Raising Kids to Be Smart About Money

Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.

“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”

The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.

iStock-piggy-bank

Find Opportunities for Lessons

At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.

Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.

images.jpg

Demonstrate that Income Is Earned

Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.

The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.

Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:

“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”

This shows them that they have control over how much they earn, rather than it being a given.

Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.

121312-national-money-managing

Establish a Record-Keeping System

When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.

Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.

images (1)

Use Visual Aids to Your Advantage

Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.

You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.

05-09-16-six-money-lessons-for-kids

Encourage Them to Set a Savings Goal

There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.

It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.

 

 

 

Written By: Jessica Thiefels
Source: PBS

Market Update: July 3, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Stocks end first half with down week. Nasdaq lost ~2% on tech weakness, Dow -0.2%, S&P 500 Index -0.6%; Russell 2000 ended flat. Market weakness partly attributed to hawkish global central bank comments, which pushed yield on 10-year Treasuries up 15 basis points (0.15% to 2.30%), pressured the dollar. Favorable bank stress test results boosted financials, renewed focus on reflation trade into banks, energy.
  • Oil bounce continued, WTI crude oil +7%, bringing session winning streak to seven and price back above $46/bbl. Friday brought first weekly drop in rig count since January.
  • Strong first half despite recent choppiness. Nasdaq rallied 14%, its best first half since 2009, S&P 500 (+8%) produced its best first half since 2013 (Dow matched S&P’s first half gain).

Overnight & This Morning

  • S&P 500 higher by ~0.3%, following gains in Europe. Quiet session likely with early holiday close (1 p.m. ET).
  • Solid gains in Europe overnight– Euro Stoxx 50 +0.9%, German DAX 0.6%, France CAC 40 +1.0%. Solid purchasing managers’ survey data (June Markit PMI 57.4).
  • Asian markets closed mostly higher, but with minimal gains.
  • Crude oil up 0.4%, poised for eighth straight gain.
  • Treasuries little changed. 10-year yield at 2.29%. Early bond market close at 2 p.m. ET.
  • Japanese Tankan survey of business conditions suggested Japanese economy may have increased in the second quarter, manufacturing activity is at multi-year highs.
  • China’s Caixin manufacturing PMI, generally considered more reliable than official Chinese PMI, exceeded expectations with a 50.4 reading in June, up from 49.6 in May.
  • Today’s economic calendar includes key ISM manufacturing index, construction spending.

MacroView_header

Key Insights

  • Several key data points this week, despite the holiday-shortened week. Today brings the important Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI), followed by minutes from the June 13-14 Federal Reserve (Fed) policy meeting on Wednesday and Friday’s employment report. Key overseas data includes services PMI surveys in Europe, China’s manufacturing PMI, and the Japanese Tankan sentiment survey (see below). Market participants will scrutinize this week’s data for clues as to the path of the Fed’s rate hike and balance sheet normalization timetables. Views are diverging again, though not as dramatically as in late 2015/early 2016.

Macro Notes

  • The first six months in the books. It was a solid start to the year, with the S&P 500 up 8.2%, the best start to a year since 2013. Yet, this year is going down in history as one of the least volatile starts to a year ever. For instance, the largest pullback has been only 2.8%–which is the second smallest first-half of the year pullback ever. Also, only four days have closed up or down 1% or more–the last time that happened was in 1972. Today, we will take a closer look at the first half of the year and what it could mean for the second half of the year.

MonitoringWeek_header

Monday

  • Markit Mfg. PMI (Jun)
  • ISM Mfg. (Jun)
  • Construction Spending (May)
  • Italy: Markit Italy Mfg. PMI (Jun)
  • France: Markit France Mfg. PMI (Jun)
  • Germany: Markit Germany Mfg. PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. PMI (Jun)
  • UK: Markit UK Mfg. PMI (Jun)
  • Eurozone: Unemployment Rate (May)
  • Russia: GDP (Q1)
  • Japan: Vehicle Sales (Jun)

Tuesday

  • Happy July 4th Holiday!
  • Japan: Nikkei Japan Services PMI (Jun)
  • China: Caixin China Services PMI (Jun)

