Question

Identify two interesting articles about an issue related to money and capital markets, financial markets, financial instruments, international markets, and economic policy. Then for each article, write a 2 page analysis (double spaced). you will have to read newspapers (The Boston Globe, The New York Times, etc.), magazines (The Economist, Money, Newsweek, Times, etc.), journals (The Wall Street Journal), and/or economic and financial news over the internet in order to identify the articles for your analysis. use any of these sources. also attach the link of the source.

Answer 1

1^st Article: Financial Instruments- Stocks and Bonds

April 12, 2019- New York Times- Article Name: Falling Fees Give Investors More Choices. Just Be Careful Using Them

Link: https://www.nytimes.com/2019/04/12/business/funds-falling-fees-careful.html?rref=collection%2Ftimestopic%2FStocks%20and%20Bonds

Analysis of ETFs

• It is going to benefit investors a lot as fees on Mutual Funds and Exchange Traded Funds have been decreasing. ETFs are generally priced higher all day on stock exchanges and they also offer tax benefits with mutual funds
• Few examples on fee cut by corporates:

1. Vanguard Group reduced fees on 10 funds with combined assets of $176 billion
2. SoFi, an online lender planned to offer zero-fee E.T.Fs
3. State Street Global Advisors, Defiance, BlackRock and DWS also announced that they were starting new low-fee funds, while JPMorgan Chase cut the fees on one of its United States stock funds to 0.02 percent

Analysis of Low Cost Mutual Funds

• Fidelity introduced two index mutual funds with zero expense ratios
• BlackRock announced plans to cut fees on its iShares S&P 500 Index Fund to $1.25 for every $10,000 invested from $4, making it BlackRock’s cheapest fund

More and more investors welcome this move as they believe that the less they pass as fees, the more savings into their account- which is called the virtue of Index Investing

Warren Buffet recommended a two fund strategy:

• Short Term Government Bonds
• Low cost S&P 500 Index Bond

This strategy is a long term one which would attract more investors

• The explosion of cheap funds has created some dangerous temptations for investors: More investors can buy and sell ETFs just like a normal stock with low fees

• A portfolio of basic E.T.F.s or index mutual funds will rise and fall with the broad market
• For young individuals who are not much concerned about risk, ETFs are the best option, as they can foresee their future 30 years from now

                                                     2^nd Article: Economic Policy

May 2, 2019- New York Times- Article Name: The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed

Link: https://www.nytimes.com/2019/05/21/business/economy/economy-inflation-fed.html

Analysis:

• The combination of raising prices is a worrying factor for Americans though American job market is booming and the economy is strong
• Biscuit Head, A North Carolina Restaurant chain, are lifting wages and offering new benefits to retain staffs and attract new talents. Still they haven’t raised prices on Giant Butter milk biscuits because they know that the economy is strong enough for them balance their expenses

Biggest Challenge: Low Inflation is the challenge for Federal Reserve as they are trying hard to stabilize prices and keep prices growing slowly and steadily

The biggest sluggishness that has occurred during Trump’s period as inflation occurred at 1.6% well short of Central Bank’s 2% target. Thus low inflation has been a consistent reason to cut the interest rates

The normal cycle expected is that since GDP is growing at 3.2%, the low inflation appears to be a weakening factor of foundational economic relationship. Unemployment is low and people are moving to higher wages category as companies compete to find good workers. The Increasing labor costs must pass to customers which will drive the inflation up. But here, inflation is in a moderate level.

While low inflation might sound great, a never-ending shortfall might hurt the economy:

• Officials are expected to work against old chain reaction of 10 years into economic expansion against a back drop of tax cuts and higher government spending
• A major goal is determining what is reining in price gains and what can drive inflation back to the Fed’s target in a sustainable way

Extra labor supply: Labor market has reached the stage of “at or near full employment”. Still, primary age workers are handing on to their positions than longer. This has led to brisk hiring of new employees with average hourly earnings showing progress without increasing.

Beyond problems in the labor force and expectations, forces like technology and globalization may be restraining pricing power. Consumers with Amazon and Yelp can easily avoid overpaying.

Effects of falling inflation:

• Leads to deflation
• Makes downturns worst as consumers suffer to balance cash usage
• Leads to recession because interest rates counts in increase in prices