Your Financial News Roundup
August 16, 2023
1. Economy: Treasury Secretary Janet Yellen touts the success of President Joe Biden’s economic policies, specifically the Inflation Reduction Act; while recession talks are fading as the U.S. economy booms.
2. Tech: Netflix attempts to cement its place in the gaming industry with its latest launch; meanwhile the space travel industry is due for a green revolution.
3. World: Japan’s economy grows for a 3rd consecutive quarter; and a new Covid strain spreads across the globe.
Personal Finance Concept [Part 3/10]: Debt Detox — Auto Loans
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☀️ Bidenomics At Work: At a union hall in Las Vegas, Treasury Secretary Janet Yellen praised President Joe Biden’s economic policies. She emphasized the significance of the Inflation Reduction Act (IRA), a climate-focused initiative geared towards revitalizing low-income communities. Yellen did not rule out a recession, but noted that inflation and unemployment are both going down while the U.S. economy is expanding and wages are rising. However, according to a recent poll, voters who backed Biden in 2020 are discontent with the economy. (Reuters)
Our Take: Nevada is a key state in the 2024 presidential election, one that President Biden won by less than 3% in 2020. If voters continue to view the economy negatively, this could give the Republican Party an edge in the 2024 election.
🌥️ Storm Clouds Lifting: Warnings of a deep recession incoming have fallen on deaf ears as Americans successfully hold onto their jobs while continuing to spend. With cruise bookings at all-time highs, the ongoing success of powerhouses Taylor Swift and Beyonce, and the Barbenheimer double feature frenzy, economists and forecasters are beginning to roll back recession warnings. Despite strong demand, businesses are cautiously optimistic, putting investments and expansions on hold to factor in higher costs and more stringent borrowing conditions. (The Washington Post)
Our Take: While the economy is in expansion mode, there are signs of trouble ahead. American credit card debt levels reached an all-time high at $1T while delinquencies on mortgages and car loans are rising.
🎮 Netflix x Video Games: Netflix launched a limited beta test for its cloud-streamed games in Canada and the UK. The games will be supported on select TVs, connected TV devices, and computers. 2 games will be initially available, including Nigh School Studio’s “Oxenfree” and Molehew’s Mining Adventure. The company first launched its mobile game offerings on iOS and Android to subscribers back in November 2021. (The Verge)
Our Take: This launch is a watershed moment for Netflix as the company attempts to position itself as a major player in the gaming world.
🚀 A Green Revolution In Space: Research by 2 scientists from the University of Nicosia in Cyprus, Ioannis Kokkinakis and Dimitris Drikakis, found that the space travel sector generates the same amount of carbon emissions as the entire global aviation industry. Through simulations, the scientists identified RP-1 (Rocket Propellat-1 or Refined Petroleum-1) as the main problem. 3 emerging rocket launch companies are planning to tackle this issue by building propane-powered rockets, which is clean-burning and has a minimal carbon footprint. (TechCrunch)
Our Take: As spectacular as rocket launches are, sustainability needs to be top of mind so the space travel industry can flourish in the long term.
🇯🇵 Japan’s Economy Roars Back: In Q2 of 2023, Japan’s economy recorded a 3rd straight quarter of expansion, with an impressive annualized growth rate of 6%. Much of the growth was fueled by strong exports and an influx of tourists following more lax travel restrictions. While this is positive news for exporters, manufacturers, and the service industry, domestic spending has remained sluggish due to rising prices caused by a weak yen. This exacerbates existing problems, including an aging population, low wages, reduced profits, and mounting debt. (New York Times)
Our Take: While Japan’s economy has remained resilient, there are underlying structural issues that the country will need to address to sustain its growth. Its reliance on exports is on rocky grounds, given that China and Europe are seeing slowing growth.
😷 A New Covid Variant Spreading: The World Health Organization (WHO) is closely monitoring EG.5, or “Eris,” a new strain of Covid that is quickly spreading across the world, including in China, Japan, Canada, and the U.S. While Covid is no longer considered a public health emergency, it is tenacious and continues to infect people. This fall, Moderna, Pfizer, and Novavax are slated to release a new reformulated vaccine targeted at XBB variants, which is closely related to EG.5.