Wednesday

  • Factory Orders (May)
  • Durable Goods Orders (May)
  • Capital Goods Shipments and Orders (May)
  • FOMC Meeting Minutes for Jun 14
  • Italy: Markit Italy Services PMI (Jun)
  • France: Markit France Services PMI (Jun)
  • Germany: Markit Germany Services PMI (Jun)
  • Eurozone: Markit Eurozone Services PMI (Jun)
  • UK: Markit UK Services PMI (Jun)
  • Eurozone: Retail Sales (May)

Thursday

  • ADP Employment (Jun)
  • Initial Jobless Claims (Jul 1)
  • Trade Balance (May)
  • Germany: Factory Orders (May)
  • ECB: Account of the Monetary Policy Meeting
  • Mexico: Central Bank Monetary Policy Minutes
  • Japan: Labor Cash Earnings (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Jun)
  • Unemployment Rate (Jun)
  • Average Hourly Earnings (Jun)
  • Average Weekly Hours (Jun)
  • Labor Force Participation & Underemployment Rates(Jun)
  • Germany: Industrial Production (May)
  • France: Industrial Production (May)
  • Italy: Retail Sales (May)
  • UK: Industrial Production (May)
  • UK: Trade Balance (May)

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: June 26, 2017

MarketUpdate_header

Last Week’s Market Activity

  • After closing once again at record levels last Monday, the Dow and the S&P 500 Index battled a wave of sector rotation for the balance of the week, finishing higher by the slightest of margins.
  • It was the 2nd consecutive weekly gain for the S&P 500, as increases in healthcare (+3.7%) and technology (+2.3%) offset weakness in the energy (-2.9%), financials (-1.8%), and utilities (-1.8%) sectors.  Positive news on drug development and potential changes to the Affordable Care Act drove healthcare higher, while continued weakness in WTI crude oil ($43.00; -4.0% for the week) pressured the energy sector.
  • The yield on the 10-year Treasury fell to 2.14%, its second lowest close of 2017, pressuring the U.S. dollar, which edged down -0.2% on Friday.

Overnight & This Morning

  • Asian stocks rose for a third day, led by technology companies.  The MSCI Asia Pacific Index rose +2.0% and equity markets in China and Hong Kong had gains approaching 1.0%. In Japan, The Nikkei managed to climb despite a report from the Bank of International Settlements warning of dollar denominated risk on bank balance sheets.
  • European stocks rebounded from three weeks of losses. German business confidence hit a record in June, but Italy had to bail out two banks totaling $19 billion.
  • Commodities – WTI crude oil rose, trimming its biggest monthly decline in one year. Gold extended its decline to the lowest level in almost six weeks.
  • U.S. stock futures are up slightly as the dollar climbed and Treasury yields jumped after several Federal Reserve officials suggested further rate increases.

MacroView_header

Key Insights

  • Mixed signals. The financial markets are sending mixed signals, trading within a tight range in an extended expansion. The debate now centers on if the U.S. economy can continue to exhibit growth in output and profits (signal from stocks) or it may slip into a recession (signal from Treasuries). Our view is that though the growth rate in manufacturing may have peaked, we expect Purchasing Manager Indexes (PMI) to remain in expansion territory. While auto sales may be down ~5.0% from last year, the rise in household formation suggests pent up demand remains in the housing market. Finally, with solid employment levels and improving wages, consumption is well-positioned to support growth and any clarity on regulation, infrastructure, and tax plans could provide an additional boost.
  • Brexit. Friday marked the 1st anniversary of the controversial Brexit vote, which called for the U.K. to leave the European Union (EU).  To mark the occasion, the pound sterling rose +0.2% to $1.27, paring its weekly decline, and the FTSE 100 Index fell -0.2% on Friday. While the U.K. is the largest importer of the EU countries, the FTSE 100 is largely comprised of exporters, with 2/3rds of its revenue generated overseas.  This helps explain why the approximately 15.0% drop in the pound sterling was accompanied by a rise of a similar magnitude (+17.0%) in the FTSE 100 over the past year.

Macro Notes

  • Technicals continue to look strong. One of the strongest aspects of this equity bull market has been that the technicals have and continue to support higher prices. This week we take a closer look at the global bull market and why broad participation suggests it still has legs.
  • 41 weeks and counting. The S&P 500 has now gone 41 straight weeks without closing lower by 2% or more, but that’s not even the most surprising point.

