News-Analysis-for-the-Investor-on-April-3-2012 – Millionaire Corner

Positive US manufacturing data causes Asian markets to rise

On Monday the U.S. Institute for Supply Management issued its Purchasing Managers Index, or PMI, for the U.S.  The index indicated that manufacturing activity had increased to a level of 53.4 in March, up from 52.4 in February.  A score above 50 indicates that an economy is expanding.  Markets in the U.S. and Asia both rose after that announcement, according to the Associated Press.  The Dow rose 52 points to close at 13,264.  Asian markets were up, but European markets are negative on Tuesday.

European unemployment rate at highest level in 15 years

Euro zone unemployment rose to 10.8 percent in February, the highest rate in more than 15 years, according to CNBC. Youth unemployment was 21.6 percent at the end of February, according to Eurostat. Spain and Greece have the highest rate of unemployment for those under 25 at 50.5 and 50.4 percent respectively.  Germany and Austria had the lowest youth unemployment rates at 8.2 and 8.3 percent.

Student loan crisis ahead

According to the Associated Press, student loans may be the next bubble to burst pushing the economy back into recession. Nearly 3 in 10 student loans have past due balances of 30 days or more.  Average student loan debt topped $25,000, up 25 percent in 10 years.  Eight of 10 loans are held by the government, and that is expected to increase.  College costs continue to escalate with more students attending college than ever before.  In fact, 90 percent of parents expect their children to attend college. The chance of any reforms passing in this highly partisan year is also unlikely.

RBC accused of improper trades by CFTC

The Royal Bank of Canada was accused of illegally trading futures with itself to reap tax benefits by the Commodities Futures Trading Commission on Monday. According to the Wall Street Journal, RBC coordinated with two subsidiaries on the purchase and sale of futures contracts that gave RBC the right to sell stock later at certain prices.  The scheme eliminated any possibility that RBC would suffer any losses and locked in lucrative Canadian tax breaks on dividend payments.  Wash trades are prohibited because they evade the basic pricing mechanisms of the markets and can improperly boost volume or generate commissions. The is one of the largest suits ever brought by the CFTC which is beginning to increase its oversight.

GE to bring jobs back to the United States

Jeff Immelt, CEO of General Electric, announced Monday that GE will put $1 billion into its domestic appliances business and “reshore” its production back to Louisville, Kentucky.  According to the Financial Times,  hundreds of jobs that had been outsourced to China and Mexico will be brought back to the U.S.  At year end 2011, 131,000 of GE’s 301,000 staff were in the U.S.  The plant will focus on production of water heaters, refrigerators and eventually washing machines. Employment at Appliance Park in Louisville, currently at 4,100, will increase to 5,000 next year.  Roughly half of the appliances purchased in the U.S. are manufactured abroad.

Minorities borrow more heavily from 401k plans during recession

In a survey conducted by Ariel Investments, it was found that African-Americans and Hispanics borrowed more heavily from their 401k plans during the recession than other 401k participants.  As reported in USA Today, half of African Americans and 40 percent of Hispanics carried a loan balance in their 401k  plan at the end of 2010 compared to 26 percent of whites and 22 percent of Asians.  Nearly 9 percent of African Americans took a hardship withdrawal from their 401k in 2010 compared to 1.7 percent of white workers.  This is seen as a serious challenge that will eat away at their retirement, especially since African Americans generally have lower average balances in their 401k plans than whites.