New York, U.S.A. – Bankrate.com’s monthly Financial Security Index hit a new high of 99.9 in April 2012, surpassing the previous high-water mark of 98.5 that was last recorded in May 2011 (the polls began in Dec. 2010). Americans’ attitudes regarding their net worth and overall financial situation also reached new highs this month. Sentiment regarding savings improved for a fifth consecutive month, and Americans’ comfort level with debt is at its highest point since June 2011.

Despite these positive developments, Americans are still wary of investing in stocks. The poll found that 76% of Americans are not more inclined to invest in the stock market despite near record low savings rates, and merely 18% of Americans are more inclined to invest in stocks today. Another soft spot is job security: 22% of Americans reported less job security than one year ago versus 20% that reported better job security.

“Overall, there are several positives that can be taken from this month’s report,” said Greg McBride, CFA, Bankrate.com’s senior financial analyst. “Americans are feeling better about the money they have in the bank and in their investment portfolios, and they’re also feeling better about what they owe. However, job security is still a pain point, and there are plenty of reasons to worry that we might be headed into a third straight weak summer for the economy. The trouble spots include jobs, high gas prices, the ongoing European debt crisis and more.”

A reading of 100 is considered the Financial Security Index’s baseline; any reading above 100 indicates improving financial security compared to one year ago, while any reading below 100 indicates decreasing financial security compared to last year.

Here are more details regarding the components of the Financial Security Index:

Overall Financial Situation

• Consumers’ feelings about their overall financial situation hit a new high, with 29% saying their overall financial situation is better today than it was 12 months ago, compared to 26% saying it is now worse.
• Those under age 50 are more likely to report a better overall financial situation, while those age 50 and up are more likely to report a worse financial situation than one year ago.

Net Worth

• With the stock market near four-year highs, more consumers report higher net worth compared to one year ago than at any time since polling began in Dec. 2010.
• Twenty-nine percent report higher net worth versus 23% that report lower net worth.
• Households with income of $50,000 or more are the most likely to report higher net worth than last year.

Savings

• The margin between those feeling worse about their savings and those feeling better about their savings has been nearly cut in half since Dec. 2011.
• Those under age 30 tend to be more comfortable with their savings, and those age 50 and up tend to be less comfortable with their savings compared to other age groups.

Debt

• Americans’ comfort level with debt is at its highest point since June 2011.
• More consumers report being more comfortable with their debt than less comfortable.
• Households with annual income of $50,000 or higher are more comfortable than other groups, while households with income under $30,000 are less comfortable.

Job Security

• Job security slipped following the disappointing March jobs report that was released on April 6.
• Only one in five (20%) Americans say they are more secure in their jobs compared to last year; 22% are less secure.

Investing in Stocks

• Those under age 30 are only slightly more inclined to invest in the stock market than the overall average (23% versus 18%), despite having the luxury of a long time horizon and having a greater burden of retirement savings than any previous generation.

The new study was conducted by Princeton Survey Research Associates International (PSRAI) and can be seen in its entirety here: http://www.bankrate.com/finance/consumer-index/financial-security-poll-0412.aspx.

The PSRAI April 2012 Omnibus Week 1 obtained telephone interviews with a nationally representative sample of 1,000 adults living in the continental United States. Telephone interviews were conducted by landline (600) and cell phone (400, including 191 without a landline phone). Interviews were done in English by Princeton Data Source from April 5-8, 2012.

Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error for the complete set of weighted data is plus or minus 3.6 percentage points.

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The multiplicity of global economic complexity of the recent past and a fragile economic future has led the Asian economic linchpin, China, to cut its growth forecast. Recently, the country cut its economic growth rate to 7.5 percent from its previous 8 percent, which had been in place since 2005.

Premier Wen Jiabao, in his annual state of the union, announced at the National People’s Congress in Beijing that the government has a gross domestic product target of 7.5 this year. This is the lowest economic growth target for China since 2004.

Across the board, there are plenty of problems that may impart great damage on the Chinese economy. Starting with a decline in European services and manufacturing output, a fall in US factory orders for the first time in three months, and an impending Greek debt storm, China is going through a radical demographic makeover.

The main suspect for this turnaround in growth forecast is the debt crisis in Europe and the US. This is because there is an iron-strong connection between what China produces and with whom it exchanges goods.

Demand for Chinese goods declined in troubled economies due to falling employment, diminishing domestic production, dragging corporate profits, high borrowing costs for the government, and perhaps only a few ways to get out of it. After years of a torrid growth rate of at least 9 percent, China needs better quality development over a longer period of time. Economists and investors agree that China is now entering a new era of slower growth rate, where the 8 percent growth figure is no longer important.

On the other hand, what happens in China does not stay in China. China had been the number one trading partner for most Asian countries, and a declining economy for the dragon will hit many Asian economies negatively. On the face of it, Chinese commodity imports may slow down, impacting economies from Australia to Brazil.

Interconnections at the global economic platform have created a scenario where it is legitimately impossible to imagine escaping from these  events.  It is ubiquitous that a lower phase of GDP growth in China will diminish import demand in the country, affecting economies or trading partners directly.

In a globalized environment, interconnection is interdependence. Suppose, for example, X is partly independent, and Y and Z are mostly dependent on X.