MonitoringWeek_header

Monday

  • Durable Goods Orders (May)
  • Chicago Fed National Activity Report (May)
  • Cap Goods Shipments and Orders (May)
  • Dallas Fed Mfg. Report (Jun)
  • ECB: Draghi
  • BOE: Carney
  • BOJ: Kuroda

Tuesday

  • Conference Board Consumer Confidence (Jun)
  • Richmond Fed Mfg. Report (Jun)
  • Italy: Mfg. & Consumer Confidence

Wednesday

  • Advance Report on Goods Trade Balance (May)
  • Wholesale Inventories (May)
  • Pending Home Sales (May)
  • France: Consumer Confidence (Jun)
  • Eurozone: Money Supply (May)
  • Itally: PPI & CPI (Jun)
  • Bank of Canada: Poloz
  • Japan: Retail Sales (May)

Thursday

  • GDP (Q1)
  • Germany: CPI (Jun)
  • Eurozone: Consumer Confidence (Jun)
  • BOJ: Harada
  • Japan: National CPI (May)
  • Japan: Industrial Production (May)
  • China: Mfg. & Non-Mfg. PMI (Jun)

Friday

  • Personal Income (May)
  • Consumer Spending (May)
  • Chicago PMI (May)
  • Core Inflation (May)
  • UK: GDP (Q1)
  • France: CPI (Jun)
  • Germany: Unemployment Change (Jun)
  • Eurozone: CPI (Jun)
  • Canada: GDP (Apr)
  • Japan: Vehicle Production (May)
  • Japan: Housing Starts (May)
  • Japan: Construction Orders (May)

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: March 13, 2017

MarketUpdate_header

  • Traders cautious ahead of Fed decision. The S&P 500 is modestly lower this morning after advancing Friday, led by utilities (+0.8%) and telecom (+0.7), but snapping a six-week winning streak. Energy (-0.1%) lagged, but held up well given the 1.6% drop in the price of oil. Investors are trading cautiously ahead of the Federal Open Market Committee (FOMC) meeting, which begins tomorrow; the market has priced in a 25 basis point (0.25%) rate hike. Overnight, Asian markets were led higher by the Hang Seng (+1.1%) and Shanghai Composite (+0.8%); Korea’s KOSPI (+1.0%) continued to climb after the country’s president was removed from office on Friday. European exchanges are mostly higher in afternoon trading, with the STOXX Europe 600 up 0.4%. Meanwhile, WTI crude oil ($48.30/barrel) is higher after last week’s slide, COMEX gold ($1203/oz.) is up modestly, and the yield on the 10-year Treasury note is up 0.01% to 2.59%.

MacroView_header

  • Busy week ahead in a very busy month. March is an unusually busy month for global markets. This week, the FOMC meeting, along with Bank of Japan and Bank of England meetings, are accompanied by an election in the Netherlands, a press conference by Chinese Premier Li, and a ton of key U.S. economic data (retail sales, CPI, housing starts, leading indicators). President Trump will release his fiscal year 2018 budget document, the G-20 finance ministers meet in Germany, and the U.S. will hit its debt ceiling.
  • FOMC preview. This week, we ask and answer key questions that investors may have about the Fed and monetary policy ahead of the Federal Open Market Committee (FOMC) meeting. With a 0.25% rate hike fully priced in, markets will want to gauge the pace and timing of rate hikes over the rest of 2017 and into 2018, as well as Fed Chair Yellen’s thoughts on fiscal policy and the impact on monetary policy.
  • How much does the current bull market have left in the tank? The bull market celebrated its eighth birthday last Thursday, March 9. During that eight-year period, the S&P 500 rose 250% in price and more than tripled in value (including dividends), leaving many to ask the question: How much does this bull run have left? We try to help answer that question by looking at some of our favorite leading indicators. Although valuations are rich and policy risks are high, none of our favorite leading indicators are sending signals suggesting the bull market is nearing its end.
  • The weekly win streak is over. The S&P 500 ended with a slight gain on Friday to close the week down 0.4% – just missing out on the first seven-week win streak since late 2014 and ending a six-week win streak in the process. The big move last week came in crude oil, as it sank more than 9% for the week – the largest weekly loss since right before the election. Small caps, as measured by the Russell 2000, fell 2.1% and high yield also saw a big drop. Many have noted that weakness in energy, small caps, and high yield could be a warning sign for large caps. We will continue to monitor these developments.

