How Financial Demographics Have Changed Since March 2018

Demographics could be the destiny shaper of economic growth and success of financial markets. However, this will not happen if the western economics are not ready to solve the underlying social and environmental challenges. Population growth in western countries as compared to Asian, Middle Eastern and African regions is very low, and this affects growth of private capital.

Financial markets need stability of private investors so that they can provide the government and philanthropists with supplementary support. Financial markets used to be dominated by elderly people, but today young investors are joining financial markets as early as they hit 20 years. Apart from age, there are other demographic factors that are shaping financial markets today.

Age

Traditionally, it could have been very hard for you as a potential investor to risk with the financial market if you are under 40 years of age. The reason why this was the case is that people were expected to work for several decades before they can get a promotion and earn enough income for such an investment. Things have changed a lot today, and numerous young entrepreneurs have succeeded in their twenties and therefore can afford to become investors like any other person.

There are several factors that help new businesses to prosper faster today than some decades ago. Apart from the young entrepreneurs, the older adults over the age of 70 who could have been considered ineligible to invest in the financial market are also successful investors in such investments. Despite that age used to be an important consideration when it comes to financial markets, today, it cannot be used as a limitation to do the same.

Globalization

Globalization is one of the factors that is playing a big role in the growth of the economy and different investments. Globalization is helping people to move from one state to another easily and also trade in these nation without many limitations. Previously, it was very hard for a business to expand its operations in other countries due to numerous conflicts and lack of relevant technology. However today all this has been changed by globalization and the tremendous advancement of technology among other inventions.

For instance, communication has been made so easy allowing people to continue monitoring their business even when they are away. This means that for a person to invest in financial markets in another country or when away from home, they will easily do so through a few simple clicks. Globalization is opening ways for potential investors to invest in financial markets all over the world. Previously many limitations used to deter them from doing so.

Vulnerable Groups

A few decades ago, there are groups of people who were considered ineligible to do certain things or carry out certain businesses. For instance, some careers were only considered fit for men only and women could not join such industries. People were also limited to get chances at work because of their race, religion or gender among other demographic factors. However today sexism is not something considered in the business industry as a limitation because men and women have ventured in industries that were previously dominated by women and men respectively.

People have decided to break the ceiling with an open mind so as to create more opportunities for everyone. This means that no one is limited to venture into financial markets because of their race, gender, ethnicity, religion or any other demographic. Every person is qualified as long as they have the necessary know-how and capital required to invest in financial markets.

Education

Traditionally, people had limited chances to get academic qualifications unlike it is today where People tend to obtain more college degrees and other credentials. Education has always been linked to success at work, entrepreneurship and investments because educated people have been taught more on taxation, financial statistics and technical calculations among other things. The advanced information acquired by today’s millennials will shape the financial markets because they have more know-how than older generations. This will lead to a modernized way of handling operations in the financial markets and most probably make things more efficient.

Things seem to change by day due to numerous evolvements in the world. This include changes in how people view others, growth in technology, globalization and modernization. Today, people’s demographics do not limit their success in different aspects of life because a lot has changed within the last few decades. It means that changes in demographics’ perception are reshaping financial markets and other investments.

How The 900 Point Drop In The Stock Market Will Affect Businesses

This past Thursday, the stock market officially dropped 900 points which makes the month of October the markets biggest loss since February. The numbers reported are enough to make any investor pull out. While the stocks took a sudden plunge, panic also set in for not only the investors watching but for the business. This comes unexpectedly as the blue-chip stock hit an all-time high. Technology stocks took the majority of the damage in this decline. Here are the ways that this 900-point drop will affect businesses.

Financial health is affected

When investors are looking at a business, many observe the price. When a stock price is firm, this is an indicator of the business’s financial health. A business is determined to be financially feasible by analysts to inform investors by evaluating the financial data and stock price of the business. The stock price is an indicator for determining if the business’s potentials are content or concerned. With the plunge, several businesses are at risk of not being able to raise capital because potential investors are being told by analysts or brokers that this business may not be in their best financial interest. If the stock for the business continues to fall, they could lose their current investors to, which in turn is critical to their financial health and data reports.

