Paper Chase: Correction, Mortgages and Successful Women
Retail sales rose .2% in December which seems small, but was actually double the forecast following a major sales drop in autos though vehicle sales have hit their highest point since 2007. Holiday sales were up 3.8% which was below analyst’s forecasts, but higher than the 3.5% of last year. These types of metrics analyze consumers who comprise 2/3 of the economy. If there is a correction, it will be because people stop believing in a steadily growing economy.
As we approach earnings season, it is important to keep in mind that we are looking for the direction of top line growth as it is tied to nominal GDP growth. What we know is that the economy increased in the 3rd quarter and there was better trade data. If there is a loss in basis for top line growth, companies will still look to expand their profit margins as they have been doing. What else can be squeezed is the risk with poor earnings. We are not at the end of gains in profit margins either, but even if profit margins were to level out, the market still has room to grow.
The risk for this particular market is called a melt up. Corrections that follow these types of markets are nastier as opposed to a grind up market. The economy grew at 4% in 3rd quarter and 3.5% in the 4th, so a 3% figure still looks like the overall mark for 2014.
The energy boom improves competitiveness and is a game changer economically and geopolitically. We already see labor costs and other costs narrowed. In fact, the total landed cost gap has narrowed signifying that the boom is actually lowering costs across the spectrum. We are fast approaching the point where it will be more economical for U.S. based companies, with U.S. based customers to establish entire operations domestically.
Investors with “discipline” (those with advisors and/or a set strategy with which they adhere to) participated in this bull market at a much higher rate than the so called “wing it” investor. You have heard me say it before, but last year was indeed a turnaround. There was a 125 basis point increase in performance from 2008-2013 where it had previously been flat. If your investing strategy is to outpace inflation (reasonable), equity exposure is a must.
The Consumer Protection Financial Bureau (CPFB) has issued new rules concerning mortgage lending:
1) Mortgages should be based on a borrowers ability to repay
2) The monthly debt to income ratio, including the mortgage, should be max 43%
3) No more mortgage payments with negative amortization or interest only payments
4) Servicers must keep borrowers informed about their loans
5) Foreclosures can’t be initiated until a borrower is 120+ days delinquent.
These are common sense rules that may make lending harder in the short run, but will strengthen the housing market even more.
She Knows Best
For the second year in a row, women hedge fund managers outperformed their male counterparts. In fact, womenomics or the study of how women’s increasing economic power is changing our planet has given a gender lens to investment. Women have traditionally had less access to capital so there is much we are still learning about investment trends and patterns.
Women in Finance
53.5% of Financial Managers and 60.9% of accountants and auditors are women. Conversely, only 36.8% of financial analysts and 31.2% of personal financial advisers are women.
85% of women feel the past benefits of their investing will continue. However, 55% of women said they know less than the average investor. 50% of women fear outliving their investments. 60% say they will have to support someone else. Yet, 78% of women don’t want to be actively involved in investing. Men on the other hand feel like they know more than the average investor.
Investing is a confidence issue that lends itself to “leaning in”. Still women may not want to lean in the conversation despite indications of wiser decision making. Women are indeed 30% more likely to have their investments reflect their beliefs and values than are men. Financial empowerment will allow women to better manage their own wealth (estimated at $22 trillion), but wealth in general.
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