MonitoringWeek_header

Monday

  • ECB’s Mario Draghi Speaks in Frankfut
  • China: Retail Sales (Feb)
  • China: Fixed Asset Investment (Feb)
  • China: Industrial Production (Feb)

 Tuesday

  • Small Business Optimism Index (Feb)
  • Germany: ZEW (Mar)

 Wednesday

  • Empire State Mfg. Report (Mar)
  • CPI (Mar)
  • Retail Sales (Mar)
  • FOMC Decision (Rate Hike Expected)
  • FOMC Economic Forecasts and “Dot Plots”
  • Yellen Press Conference
  • General Election in the Netherlands
  • China’s Premier Li Holds Annual Press Conference

 Thursday

  • Philadelphia Fed Mfg. Report (Mar)
  • US Debt Ceiling Reinstated
  • President Trump to Release His FY 2018 Budget
  • UK: Bank of England Meeting (No Change Expected)
  • Japan: Bank of Japan Meeting (No Change Expected)

 Friday

  • Index of Leading Indicators (Feb)
  • G20 Finance Ministers Meeting in Germany

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Big Banks Shift to a New Fintech Strategy

Provided by CNBC

Big banks’ fintech investing strategies are shifting at a crucial time in the nascent industry’s development.

This year, big banks seem more eager to partner with or buyout startups challenging crucial lines of business in the financial services industry. It comes after years of banks’ simply being willing to buy in as minority stakeholders in startups. Fintech, or financial technology, is used to make financial services more efficient.

More recently, banks are committing big bucks to buyouts. It comes after a year in which fintech funding hit new highs. Ally Financial (ALLY) bought online brokerage TradeKing Group, the firm announced earlier this month, in a $275 million deal. BlackRock (BLK) also decided to tap into fintech, last August, with the $150 million acquisition of online investment firm FutureAdvisor.

Banks aren’t always spending to buy startups with big-name investors — or big price tags. When Goldman Sachs (GS) last month bought Honest Dollar, the Texas-based online retirement planning service, the startup had raised just $3 million in venture funding, according to Crunchbase. The bank didn’t disclose its purchase price and didn’t comment on the deal. TradeKing, as well, raised less than $10 million in venture funding, according to Crunchbase.

It isn’t just U.S. banks eager to beat back the rising tide of disruption. Spanish bank BBVA bought out Finnish banking startup Holvi last month, and didn’t disclose terms — it also wasn’t BBVA’s first deal in that sub-sector. BNP Paribas earlier this month announced a partnership with SmartAngels, a direct investing platform for crowdfunding deals, as well.

“Banks are partnering to keep in the game and keep relevant,” said Alvarez & Marsal managing director David Gibbons. “I think they’ve caught up fairly well.”

Finding partners, rather than M&A targets, is especially helpful to banks that have been squeezed out of some financial services businesses like small business lending. One investor, who asked to not be quoted, said many banks have a difficult time profitably originating small loans. JPMorgan Chase (JPM)partnered with On Deck Capital (ONDK), an online lender that has struggled since its late 2014 IPO, to generate loans to the bank’s customer base.

“Banks are already well down the road to partnering with marketplace platforms for unsecured lending,” said PricewaterhouseCoopers fintech co-lead Haskell Garfinkel. “The biggest challenge right now is to consume it, integrate it and monetize it.”

And while big banks are trying to integrate partners and investments, some may shut other startups out of customer accounts and financial data. In his annual letter to shareholders this month, JPMorgan Chase CEO Jamie Dimon noted unnamed third-party apps take more data than they need, and said they are “doing it for their own economic benefit.”

If banks again starts throttling apps they believe are abusing access, reverberations might have a lasting impact in Silicon Valley, where mobile banking and finance management apps are often dependent on real-time access to customers’ bank accounts. As banks sift out which businesses they must buy, which they may partner with and which they can duplicate independently, various segments of the fintech ecosystem are likely to encounter different treatment.

While financial services investors have put money into startups like MobiKwik and Square (SQ), M&A for payments-focused companies has been rare. Considering that a number of big banks banded together in February to establish the clearXchange network, which allows consumers to process transactions between smartphones without a third-party app, payments is one sub-sector of fintech that could see continuing competition from legacy players.