The looming risk of a takeover

A takeover of a business is high when the stock price falls. This is a risk because now the business’s stock price is cheaper. This negatively affects businesses because they are not making capital once the takeover is complete. To understand, the public companies can distribute their shares among thousands of shareholders who have the ability to sell whenever they choose. When organizing a takeover, the bidders have a higher percentage of being able to offer a better price to shareholders solely because the trading price is lower.

This is another reason how this 900-point drop will affect businesses. If their prices are on the cheap side and bidders can and will perform a takeover. The problem with this is that the interests that are being protected by management no longer will be because management for the company will be released. This does not apply to just bidders; another business can be keeping an eye on a declining stock price of another business to perform a takeover. The business acquiring the other is able to avoid taking a debt because they have the finances to back the acquisition.

Spending halts

As an investor, people tend to continuously spend more when their stock of the business they are investing in is on the rise. This indicates that the business is in good financial standing and so is their money. The equity markets improves in wealth when people invest in them for the business as the stocks are increasing. The formula is usually increased wealth = increased spending because outside of the stock market, investors, who are most likely consumers of the business, are actively buying the goods or services. The spending increases revenue for the businesses.

The opposite occurs when numbers drop. So, this 900-point drop has affected the equity market, the revenue, the stock price, and the spending habits of the consumers. When a consumer reviews their portfolio and sees a rapid drop in value they are not going to continue their spending habit. As stated above, an increase in spending means an increase in business revenue, but a decrease in spending means the same for the revenue. This is especially true for businesses who sell non-necessity goods and services, such as high-end vehicles or entertainment, which will cause the consumers the willingly relinquish the items if they are suddenly confined to a smaller budget.

Tech companies will be affected by the drop

Tech companies such as Caterpillar, who took the lead in the recent stock market point decline according to the Dow Jones Industrial Average. The shares of such companies as Facebook, Apple, Amazon, and Netflix have been affected also. Unfortunately, Facebook, Twitter, and Alphabet, a Google-parent company, are receiving extreme governing scrutiny from the U.S. government because of the trade fight that is affecting the supply chain from China. This is due to Trump’s stern stance on Beijing. Chris Zaccarelli, who is Independent Advisor Alliance’s CIO (chief investment officer) mentioned that because of the trade war with China, tech businesses will be affected the most and need to be concerned about the rising interest rates.

Experts are chiming in and saying that this point down is a correction and not the beginning of a crash. Businesses are being informed to not panic, and do not time the market.

Fundamental Market Indicators Every Finance Expert Should Know

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Most people want to make money in the stock and bond markets. The markets provide the preferred investment path for retirement savings, emergency funds, and home down payments. But many would-be investors stay on the sidelines. Having seen the heavy losses imposed by market corrections, they choose to keep their money in the bank.

With low-interest rates and inflation an ever-present reality, leaving money in the bank presents the highest risk of all. Inflation will always devalue cash savings, eventually leaving the saver with severely diminished spending power. Just noting the difference in the cost of housing, vehicles, and everyday items over the last few years demonstrate this truth.

The key to successful investing lies in understanding what moves the stock and bond markets. To gain from market appreciation and guard against losses, investors, both large and small, must actively manage their holdings. When indicators show the markets are primed to stay strong, investors should buy more stocks and consider growth-oriented plays. Signs of deteriorating
conditions should signal investors to sell a portion of their holdings and move the proceeds into cash equivalents. The money remaining in stocks should be kept in safer, more conservative stocks that are known to hold up during economic and market declines.

If calling the market’s direction were easy, we’d all invest like Warren Buffet. While no one can predict all of the market ups and down on a daily basis, investment pros are able to read the overall trends in the market and determine when broad increases and declines are imminent. They key is following the fundamental market indicators and knowing what they mean in terms of market direction. Here are the fundamental market indicators every financial expert should know.

Unemployment Reports

Though no single indicator can determine market direction, if one could, the unemployment situation would be it. Employment underpins the American economy. Since the vast majority of Americans receive most or all of their income from employment, a strong economy and a strong stock market are dependent on a low unemployment rate.

As explained in Investopedia, corporate profits rely on strong employment. When large numbers of Americans are out of work, corporate profits decline. People simply stop making non-essential purchases. When the situation gets bad enough, people stop making essential purchases as well.

