionals advise that the homeowner s only recourse is to continue staying in the home through the foreclosure process in order to keep it secure and well maintained in any case homeowners can protect themselves against zombie titles by seeing the foreclosure process through to completion as well as making sure that the title to their home legally transfers to another party | |
what are zombies | zombies are companies that earn just enough money to continue operating and service debt but are unable to pay off their debt such companies given that they just scrape by meeting overheads wages rent interest payments on debt for example have no excess capital to invest to spur growth zombie companies are typically subject to higher borrowing costs and may be one just event market disruption or a poor quarter performance away from insolvency or a bailout zombies are especially dependent on banks for financing which is fundamentally their life support zombie companies are also known as the living dead or zombie stocks understanding zombieszombies often fail falling victim to the high costs associated with debt or certain operations such as research and development they may lack the resources for capital investment which would create growth if a zombie company employed so many people that its failure would become a political issue it may be deemed too big to fail as was the case with many financial institutions during the 2008 financial crisis given that many analysts expect that zombies will eventually be unable to meet their financial obligations such companies are considered riskier investments and will therefore see their share prices suppressed zombies were first spoken of in reference to companies in japan during the country s lost decade of the 1990s following the bursting of its asset price bubble during this period companies were dependent on bank backing to remain in operation even though they were bloated inefficient or failing economists argue that the economy would have been better served by allowing such poorly performing companies to fail the term zombies was picked up again in 2008 in response to u s government bailouts that were part of the troubled asset relief program tarp while the ranks of zombie companies are small years of loose monetary policy highlighted by quantitative easing high leverage and historically low interest rates have contributed to their growth economists argue that such policies preserve inefficiencies while stifling productivity growth and innovation when the market shifts zombies will be the first to fall victim unable to meet their basic obligations as rising interest rates make their debt more expensive to service meanwhile successful companies which are less able to build on their success because of tight credit may feel any downturn more than they should while keeping zombies on life support may preserve jobs economists note that using such resources is misguided because it impedes growth at successful firms and therefore inhibits job creation special considerationsbecause a zombie s life expectancy tends to be highly unpredictable zombie stocks are extremely risky and are not suitable for all investors for example a small biotech firm may stretch its funds extremely thin by concentrating its efforts in research and development in the hope of creating a blockbuster drug if the drug fails the company can go bankrupt within days of the announcement on the other hand if the drug is successful the company could profit and reduce its liabilities in most cases however zombie stocks are unable to overcome the financial burdens of their high burn rates and most eventually dissolve given the lack of attention paid to this group there are often interesting opportunities for investors who have a high risk tolerance and are seeking speculative opportunities | |
what is zomma | zomma is a third order risk measure of the degree to which the gamma of an options contract is sensitive to changes in implied volatility it is also referred to as d gamma d vol gamma itself is a second order risk measure of an option s sensitivity of its delta to changes in the underlying price zomma is part of a category of measurements used to assess the price sensitivity of a derivative to various factors such as changes in interest rates volatility or the spot price of the derivative s underlying asset these measurements are commonly referred to as greeks because they are denoted by greek symbols however the word zomma was made up by traders to sound like a greek letter and is not part of the greek alphabet understanding zommaunderstanding zomma can be quite difficult for those who are not experienced in the jargon of derivatives this is because zomma can only be defined in relation to two other abstract concepts gamma and delta in order to understand the real world meaning of zomma you therefore need to understand gamma and delta as well with that in mind we can begin by stating that zomma is a third order derivative what this means is that zomma measures the change of a second order derivative specifically gamma gamma in turn measures the sensitivity of delta to changes in the price of the underlying asset lastly delta measures the sensitivity of change between the underlying asset and the derivative product derivative traders and portfolio managers often use zomma to determine the effectiveness of a gamma hedged portfolio in this context zomma would measure fluctuations in the volatility and or the underlying assets of that portfolio gamma hedging is a hedging strategy used in relation to options or other derivative products in essence the user of the