“It’s a race to the bottom,” said Mariano Belinky, managing partner of Santander InnoVentures, a $100 million fund operated by the Spanish bank of the same name. “We’re going to end up with payments as a free service.”

Written by Jon Marino of CNBC

(Source: MSN)

Weekly Market Commentary: March 14, 2016

Provided by geralt/Pixabay
Provided by geralt/Pixabay

Stim-u-late mar-kets! Come on! It’s monetary easing.*

The European Central Bank (ECB) was singing a tune that invigorated financial markets last week. The Wall Street Journal explained:

“The fresh measures included cuts to all three of the ECB’s main interest rates, €20 billion a month of additional bond purchases atop the ECB’s current €60 billion ($67 billion) program, and an expansion of its quantitative easing program to highly rated corporate bonds – all more aggressive steps than analysts had anticipated. The central bank also announced a series of ultracheap four-year loans to banks, some of which could be paid to borrow from the ECB.”

Most national indices in Europe gained ground last week. The Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB), which measures the performance of the 40 most-traded stocks on the Italian national stock exchange, was up almost 4 percent. Spain’s Indice Bursatil Español Index (IBEX 35), which is comprised of the most liquid stocks trading on the Spanish continuous market, gained more than 3 percent. Major markets in the United States moved higher, as well.

Of course, the harmony provided by global oil markets proved pleasing to investors, too. An International Energy Agency (IEA) report suggested more equitable supply and demand balances could mean oil prices have bottomed out.

Barron’s offered a word of caution, “Investors shouldn’t get too comfortable when it seems that oil moves and central-bank maneuvers are the main reason stocks go up or down, not earnings and economic growth.”

*Set to the tune of Kool and the Gang’s ‘Celebration.’ You know, “Cel-e-brate good times! Come on! It’s a celebration.”

Data as of 3/11/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.1% -1.1% -0.9% 9.1% 9.2% 4.7%
Dow Jones Global ex-U.S. 1.1 -2.5 -9.6 -2.3 -1.6 1.3
10-year Treasury Note (Yield Only) 2.0 NA 2.1 2.1 3.4 4.8
Gold (per ounce) -1.0 19.1 10.0 -7.1 -2.2 8.8
Bloomberg Commodity Index 2.0 1.8 -19.6 -16.5 -13.3 -6.8
DJ Equity All REIT Total Return Index 1.7 1.7 4.7 9.0 11.0 6.4

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Here’s How China is Trying to Dodge Its Own Great Recession

Justin Chin/Getty Images

The multi-trillion dollar question, literally, for investors these days is, “How poorly is the Chinese economy performing?”

The globe’s second largest economy has been a driving factor in the weak performance of U.S. stock markets lately, as investors fear a so-called hard landing in China could drag the rest of the world into recession.

But the official Chinese economic data is notoriously unreliable. Even if we trust the numbers, we’re faced with the problem of how to interpret them. What’s more, there has never been an economy as important to the globe as China’s that has had a government so willing to use its extraordinary power to prop up economic growth.

In other words, understanding how the Chinese economy will affect the West requires that we correctly predict how the Chinese government will behave in the weeks and months ahead. To that end Deutsche Bank analysts Zhiwei Zhang and Li Zeng recently published a report called “Understanding the Tail Risks in China,” which looked at the regional policy response of the Chinese government to a slowing economy.

Zhang and Zeng isolate data from China’s northeast, a region that’s likely already in a deep recession. That segment of the country’s nominal GDP grew just 1% (factoring in inflation it would have been negative) in 2015, according to Deutsche Bank estimates. At the same time, fixed asset investment fell 11.6%, compared with an average growth of 25.5% in the ten years before. The region is dominated by state-owned enterprises involved in traditional heavy industries, or commodity and energy production, sectors that have come under particular stress in recent years.

Screen Shot 2016-02-22 at 2.58.51 PM
Provided by Fortune

Despite this sharp drop off in economic activity, the growth in consumer spending and income did not fall anywhere near as much. Furthermore, northeast China was the only region in the country that saw credit growth, i.e., banks making more loans in 2015 than they did the year before.

