Eq: Total Market

(Mexico City)

In response to falling global oil prices, Mexico has had to redraft its annual budget, revising its 2015 budget to plan for oil prices of just $79/barrel, instead of the $82/barrel it had assumed previously. World oil prices have fallen sharply in recent months due to a glut of supply and slowing global demand. Oil exports account for one third of Mexican GDP, and the country is in the midst of a broad “opening” of its industry, in which foreign oil companies will be allowed to operate in Mexico for the first time in over 60 years. A senior Mexican congressional source commented on oil that “the oil price at $81 is unsustainable”, potentially spelling trouble for the country’s budget. For every $1 drop in the oil price, Mexico loses $300m of revenue. As of yesterday, Mexico’s main crude stream, Maya, was selling for $75.12 per barrel.


FINSUM: This story just goes to show how the falling price of oil will heavily impact government budgets across the globe, with many winners and losers. How the commodities decline will affect specific markets may be a big determinant of stock performance in 2015, so this is a major theme to keep in mind.

(Washington)

America has seen a rising trend over the few years that is raising the eyebrows of economists and investment advisors alike. Despite heavy penalties and the imposition of income taxes, many US residents are using their retirement 401(k) accounts more like checking accounts and withdrawing cash routinely. According to Fidelity, 35% of all Americans, and 41% of those aged under 39, took out part or all of the money in their retirement accounts when changing jobs in 2013. There is little data on the phenomenon, but it is known that withdrawals face a 10% fee and have income taxes charged on them. As yet, most of those withdrawing money say it is to cover large piles of debt they have incurred over the last few years, as many say it is hard to envision paying off loans for decades when they have large piles of cash just sitting in 401(k) accounts. Another aspect to the phenomenon is that many employers are forcing those who move jobs to withdraw all their money as they do not want the difficulty of tracking down people once they have moved on.


FINSUM: This is a fascinating article which communicates a disturbing trend. This shows how difficult a time many American families are having to make ends meet, and bodes poorly for the health of retirement accounts moving forward.

(New York)

For six years American companies have fearfully hoarded cash on their balance sheets. Trillions of dollars in cash became locked away, taken out of the economy as companies became fearful to invest in new business lines. Many have seen this as a major reason that the US economy has largely remained in the doldrums since the Financial Crisis. However, just this quarter, new data has emerged which shows that there has been a net outflow of cash from corporate balance sheets, and a survey of corporate treasurers shows that this is likely to keep falling. This may be a good sign that corporations are more comfortable spending money, but according to industry experts, nearly all of it is being spent on acquisitions and share buybacks, both of which funnel money back into shareholders’ bank accounts and do little to improve employment or investment.


FINSUM: So companies are finally beginning to spend, but unlike when they invest in factories, machines, and employment, these expenditures will likely bring no benefits to the wider economy, only to their share prices. Hopefully, this sign is indicative of things to come.

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