Part of predicting the direction in the economy rests on understanding the state of the job market. To aid investors, the government releases two jobs reports each month: the household survey on unemployment and the unemployment insurance claims report. The household survey captures a
broader swathe of the job market because it includes those who are ineligible for unemployment insurance; however, because the jobless claims report has a long historical record, its movements can rely on the show the overall state of the job market.

Inflation indicators

As mentioned, inflation is the enemy of any saver. The goal of any investor is to beat the rate of inflation each year. Inflation also moves the market.

The Federal Reserve’s mission is to promote economic growth while taming inflation. As economies heat up, so does inflation. The government wants growth from productivity, not price increases from inflation. Because of this, the Fed tries to keep inflation in check by altering interest rates. When the economy needs a boost, it lowers interest rates. As inflation takes hold, it ups interest rates.

What the fed does with interest rates moves the markets. Investment pros monitor inflation indicators in order to gauge what the fed will do with interest rates. The Consumer Price Index (CPI) indicates the rate of inflation for consumer goods, while the Producer Price Index (PPI) shows inflation in the cost of making goods. Both reports should be monitored. A rise in PPI usually translates into an increase in the CPI as producers pass on their rising costs to
consumers.

Consumer Confidence

How consumers feel about the economy indicates their spending habits in the coming months. Thus, consumer confidence is a leading market indicator. Markets stay strong when consumer confidence is high. When consumers stop spending, corporate profits fall.

To gauge consumer confidence, watch the Consumer Confidence Index (CCI). When this index falls, a weaker market often follows. Retail sales also provide insight.

The Housing Market

Housing is a giant part of the American economy. Smart investors know that the state of the housing market affects the stock and bond markets. Though housing prices and construction activity vary greatly by region, the overall housing market provides clues into the health of the American economy. By watching the reports on housing starts and building permits each month, investors determine the strength or weakness of the housing market.

Investing is a tricky endeavor. No person can call the direction of the market correctly all the time on a short-term basis; however, knowledgeable investors are able to predict broad, long-term trends. The key is monitoring these key economic indicators.

How The US Deficit Is Impacting The Euro

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A weak currency, worsening government finances, high political uncertainty, rising interest rates, are the statements that Rusty Tweed says that plague the U.S government. The U.S Treasury bonds were once regarded as risk-free assets, but now, they are shaky, and the alternative that is available for investors is the eurozone debt. Investors from all over the world and especially those from Europe are minimizing risk by avoiding the U.S Treasuries over the last few months. This is going on even though there is a huge interest rate gap between Europe and the United States.

The levels of the U.S debt as expressed as a percentage of the GDP are close to rising above the Italian debt which is one of the most indebted states in the world. Since the Trump administration is spending $300 billion for new plans and tax cuts of $1.5 trillion, the fiscal deficit of the U.S is widening sharply. By next year, the fiscal deficit might top $800 billion which is almost an additional $200 billion from the 2017 deficit that stood at $665 billion.

Federal Reserve

As we see the balance sheets of the Federal Reserve shrinking, the supply of the new bonds will rise sharply. This will risk higher interest rates that will make the bond market of the U.S government to become more volatile. Bond issuance and debt levels in the eurozone are falling contrary to the story in the U.S. Additionally, the states like Portugal and Spain which used to be hit by the crisis are now enjoying upgrades in their credit ratings.

Threats to the Euro

Study growth of the economy, existing threats to the euro, and continued low costs of borrowing are making investors invest more on Euro bonds. In March, Japanese investors purchased a staggering $2.7 billion Spanish bonds. We still need havens, and if the U.S Treasuries do not stand by their word, alternatives will spring up for investors, and the euro debt will be one of the best havens. This is evident and economic analysis and credit strategists are moving along these lines.

Although it is impossible to beat the liquidity and depth of the U.S Treasury, the once haven is not what it used to be. The U.S government bond market of $21 trillion is the largest in the world, and it is the most liquid. The three biggest states in the eurozone; Italy, France, and Germany have a total of $ 8 trillion in government bonds.

Borrowing Ratio

But when you look at how the US government is borrowing; it is the only developed economy whose debt-to-GDP ratio is going to rise in the next five years according to the predictions made by the IMF. The IMF project that the debt levels of the US will get to 108% by the end of 2018, and 117% by the end of 2023.