In economies not dominated by the Chinese Communist Party, stuff like this doesn’t happen. As Zhang and Zeng argue that the discrepancy between the huge drop off in business activity and consumer behavior is likely the result of direct central government support, but also “indirect support,” from the folks in Beijing. They write:

The sharp contrast between weak economic activities and strong credit growth shows that banks in the northeast likely supported, through renewed lending, the weak corporate sector regardless of economic viability, which helped to avoid unemployment and bankruptcy. In this case, it is the government’s priority of maintaining social stability that overrode profitability considerations.

Such government support, however, can only be a short-term remedy rather than long-term solution to the structural challenges facing the northeastern region, and it comes with dear efficiency costs. The central government started to talk openly about addressing the risk of “zombie companies” in late 2015. This is regarded as a key part of the “supply side reforms.” One way to judge how serious the government is about the “supply side reforms” is perhaps to see if such credit support to the northeastern region will be contained in 2016.

This is another reason why western observers seem so confused by what they’re seeing out of China. Because the government there has so much more ability and willingness to stimulate the economy than governments in the West do, it’s that much more difficult to predict China’s future performance.

But until China addresses the fundamental flaws in its economy, i.e. it’s over reliance on investment, exports, and debt, it will have to continue to rely on government stimulus to avoid a collapse in employment and the social unrest that would likely be the result. And the longer it does that, the greater the growing imbalances in its economy will get.

Written by Chris Matthews of Fortune

(Source: Fortune)

Weekly Advisor Analysis: February 9, 2016

Investors were hoping for a fresh start to February given the previous tumultuous four weeks. Overall, the results were mixed. The Dow Jones Industrial Average was up 0.84 percent for the week and the S&P 500 was down 0.70 percent. The tech-heavy NASDAQ Composite ended the week down 3.18 percent as technology and biotech companies weighed on the index. International markets didn’t fare much better. The Stoxx Europe 600 Index ended the week down 4.78 percent and Japan’s Nikkei 225 closed down 3.99 percent. Oil finished the week lower in uneven trading as investors wrestled with global growth concerns and a possible deal between the largest producers.

Government Bonds

The U.S. 10-year Treasury bond hit 1.80 percent, the lowest in nearly 10 months, last week. This marks a sizeable drop from the 2015 year-end yield of 2.27 percent. Fears of slowing global growth have driven investors into government bonds and, as one of the only central banks raising rates, U.S. government bonds are very attractive. Indeed, nearly 25 percent of global government bonds outstanding have below-zero yields. As the demand increases, the price on bonds goes up, pulling yields down. Possibly exacerbating the issue, the U.S. Treasury has announced it will cut the issuance of Treasury bonds maturing in five or more years for the first quarter of 2015 by $18 billion. While the amount is relatively small compared to the $13 trillion in outstanding debt, the recent increase in demand and lower supply could push bond prices even higher. It is important to note if yields drop sharply, investors that are taking negative bets on those bonds may be forced to buy to cover their bets. Known as a short squeeze, the rapid buying of bonds by short sellers covering their bets could move prices even higher and yields even lower.

WAA.png

Jobs, Jobs, Jobs

According to the Bureau of Labor Statistics, non-farm payrolls increased 151,000 in January, nudging the unemployment rate down to 4.9 percent but missing market expectations. Despite unemployment hitting the lowest level since February 2008, markets reacted negatively to the miss on Friday. The U-3 unemployment figure, the more widely reported number the government releases, measures the total number of those unemployed as a percent of the civilian labor force. Many economists instead choose to focus on broader measures, such as the U-6 unemployment rate. The U-6 includes those covered in the U-3 measure but also those still looking for work, but discouraged, as well as those employed part-time for economic reasons. This figure was flat for January, holding still at 9.9 percent. On the bright side, there was a slight increase in wage growth which is something economists welcome as it indicates slack in the labor market may be tightening up and inflation expectations may rise.