delta hedging strategy aims to protect against the risk that the price of the derivative will become decoupled from the price of its underlying asset zomma is an important measurement in this context real world example of zommaderivative portfolios can have very dynamic risk profiles for instance their risk can vary based on factors such as price fluctuations in the underlying assets changes in interest rates or adjustments to implied volatility in order to keep track of this ever evolving risk profile derivative traders use various measurements for example delta is a measurement of how much profit or loss will be generated as the prices of the underlying assets move up or down however even this seemingly straightforward concept is more nuanced than it appears this is because the relationship between delta and the underlying asset s price movements is not linear this gives rise to a second measure gamma which tracks the sensitivity of delta to those price changes in this sense delta is a first order measurement while gamma is a second order measurement zomma lastly measures the rate of change of gamma in relation to changes in implied volatility for example if zomma 1 00 for an options position then a 1 increase in volatility will also increase the gamma by 1 unit which will in turn increase the delta by the amount given by the new gamma if the zomma is high in absolute terms either positive or negative it will indicate that small changes in volatility could produce large changes in directional risk as the underlying price moves | |
what is a zone of possible agreement zopa | not a physical place the zone of possible agreement or bargaining range is considered an area where two or more negotiating parties may find common ground it is this area where parties will often compromise and strike a deal in order for negotiating parties to find a settlement or reach an agreement they must work towards a common goal and seek an area that incorporates at least some of each party s ideas understanding zone of possible agreementno matter how much negotiation occurs an agreement can never be reached outside of the zone of possible agreement in order to reach an agreement successfully negotiating parties must understand one another s needs values and interests a zopa can only exist if there is some overlap between what all parties are willing to accept from a deal for example in order for tom to sell his car to john for a minimum 5 000 john must be willing to pay at least 5 000 if john is willing to offer 5 500 for the car then there is an overlap between his and tom s bottom lines if john can only offer 4 750 for the car then there is no overlap and there cannot be a zopa negative bargaining zones | |
when negotiating parties cannot reach a zopa they are in a negative bargaining zone a deal cannot be reached in a negative bargaining zone as the needs and desires of all parties cannot be met by a deal made under such circumstances | for example let s say that dave wants to sell his mountain bike and gear for 700 to buy new skis and ski gear suzy wants to buy the bike and gear for 400 and can t go any higher dave and suzy have not reached a zopa they are in a negative bargaining zone however negative bargaining zones can be overcome if negotiating parties are willing to learn about one another s desires and needs for example let s say dave explains to suzy that he wants to use the proceeds from the sale of the bike to buy new skis and ski gear suzy has a pair of gently used high quality skis that she is willing to part with dave is willing to take less cash for the mountain bike if suzy throws the used skis in the two parties have reached a zopa and can therefore make a successful deal | |
what is the zone of resistance | the zone of resistance is the upper range of a stock s price that shows price resistance with the lower range being its support levels understanding a share price s zones allows investors to buy and sell shares in order to maximize their short term gains it may therefore be contrasted with the zone of support the zone of resistance is an important concept in technical analysis technical analysts look for signs that a stock price is moving through the zone of resistance and establishing new support and resistance levels breaking down zones of resistancemost day traders buy and sell on the belief that support and resistance zones maintain themselves for extended periods of time this logic follows the rules of basic supply and demand as more shares are purchased at the lower support level the price begins trending upwards until it meets the zone of resistance and selling sends the price back down as is the case with all technical analysis there are key times when the zone of resistance and support levels of a stock will be reconfigured by external events which is why experienced technical traders rely on several charts when attempting to predict future price moves a move through the zone of resistance may be confirmed on a chart as a new breakout opportunity for taking a long position in a stock previously traded solely within the support and resistance levels oftentimes this breakout occurs due to fundamental changes in the company s performance such as a new product launch or news about market share gains and improved cash on hand using trend lines to mark zonessupport and resistance zones are utilized by technical analysts to study past prices and predict future market moves these zones can be drawn using simple technical analysis tools like horizontal lines or up down trendlines or by applying more advanced indicators such as fibonacci retracements