This kind of rise will bring about the downgrade of the credit rating which the S&P Global has already warned about unless the budgetary issues are sorted out. Economists like the CEO of Haidar Capital Management which is a macro hedge fund stated that the debt dynamics of the U.S are rising ar a dangerous place.

Rising Debt

As the debt rises, we are going to see private investment walking out as well as foreign interests. The debt-to-GDP ratio of Italy is projected to fall to below 117% from 130% by the end of 2023. The next government is projected to loosen the fiscal disciple in Italy. Generally, the broader spectrum of the eurozone is a good foundation unlike what is happening in Washington.

Additionally, the quarterly current account surplus of the eurozone averaged 1% of GDP for the three quarters that end in December; this is the highest that has been seen in the euro period. This means that more savings are exiting the zone which could boost flows in bonds.

The Change that is going to be seen

 

Euro zone’s debt has foreign demand that is supported by the appeal it has attracted in a currency-hedged basis. But investors are repositioning themselves because of stronger growth and rating upgrades. This means that in case a turmoil exists in the market, there are more options for safe-havens for investors than ever before. To have a clear picture, Rusty Tweed advises us to look at BAML analysis.

The Analysis by BAML

During the 2008 financial crisis, stock returns and Treasury correlations were negative, at a significant 60%. The Treasury became the safe haven after equity prices fell while Treasury prices rose. Now, since the negative correlation is at -28%, it implies that equities and Treasuries are not going to move in opposite directions.

Now, for a preview of the bond market of the eurozone, Italy, for instance, is viewed as a risky market. Although the perception is clear, not only did they hold their ground throughout the first quarter turmoil in the market, but their prices rose.

US Mortgage Rates Soar Slowing Down Home Sales

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The list of things that affect homebuyers’ mood is quite extensive. In fact, anything from the state of the economy and home prices to politics can affect someone’s willingness to buy. One of the most obvious factors that determine how likely people are to take out a mortgage, however, is the interest rate. After all, the amount of money necessary to cover the cost of lending will usually be directly related to someone’s likelihood of taking a large loan. With that being said, how are the current interest rates in the United States affecting the housing market? Not well.

Growing Costs

Over the last seven years, interest rates on mortgages have constantly been increasing. In fact, some of the highest rates since 2011 were seen in May of this year. This means that the cost of taking out a mortgage is continuously growing. Given that the median home value is also slowly going upward and the recent tax law changes, homebuyers may lack the motivation to purchase.

The Direct Relationship

When it comes to financial decisions, there are always factors that are directly related to the choice one makes. For example, prices of gas are directly related to someone’s potential car purchase as gas will be a repetitive variable cost. When it comes to the housing market, mortgage interest rates have the same role. Just consider, for example, what will be the most important factors in determining if someone signs a 30-year long loan agreement. Undoubtedly, the interest rate is extremely important.

Given the compounding nature of mortgage interest rates, a minor difference of 0.5 percent could mean tens of thousands of dollars. For instance, if someone takes out a $100,000, 30-year mortgage at an interest rate of 3.5 percent, they will repay a total of $161,656. If that same loan comes at the interest rate of 4 percent, the total amount will accumulate to $171,870. Thus, more than an additional $10,000 will have to be invested into the loan due to a minor change in the interest rate. If the mortgage is greater, this is even more impactful, as the differences could be measured in hundreds of thousands of dollars.

Facilitating a Slower Market

With interest rates growing, buyers are not as likely to purchase. Given their lack of motivation, home builders will not exactly be eager to construct new homes. After all, it makes no sense for businesses to build homes that will not be sold soon. Thus, the supply becomes limited and causes the prices to go up. After all, when the number of homes in the market is limited, the buyers will have to outbid one another. In the long-run, such practice will cause the prices to increase.

Sadly, this could throw the entire market into a vicious cycle. The prices continue to go up, and buyers are forced to seek greater mortgages. Given the growing interest rates, however, those mortgages come at a very high cost. Thus, the buyers’ motivation diminishes further. Luckily, with the improvements in the economy and the low unemployment, the interest rate should slowly decline. If they do, buying homes will become a common practice.