WWAAA

Central Banks

Central banks across the world are indicating additional monetary actions could be required to boost inflation and spark growth. The European Central Bank, the Bank of England, and the Bank of Japan are just a few that have either hinted at or already taken additional stimulative actions. The Bank of Japan, for example, surprised the markets last week indicating it would begin setting negative interest rates. While both the European Central Bank and the Bank of England have committed to keeping rates low, the European Central Bank has recently hinted more stimulus may be needed to boost inflation in the Eurozone. A reasonable amount of inflation is generally a good sign for an economy. As consumers debate purchases, the thought about whether the good or service will be more expensive in the future may lead them to buy now rather than wait. Slowing inflation could signal a lack of economic growth as fewer goods and services are bought and sold. What central banks desperately want to avoid is a deflationary situation. Whereas consumers may buy now if they believe prices will be higher in the future, the opposite is true when there is deflation. When this occurs, consumers may delay their purchases with the belief prices may continue to slide, further exacerbating an economic slowdown.

Fun Story of the Week

A man named Carl Reese set a new record for driving from Los Angeles to New York City, or 2,829 miles, in just under 39 hours. As remarkable as that may sound, the way he did it is what’s especially noteworthy. Reese broke the record riding on a motorcycle, alone. Only five other people have completed such a feat with Reese doing it in the shortest amount of time. Preparation for such an undertaking involves painstaking planning and some more unorthodox training methods. Reese began working with a therapist to strengthen his back while taking cycling classes to condition his body for the extended bouts on a motorcycle seat. To break the record, Reese averaged 73 miles per hour and, occasionally, exceeded 110 miles per hour while taking just an hour-long nap and bringing easy-to-eat food such as sandwiches and nuts. Known as the Cannonball Run, the less-than-legal “race” from Los Angeles to New York City began in 1914 with Irwin Baker who rode his Indian® motorcycle between the two cities in 11 days, setting the bar for those who have come after him.

Budgeting Apps Feel the Pinch

 

Provided by Thinkstock

Tools that let you track all of your financial accounts in one place, such as Mint.com, rely on a steady flow of data from banks, brokerages and credit card issuers to operate smoothly. Lately, that steady access hasn’t been a given. Mint experienced disruptions in its feed from Chase last fall because of heavy traffic on the bank’s Web site. Plus, Chase later notified some customers that they would have to log in to their Chase accounts and go through steps to ensure that desktop ap­plications such as Quicken would continue to sync data. About the same time, Mint users with Wells Fargo accounts dealt with service interruptions—possibly an inadvertent side effect of security updates.

Chase and Wells Fargo assert that software updates and clogged servers caused the blockages. Even so, banks may have other reasons to think twice about keeping an open line with aggregators. First, they’re competitors: Financial in­stitutions offer their own money-management tools. Chase Blueprint lets customers with certain credit cards set and monitor spending goals, and Wells Fargo’s My Money Map provides similar options. In late 2014, Mint launched a separate application, Mint Bills, which allows users to pay bills online from one portal—just as many customers can do with their bank’s online bill-pay feature.

Banks are also on edge about the security risks involved when customers provide account information to third parties. Some have posted disclaimers on their sites that customers could be on the hook for financial losses that result from sharing log-in information with other services. That might not hold up under federal law, says Lauren Saunders of the National Consumer Law Center. “You still have the right to contest unauthorized charges on your bank account.”

Whether a budgeting tool would be liable in the event of a data breach is an open question, and one that won’t be resolved until lawmakers create clear rules or an app is hacked and the courts decide. In 2015 through December 8, there were 66 data breaches in the banking, credit and financial sector, according to the Identity Theft Resource Center.

Mint and similar sites haven’t suffered any known breaches (but in today’s hostile environment, no entity is infallible). Mint says that its encryption standards match those of a bank. If a crook were to log in to Mint’s budgeting tool with your credentials, he couldn’t see account numbers or make transactions, but he could move money with Mint’s bill-payment app.

Because consumers usually have financial accounts with a variety of institutions, banks aren’t likely to provide the big-picture value that applications such as Mint offer. And customers who are unhappy with how an institution is handling its relationships with third-party services can vote with their feet. “If there’s a backlash, banks will adjust,” says S&P Capital IQ analyst Scott Kessler.

Don’t expect the complex symbiotic relationship between banks and budget apps to end. “Banks rely heavily on these platforms to get new customers,” says Alex Matjanec, of MyBankTracker, a consumer site for bank information. For example, banks pay Mint to promote their credit cards to its users.