market psychology plays a major role in a given instrument s price movement as traders and investors remember the past react to changing conditions and anticipate future market movement trend lines are useful in painting a more complete picture of stock movement over time within every significant price move up or down there will be times when plateaus are reached and the stock price drifts sideways an example of a plateau occurring within an overall price move upwards is seen in a bull market when investors look to lock in gains across many stocks the risk here is they will miss a significant ongoing move upwards thinking the plateau is the beginning of yet another downward move when in fact it is just a rest on the way to new highs using trend lines can help investors see the longer term trends in a chart so they don t set their strategy solely based on short term movements the zone of resistance and other technical indicatorstechnical investors rely on several indicators to help them make informed decisions in addition to the zone of resistance traders monitor moving averages mas candlestick analysis and daily stock volume to help predict the next moves up or down traders look for confirmation in a chart to identify when a breakout is underway in terms of setting new resistance and support levels volume is an excellent indicator of interest in a stock and as volume increases so does the likelihood that a new high or low will be established | |
what is a zone of support | a zone of support refers to a price zone reached when a security s price has fallen to a predicted low known as a support level understanding a zone of supporta zone of support generally shows an area of price lows that the security has not previously easily moved beneath the zone of support typically occurs around a support trendline while it can be a finite point on a technical chart continuous trading of a security keeps the support trendline s price dynamic traders typically use technical analysis to identify a zone of support the zone of support on a chart shows a lower boundary that the stock has not previously broken through at the support level supply outweighs demand and volume is usually low a zone of support can provide profitable areas for traders similar to zones of resistance these areas present an opportunity for a reversal as such traders can use a variety of different technical analysis patterns to identify these zones for profitable trading opportunities envelope channels are a popular charting technique that allows a trader to draw continuous support and resistance boundaries around a security s moving price the bollinger band tool is one of the most common envelope channels used by traders this indicator draws support and resistance trendlines two standard deviations above and below a security price s moving average other popular envelope channels that incorporate support and resistance boundaries include keltner channels and donchian channels traders can also use shorter term trendlines to draw tighter channels at a security s peak and trough levels these channels are known as ascending descending or horizontal channels and can help identify a zone of support support zone areas can be subjective they sit around a support trendline but the price action in this area can be volatile market pricing mechanisms and the use of similar charting techniques by other traders can make trading somewhat choppy in a support zone to identify trading indicators in the support zone there are a few defined systems traders can use one is fibonacci retracement this methodology is built around ascending descending and sideways channels the technique draws parameters by percentages from 0 at the support boundary to 100 at the resistance boundary intermediary lines drawn through the charting pattern are available to help a trader better identify zones for trading advanced technical analysis charting software can also help a trader to draw support zones on a technical analysis candlestick chart these software programs typically include support and resistance zones with varying color schemes to represent the strength of the support signals traders can usually customize the parameters for support in the charting software based on their preferences traders typically watch support zone activity closely as it can be profitable for identifying a reversal or further downside if a trader believes that a security s price will rebound from the support zone then the area can be a good place to buy to benefit from price increases if the trader finds that the price seems likely to continue its downtrend then selling or short selling positions would be the most profitable course of action zone of support exampleadding two horizontal trendlines to the campbell soup company cpb chart below shows a clear zone of support between 26 50 and 27 50 the two trendlines connect significant peaks and troughs over the past twelve months of price action traders can watch the zone of support area for a potential upside reversal or look for a breakdown that would indicate downside continuation in either case the zone of support provides a higher probability area from which to trade due to the increased level of interest in this area from market participants image by sabrina jiang investopedia 2021 | |
what is zoning | zoning refers to municipal or local laws or regulations that govern how real property can and cannot be used in certain geographic areas for example zoning laws can limit commercial or industrial use of land to prevent oil manufacturing or other types of businesses from building in residential neighborhoods these laws can be modified or suspended if the construction of a property will serve to help the community advance economically | |
