Eq: Total Market


Something both predictable and perplexing has developed in the US economy—renting is on the rise. One would have expected renting to become a more popular option following the fallout of the Financial Crisis, but interestingly, the trend is continuing strongly for a complex mix of reasons. The homeownership rate (the percentage of homes that are owned by the occupant) recently dropped to its lowest level in 20 years and is falling fast, with the rate now at 64% versus 69% before the Crisis. People initially shifted to renting because of losing their homes, and used rented housing while they tried to buildup large down payments for a future home purchase. However, people seem to have grown so used to the insecurity of wages and jobs that they fear to buy a house, and thus lose the flexibility of renting. Renting allows people to be more flexible, as they can often move on a moment’s notice. Alongside the rise in renting, construction of new apartments is surging, while single family home starts and sales lagging.

FINSUM: This is a sea change in American homeownership and investors need to take note. The large scale shift towards apartments seems likely to have a bearish effect on traditional single family American home values, the effects of which will seep into all manner of individual financial behaviour.

(New York)

Two things are glaringly obvious in world demographics and consumer markets—the richest segment of the population is getting older, and the marketing world has completely failed to reach them. The Financial Times has run an in-depth piece examining the marketing and advertising world’s inability to sell products to baby boomers and anyone over 55. The piece focuses on how the world of advertising has become obsessed with youth, both as a target market and in terms of employment. The average age of employees in the sector has dropped to just 34 years old. Yet, despite this obsession with youth, the richest and most powerful consumer segment is baby boomers. The over-55 category controls $15-$20 tn of spending power, yet the industry is stuck in old stereotypes of how to market products. Many advertising agencies have failed to realize that older people are not stuck in their ways, but are actually quite adaptive, such as not only responding to print adverts. The article makes the argument that one large part of the disconnect is that with employees being so young, and never having lived through the fifties and beyond, it is impossible for them to relate.

FINSUM: This is an interesting article that gives good insights for any financial professional. Attracting clients in the older demographic is increasingly important, and this piece might spark some ideas.

(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.

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