Any event that has a direct forbearance on Y and Z that takes place in X will for sure impact both Y and Z. In this case, export-oriented economies, like Australia, whose economic growth was derived from fast and partly unfettered GDP run-up in China, will suffer. On the face of it, prices of copper, gold, and the Australian dollar have fallen immediately after the announcement in Beijing, mining stocks in the Australian stock exchange felt headwinds, and the region’s stock market closed on a weak note.

Gerard Lyons, chief economist at Standard Chartered Bank in London, stated, “What the authorities are trying to do is to move from strong to sustainable rates of growth. No one is quite clear where sustainable is, but clearly, it’s one that’s slower than we’ve seen in the recent past.”

At the end, we could say there is a possibility of radical economic transformation in China, emphasizing development, rather than an erratic chase for economic growth.

Image Courtesy of  BartlomiejMagierowski / Shutterstock.com

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The daily increase in gold prices came to a halt last month. For more than a year, the price has been skyrocketing, knowing only one direction — up. On April 2010 the market price per ounce of gold was slightly over 1.100 dollars and on September 5^th 2011, it reached 1.900 dollars per ounce.

Gold had an astonishing 70 percent revaluation in less than a year and a half, while most of the financial market was crumbling. The main reason for this price increase was three-fold. Firstly, it points to the Libyan conflict and the aftermath in the Middle East which includes the main oil supplying countries.

Analysts were not expecting these revolutions all around the region and therefore it was harder for them to understand the consequences. Could the revolution spread to more countries? Could the oil supply be endangered? Oil shortage lead to higher prices and from there to higher inflation rates. That is why some people prefer to invest money in assets rather than currencies.

Secondly was the instability of stock markets in both bonds and shares. Greece´s default crisis, the problems with peripheral countries in the European Union, and the sinking of the biggest share markets prompted investors to take the money out of these markets and invest in other assets with less volatility.

Third source of impact came from the weakening of the dollar. As gold is an asset exchanged within markets where the dollar is the main currency of reference, the weakening meant a higher cash per gold ratio and therefore a hit on the price. Since gold reached its peak on September 5, the market has sunk, dragging the price down along with it.

It is now 15 percent lower than the peak, slightly over 1.600 dollars per ounce. Once again there were three reasons; the dollar strengthening, a sale increase by people seeking to obtain cash to cover losses from other assets and the volatility of other markets has finally reached gold.

Still many analysts forecast a better future for gold, stating that this is only a temporary relapse. For instance Paul Blaxham, HSBC chief economist for Australia and New Zealand, stated a few days ago: “Our forecast for gold next year is 2.025 dollars per ounce… but it is difficult to ascertain where to set the lower limit now, because many tendencies currently happening are responses to political decisions.”

This opinion is backed by Ong Yi Ling, an analyst from Phillip Futures who believes: “in the long run, after the prices will have stabilized and they will get back to normal life, refuge values will come back slowly to lower prices. In 2012, still it is possible that gold reaches 2.000 dollars per ounce.”

So the fairytale story that gold is a secure value should be abandoned. It is a refuge value only for times of crisis, but it is not invulnerable in the greater and more permanent run. As all assets have their risks and benefits, it should never been considered a stronghold. Investors can be fortunate at times, but if they had invested last week, they would have withdrawn an investment with gross losses. Nobody is safe in these uncertain times.

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The downgrade of the United States’ AAA status less than a week after the last minute debt agreement has left the world’s stock market fending for stability. In Europe, the already shaky eurozone began buying Italian and Spanish government bonds to slow down the panic over the European debt crisis. Asian markets, which opened earlier, saw a sharp drop. All eyes are currently on the U.S. stock which will open soon.

The historical downgrade was not expected to cause severe damage to the economy as Standard and Poor’s move could not have come as a surprise. “S&P doesn’t know anything that investors don’t already know, so the downgrade should not change expectations and interest rates,” said Martin Feldstein, a Harvard economist, to CNN. However, the downgrade caused turmoil over the weekend as Republicans and Democrats started throwing mud and the finance ministry in Washington lashed out at S&P, determining that there had been a calculation error of no less than 2.000 billion dollars. Judging by the error, the credibility of S&P should be reconsidered, according to an anonymous official.

In the unusually harsh comment that followed the downgrade, S&P argued that their decision was based on the unpredictability of the government and not the economy. They do not believe that the new debt deal guarantees the reduction of the government’s record-high deficit and would rather have seen a reduction of around $4.000 billion over the next 10 years instead of the agreed terms of roughly half that figure. S&P were neither hesitant to point out that the tax cuts that President George W. Bush introduced a few years ago should end by the end of 2012.

The $4.000 billion reduction was in fact a part of Obama’s plan during the debt negotiations and S&P made it clear that such initiative would have saved the country from the downgrade. Despite both parties taking a hit in the statement, S&P did not attempt to cover their sharper tone towards the Republican Party. The President’s supporters reacted by saying that Obama had been on the right track and had it not been for the irresponsible Tea Party fraction in the Republican camp, this would not have happened. Meanwhile, the Republicans deny the accusation and presidential candidate Mitt Romney framed the downgrade as another disturbing sign of how the country has gone down hill under Obama.

More than one news source has aired the question of Standard & Poor’s credibility. Critics call it the move they didn’t have the guts to make before the financial crisis and blame S&P for trying to make up for past mistake with a delayed and untimely decision. Others point to the fact that the two other firms Moody and Fitch Rating have yet to come up with their own analysis.

It might be days or weeks before the real damage will show, but for now we can rest assure that the 2012 election will take on this new debate with a vengeance.

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