how zoning works | zoning outlines what types of developmental and operational use of land is allowed on a given tract municipalities tend to partition districts and neighborhoods according to a master plan this may be done to promote economic development control traffic flow manage noise levels reserve living space for residents and protect certain resources examples of zoning classifications include industrial light industrial commercial light commercial agricultural single family residential multiunit residential and schools local government might ban the use of residential property for business purposes to keep commercial activity confined to specific parts of town such zoning can lead to conflicts if residents dispute the designated usage zoning laws can also regulate the details of construction in specific neighborhoods for example zoning can limit the maximum height of buildings in a given area regardless of the type of construction allowed high rise residences or offices could be banned on particular parcels through zoning regardless of whether the buildings otherwise comply with the laws the presence of zoning restrictions can influence prices when purchasing a piece of property real estate might sell at a premium based on how many limits were put in place by the municipality in 1926 the u s supreme court ruled that properly drawn zoning ordinances were a valid exercise of states governing power zoning became constitutional by the court as a result of the case of village of euclid v ambler realty 1economic theory of zoningaccording to nobel prize winning economist ronald coase s theorem in the absence of transaction costs questions and disputes over land use and development could be solved optimally without government regulation under the assumptions of coase s theorem how a given piece of land should be used and what type of activities should be permitted could simply be negotiated among the parties involved to achieve an economically efficient outcome 2coase s theorem illustrates why in the real world where transaction costs do occur and frictionless bargaining among stakeholders is unlikely land use regulations such as zoning and other government imposed solutions are the norm critiques of zoning lawthere are varied critiques of traditional zoning implementation some critics claim that zoning creates and widens the disparity of quality of life among socioeconomic groups for example a township might maintain zoning laws that restrict heavy industrial and commercial development to tracts of land adjacent to lower income neighborhoods the effects of such policies would let more affluent parts of town avoid the associated noise and pollution areas that continue to be zoned for low density residential neighborhoods with a housing shortage are contributing to homelessness in their area by refusing to allow more residential housing units to be built a more modern critique of zoning that segregates commercial and residential areas is that it makes residents dependent on cars a more integrated walkable neighborhood where people could get groceries work and recreate close to their homes would allow them to forgo the environmental and financial costs of car ownership if zoning allowed for walkable neighborhoods less space would have to be devoted to roads and more space could be reserved for housing and green space special considerationsalterations to zoning laws are possible even without full repeals of the current legislation a developer or property owner can apply for variances that would allow certain exceptions to zoning regulations this would let property be used in ways generally not permitted for example the owner of a home based business might request a variance to allow the operations to continue applicants for variances might be required to explain why the variance is needed and how the change will not cause significant disruption or detriment to the surrounding community who controls zoning there is no federal agency for zoning so who controls the zoning in your area depends almost entirely on where you live it is controlled at the county level in some cases at the city level in others sometimes zoning is decided by a zoning office and sometimes it is controlled by a land use office | |
how can you get the zoning changed on something | first you ll have to figure out who controls the zoning in your area then they usually will have a process by which you can appeal the zoning on something but the specific steps will vary depending on where you live getting advice from a local real estate lawyer is advisable can zoning laws stop me from building on my property yes you may own the land on which you want to build but you still will have to abide by zoning laws that may say you can t build a building of a certain size or for a certain purpose or any number of other regulations the bottom linezoning was originally created to design uniform neighborhoods control traffic patterns and when done right allow room for a city to grow zoning implementation had several unintended consequences and unfortunately contributed to increased income inequality and racial wealth disparities with modern times zoning practices will have to adapt to growing populations and needs | |