Written by Lisa Gerstner of Kiplinger

(Source: Kiplinger)

Buckle Up: China Could Rock Markets Next Week

Provided by CNBC

Global markets are poised for more volatility next week with key economic data from China expected to show that the world’s second-largest economy continues to grow at its slowest pace since the financial crisis, despite aggressive measures taken by the central bank to boost growth.

“There has been ongoing fear bubbling since August that the China slowdown is worse than expected. Investors are nervous that we’ll see a massive downside correction in China’s economy. That’s why this data is so important to markets,” said James Rossiter, senior global strategist at TD Securities.

China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning.

Wasif Latif, who manages $1.6 billion at USAA Investments, agrees.

“These data reports next week could be very important in their power to either confirm or refute the current narrative that China is experiencing a very bad slowdown,” said Latif.

The kick-off to 2016 has been challenging to say the least for China which continues to show signs of weakness, particularly on the manufacturing and services front. This downbeat data has pushed investors to alter their global forecasts, readjust earnings expectations and talk about what life with a slowing China means for trading stocks bonds and commodities this year.

Markets around the world have been under pressure due in part to China worries. The Shanghai Composite (.SSEC) is already down 18 percent this year and down over 40 percent from its June 2014 high.

Barclays strategists wrote that China remains a key source of turmoil as it affects currencies, commodities and financial volatility.

Analysts also point to Beijing’s unpredictable nature in addressing the country’s economic woes and market structure. For instance in the last week, China reversed a new rule on circuit breakers that had brought stocks to a complete halt after just minutes of trading.

Questions remain over whether the central bank of China will respond to weak data through its currency, or if the government will intervene in new ways if stocks continue to fall on the domestic markets.

It is also a lack of transparency in the country’s management of its economy and financial system that concerns China watchers.

“(Peoples Bank of China’s) policy intention and tool mix with respect to the exchange rate are hotly debated,” wrote Tao Wang, UBS China economist in a note on Wednesday.

Wang went on to write that the CNY’s relatively rapid depreciation last week surprised the market, against a back drop of volatility in its domestic stock markets. That has just added to confusion and concerns about China’s economy, exchange rate policy and global markets.

Investors who spoke with CNBC say if the data disappoints, the central bank will be under more pressure to allow the onshore currency to weaken, which will most likely result in a widening spread between the onshore and offshore yuan.

That could spell trouble for stocks. Societe Generale team says widening spreads over the past nine months has been followed by a surge in U.S. equity market volatility.

“More important than how the Chinese stock market trades following the data releases is the level the yuan trades at — that is what global investors are paying attention to,” said a portfolio manager who manages $4 billion in assets under management who preferred to be unnamed.

The first important economic release that could move markets will be China’s fourth-quarter GDP number late Monday night New York time. Analysts are calling for 6.9 percent year over year for the fourth quarter. However, it is widely seen by China watchers as inaccurate and propped up by the government.

“Think there is downside risk, but then again, you never know how the numbers are going to be massaged,” said Win Thin, global head of emerging markets at Brown Brothers Harriman & Co.

Ruchir Sharma, Morgan Stanley’s head of emerging markets equity and global macro, said, “China’s real GDP number is closer to 4 to 5 percent; 6.9 percent seems way too high.”

Growth data from China is one of the last major economic releases before the Chinese New Year when analysts say there is a higher chance for seasonal distortions.

The other two data releases are industrial production and retail sales.

With China’s slow transition from an export oriented to a consumption led economy — investors are likely to focus more on the retail sales number to get a gauge on consumer spending.

While fears around China have risen in the first two weeks of the year, market pros will likely look beyond economic data for clues as to how its economic slowdown is impacting global growth and companies that rely on sales in China.

“It may be more important to the market to get insight on what is happening inside China from upcoming earnings calls than from the economic releases. Last quarter, companies with manufacturing end-markets in China generally saw weakness while those with consumer end-markets generally saw resilient strength in demand. If earnings calls indicate the tone is changing on either side, the market could react sharply, no matter what the December economic data say,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co. to CNBC.

Lastly, keep an eye on how China intervenes in its financial markets. So far, large shareholders are still restricted from selling shares. The IPO system is not expected to start fully running till after March. Renewed signs of regulators beefing up their control of their financial system — delaying its move to market based system — may also dent investor sentiment.

Written by Semma Mody of CNBC

(Source: CNBC)

%d bloggers like this: