Where Will The Equity Markets End The Year?

Markets

Where Will The Equity Markets End The Year?

Friday, March 7, 2014

Source: Cretopedia

After the equity markets experienced huge gains in 2013, I believe 2014 is going to bring more growth. The gains will definitely not be over 20 percent as they were last year, however as a whole they will continue to increase, while bond prices will continue to gradually fall. "Stocks could go up another 10% to 15% in 2014. Investors may finally begin to really abandon bonds," Jeffrey Kleintop, chief market strategist with LPL Financial, stated.

A common mistake that people make when it comes to the rises and falls of the stock market is that after a large increase in the market there must be a decline. Sometimes this is true, but the stocks at the end of 2013 do not look nearly as unreasonable exuberant as they did in 1999, when the collapse of the stock bubble started. Scott Wallace, founder and CIO of Shorepath Capital Management stated that at the end of the day, stocks follow earnings. Earnings are going to be pretty good; investors should not make it more complicated than it is[1].

Overall, the US economy does not seem to be at risk of another recession anytime soon. Since GDP will increase at an above 3 percent clip in 2014 as many experts believe, growth will not be enormous, but it will an improvement. After the issue in Ukraine and Russia is resolved, and if Ukraine joins the European Union, this would only help the equity markets. This is because European markets have a pretty large impact on S & P 500 and Dow Jones. Overall, 2014 will end the year with growth in equity markets, but not as significant as the growth we experienced in 2013.

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[1] LaMonica, Paul. "5 Reasons Why Stocks Will Go up in 2014." CNN Money. Cable News Network, 19 Dec. 2013. Web.

Mortgage Rates Rise and Fall

Markets

Mortgage Rates Rise and Fall 

Thursday, March 6, 2014 

Source: DS News

After three weeks of increasing rates, this week the mortgage rates have declined once again. The 15-year fixed rates fell from 3.39 percent last week to 3.32 percent. These rates are most popular for mortgage owners refinancing their loan. In addition, the 30-year fixed mortgage rates fell from 4.37 percent last week to 4.28 percent this week. Mortgage rates have been fluctuating between 4.23 and 4.53 percent all year, which have been rather affordable. "Mortgage rates were down this week as real GDP was revised downwards to 2.4% growth in the fourth quarter of 2013," said Frank Nothaft, Freddie Mac's chief economist[1]. There are many potential reasons to explain the fall in mortgage rates with one of them being the harsh winter weather we have faced. However, with the winter weather settling down and if the issues in Ukraine are solved, we should see mortgage rates pick back up.

           
          From a Microeconomic perspective, there are benefits to these mortgage rates decreasing. Homes are still relatively affordable. The average price of a pre-owned home is approximately $188,900, which is down roughly 20 percent from the peak in the market in 2006[2]. For first time buyers, mortgage rates are very low, so with a decent job and savings, first time buyers should be able to find a deal. In addition, about a third of the home buying has been cash buyers by investors, but this is suspected to decrease in 2014. If rates were to rise, this would cause the banks to loosen their strict requirements to obtain a mortgage making it much easier to acquire a loan.

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[1] Christie, Les. "Mortgage Rates Fall Again." CNNMoney. Cable News Network, 06 Mar. 2014. Web.

[2] Romans, Christine. "3 Reasons to Ignore the Bad Housing News." CNNMoney. Cable News Network, 24 Feb. 2014. Web.

Russia and Ukraine: A Business Perspective

Markets

Russia and Ukraine: A Business Perspective

Wednesday, March 5, 2014

Unless you have been held captive with no connection to the outside world, you probably know that Russia has invaded Ukraine. Here is a little recap of why Russia was put in this situation:

http://occupymelbourne.net/category/turkey/

Ukraine owed Russia nearly 2 billion dollars “in debts, racked up by the previous cabinet and the previous president,” Prime Minister Arseniy Yatsenyuk stated. Ukraine was unable to pay an amount so substantial. Hence, Ukraine thought of a "genius" plan to stop Russia from wanting to collect from them. Since Russia's major gas pipelines to Western European markets for the most part pass through Ukraine and the energy sector accounts for about two-thirds of Russia's exports, 30 percent of their GDP, and almost half of the Federal Budget revenues, Ukraine decided to threaten Russia[1]. They threatened to shut off the gas lines passing through Ukraine if they were not forgiven the 2 billion dollars that they owed to Russia. Obviously, Russia did not stand for this and now they are invading Ukraine. 

Recently, it was reported that the European Union (EU) offered Ukraine 15 billion dollars to recover from their economic problems, but here is a better solution. Germany, the most economically sufficient country in the European Union, should offer to pay Russia for Ukraine's debt. Consequently, Ukraine should be offered a spot in the European Union. Ukraine has a population of almost 46 million people, and having the ability to trade without tariffs to the other members of the EU would help Europe's economic stumble. This could be a way to save the European economy from a projected economic meltdown in the near future, and even though Germany seems to be giving up a lot for this to happen, they would be gaining in trade and gas. 

Russia and the United States have almost zero trade between the two, so the only way the Americans can intervene is through warfare, which President Obama made it clear that the US will not enter a war. 

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[1] Gromov. A., 2011. Russian gas market perspective. PowerPoint Presentation at Energy Delta Institute, 14 December 2011 [PowerPoint presentation]. Available from:www.energystrategy.ru/ab_ins/source/Gromov_14.12.11.ppt