what is a zoning ordinance | a zoning ordinance is a rule that defines how property in specific geographic zones can be used zoning ordinances detail whether specific geographic zones are acceptable for residential or commercial purposes zoning ordinances may also regulate lot size placement density architectural style and the height of structures zoning ordinances also describe the procedures for how to handle any zoning rule infractions including any penalties zoning typesthe main types of zoning are industrial commercial residential and agricultural other types of zoning used in some municipalities include historic school hospital and airport zoning within the main categories there are usually designations for density of units for example in some areas residential zoning includes designations like r 2 for up to two residential units per acre or r 4 for up to four residential units per acre designations like r 2 and r 4 mean very different things depending on the municipality so check with your local zoning office to see what it means in yours | |
how a zoning ordinance works | the process of zoning consists of dividing a particular region of land into districts or zones then specifying the types of land uses that are allowed or prohibited for each zone this is generally performed by a municipal corporation or county zoning rules vary greatly by region but their most general shared purpose is to separate residential property use from commercial property use municipal governments can institute highly specific zoning ordinances to influence the nature of a district or neighborhood in its municipality for example by designating several neighboring sections of a city strictly for residential use residents of that region will experience less traffic and noise pollution in their environment zoning ordinances are also used to preserve the architectural integrity of the buildings in a specific area if a municipality wishes to maintain the historic appearance of a part of town zoning ordinances can be used to limit real estate construction there so that all new buildings must be of comparable height and square footage with the historic buildings zoning designations vary wildly by state county and municipality if you are confused about zoning laws in your area the first step is to check with your county s or municipality s zoning office sometimes referred to as your land use office you may need to consult with a local real estate attorney if you have an issue with zoning exceptions to zoning lawschanges to zoning ordinances can create tension among current and prospective residents and landlords of property in the zoned region for example this may be the case if a new business plans to move to a specific city only to discover that the zoning rules have changed in the geographic region of the property that they intended to occupy as a result of new zoning ordinances commercial properties may be forced to switch to residential properties and vice versa in some instances existing tenants may be forced to relocate because of these changes however zoning ordinances sometimes contain legacy clauses also referred to as grandfather clauses legacy clauses exempt existing tenants from being impacted by any changes to the current zoning rules provided that they were already residing in the zone by a specified date this process of being exempt from new rules and regulations is also referred to as being grandfathered in certain exceptions allow properties that do not meet the requirements of a zoning ordinance to still be established in those respective geographic zones if an ordinance changes a zone that once allowed commercial businesses to operate to a residential only zone then some small local businesses may be allowed to stay open because of a legacy clause new businesses also have the option of applying for a variance a variance is a request to deviate from current zoning rules if the variance is approved the new tenant can move in and operate regardless of the zoning ordinance | |
what are the disadvantages of zoning | traditional applications of zoning ordinances geographically separate residential neighborhoods from where people work shop and play making residents dependent on cars those who would like to move away from the high economic and environmental costs of transportation advocate for integrated walkable neighborhoods with less rigid zoning ordinances | |
do zoning regulations contribute to the housing crisis | low density residential zoning regulations have contributed to the housing crisis in areas with limited opportunities for expansion formerly small cities that have exploded in population like palo alto calif are full of areas zoned for low density if they stay low density then their housing crisis will continue to worsen however locals in these low density areas usually strongly oppose any proposals to build more dense neighborhoods 1the bottom linezoning ordinances exist to help cities keep their character as they grow they prevent a factory from being built in your backyard or a residential high rise from being built miles away from any transportation hubs or roads built for high capacity as populations rise globally particularly in urban areas cities will need to adjust some residential ordinances to allow for higher density housing | |
what was zzzz best | zzzz best was a carpet cleaning and restoration company founded by barry minkow that served as a front for a famous ponzi scheme the company went public in december 1986 and was quickly valued at over 300 million within just seven months of the initial public offering ipo however zzzz best was bankrupt and its assets were auctioned for approximately 64 000 1understanding zzzz bestbarry minkow formed zzzz best in his parents garage the business performed poorly and 15 year old minkow was often inundated with customer complaints and supplier collection requests to create an illusion of a profitable business minkow began committing criminal acts such as check kiting theft insurance scams and fraud to fund operations and pay suppliers 2within a few years of zzzz best s inception minkow launched fictitious insurance restoration and appraisal businesses while active zzzz best was at the center of a credit card scheme involving over 70 000 in fraudulent charges although minkow assigned blame to contractors and employees he repaid all of the victims except for one a homemaker swindled out of a few hundred dollars 3the scheme and the downfallminkow and business associate tom padgett created a fictitious company interstate appraisal service to defraud banks and other lending institutions out of millions of dollars tom padgett an insurance claims adjuster conspired with minkow to forge documents crediting zzzz best for restoration work and use interstate appraisal services as the source to verify the claims increasingly investors and bankers developed an interest in zzzz best based on fraudulent financial statements produced by minkow s firm 2barry minkow claimed his fraudulent actions were driven by a need to repay organized crime as the ponzi scheme continued zzzz best experienced significant cash flow problems as a solution minkow planned to acquire keyserv sears authorized carpet cleaner for 25 million according to minkow the revenues from keyserv would provide enough cash flow to end the ponzi scheme before the deal was closed the jilted homemaker sparked a campaign against zzzz best that would expose more than the fraud committed against her 4the l a times featured her story which caused zzzz best s stock price to decline sharply lenders began to call their loans and more investigations commenced unraveling minkow s dark web of deceit and fraud eventually the truth behind the fictitious companies was revealed and the ponzi scheme was exposed | |
how auditors were misled | to launch an ipo the securities and exchange commission sec requires a firm to compile a prospectus which must include a set of audited financial statements independent certified public accountant cpa firm ernst whinney now ernst young audited zzzz best s financials to provide an opinion as to whether the financial statements were free of material misstatement assuming an independent third party provided the paperwork the cpas used false appraisal documents to perform its audit when the cpa firm requested to visit a building refurbishing customer site minkow and his associates rented a building and created a bogus customer job site 5minkow after zzzz bestin january 1988 minkow and 11 other company insiders were indicted by a grand jury on counts of racketeering money laundering securities fraud embezzlement mail fraud bank fraud and tax evasion separately minkow was also indicted on counts of credit card fraud approximately a year later minkow was found guilty on all charges was sentenced to 25 years in prison and was ordered to pay over 26 million in restitution 5after his early release in 1995 he became an ordained minister and served as a pastor of a church in california minkow informally investigated and reported other ponzi schemes from this success he formed the fraudulent fraud discovery institute 4in 2011 he was again convicted for fraud and sentenced to five years in prison it was discovered that while filming and producing his biography he simultaneously was using his anti fraud company to short stocks of companies he was investigating 6 a few years later minkow was sentenced to an additional five years in prison for defrauding his church and tax evasion his restitution balance has increased ten fold to 612 million 4zzzz best frequently asked questions | |
what accounting procedures did zzzz best fail to follow | zzzz best failed because it was a ponzi scheme so in essence the company followed almost no proper accounting procedures however it took the company going public before the fraud was discovered so there is an argument that exists that minkow was quite skilled with his accounting | |
how was the zzzz best fraud discovered | minkow was visited by his past when a homemaker who was overcharged just a few hundred dollars by minkow tracked down a few others who minkow had defrauded when the homemaker located the others she passed her findings onto the los angeles times the newspaper then ran a story exposing minkow s relatively minor fraud this caused a domino effect and zzzz best was quickly outed as a ponzi scheme | |
when did barry minkow get out of prison | barry minkow was released from prison most recently in 2018 after serving time for insider trading and embezzlement from his church before that conviction he served a significant jail sentence from 1989 to 1995 being released only six years into his 25 year sentence | |
is there a barry minkow movie being made | there was a barry minkow movie made in 2011 that was eventually released in 2018 titled con man during the filming barry was arrested and pleaded guilty to insider trading charges in january of 2022 a docuseries titled king of the con was released on discovery the bottom linebarry minkow s company zzzz best committed serious fraud and is one of the best known ponzi schemes in history even though barry was released from prison early he squandered the second chance and eventually ended up in much bigger trouble and ended up back in prison although there are multiple cinematic versions of his story he is by no means a role model zzzz best was an excellent company on paper and at one point was valued over a quarter billion dollars then bankrupted shortly afterward |