Our Take: Although the worst of the pandemic is over, unfortunately, Covid is here to stay, similar to the flu. (CNBC)
Finance Concept of the Week
Debt Detox [Part 3/10]: Auto Loans
Common types of debt and how to best tackle them
Getting a driver’s license and your first car is often seen as a rite of passage as it gives you independence and freedom. However, with supply shortages, rising dealership prices, and higher interest rates, it’s becoming harder to buy a car. A popular option for those who can’t afford to purchase a car outright is to take out an auto loan, but this comes with certain tradeoffs and risks.
How Auto Loans Work
Auto loans allow you to purchase a vehicle when you don’t have the full cash amount upfront. You’re essentially borrowing money from a lender, such as a bank, credit union, or online lending institution, to buy a car.
When you apply for the loan, the lender will evaluate your credit history, income, and other financial factors to determine whether you qualify for the loan and at what interest rate. If your application gets approved, they will provide you with the loan terms, including the loan amount, interest rate, loan duration, and monthly payment amount.
In most cases, you will need to make a down payment on the car, similar to a down payment for a house. The more you can put down, the lower your monthly payments and potentially your interest rate. Once you accept the loan, you’ll repay the principal with interest in monthly installments, typically over 48, 60, or 72 months. Longer loan terms generally result in lower monthly payments but may lead to paying more in interest over the loan’s lifetime.
Types of Auto Loans
- Private Party Auto Loan: Offered by banks, credit unions, and online lenders, these loans are taken out specifically to buy a new car owned by a private party. Typically, the interest rates for private party auto loans are higher than if you were to buy a car directly from a dealership. Additionally, lenders may require the cars to be 10 years old or younger and under 100K miles.
- Lease Buyout Loan: If you’ve leased a vehicle and decide to purchase it at the end of the lease term, you can use a lease buyout loan. Note that if you choose this option, your monthly payments may be slightly higher than your lease payments because the latter only covers depreciation costs. But, you will be able to keep the car after making the final payment.
- Auto Refinance Loan: With an auto refinance loan, you can swap out your current loan for a new one. Usually, you would opt for this option if you want to get a more affordable rate or lower your monthly payment by extending your loan term.
- Cash-Out Auto Refinance Loan: You can convert your car’s equity into cash using a cash-out refinance loan. It operates similar to traditional refinancing, where you will replace your current loan with a new one that includes the equity borrowed.
- Dealership Financing: Many dealerships offer their own financing options. When you opt for dealership financing, the dealer acts as a middleman between you and a lender. While this option is more convenient, you may end up paying higher interest rates.
Pros of Auto Loans
- Vehicle Ownership: Auto loans allow you to own a vehicle without having to pay the full purchase price upfront. Depending on the type of car you want, financing it may allow you to get a better car than you otherwise could have bought on your own.
- Flexible Payment Options: You can choose from various repayment terms and monthly payment options, allowing you to find a plan that fits your budget. For example, if you are low on cash, you can opt for a lower down payment and longer repayment contract.
- Spread Out The Expense: Most people don’t have enough cash on hand to buy a car up-front. Getting an auto loan allows you to spread the cost out, making it much more accessible. You’ll also have more money for other expenses, such as saving for an emergency fund or contributing to a retirement account.
- Credit Building: If you pay off all your monthly auto payments on-time and in full each month, that will boost your credit scores. The better your credit, the better your financial offerings and loan terms.
Cons of Auto Loans
- Hefty Monthly Payments: Even if you find a car that fits your budget, the monthly payment can take a toll on your finances. According to Experian, the average driver is paying $725 a month for new vehicles while insurance averages $2,014 annually.
- Risk Of Hurting Your Credit: If you fall behind on your auto payments, your credit could take a huge hit. Lenders may be more reluctant to lend to you in the future and you could potentially lose your vehicle.
- Your Vehicle’s Value Depreciates: Your car starts depreciating the second you drive your car off the lot. Some vehicles may even lose 20% of their value in the first year. In some instances, you could end up owing more than what your car is worth (known as an upside-down loan).
How to Manage Auto Loans
- Shop Around for the Best Loan: Don’t settle for the 1st loan offer you receive. Shop around and compare interest rates, terms, and fees from different lenders to find the best deal.
- Understand the Terms: Carefully read and understand the terms of the loan agreement, including the interest rate, loan term, and any potential fees. Clarify any doubts with the lender before signing.
- Negotiate: Just like how you can negotiate the price of the car at the dealership, you can also negotiate the terms of the loan with the lender. A lower interest rate or better loan terms can significantly decrease your overall costs.
- Pay More than the Minimum: If your budget allows, consider paying more than the minimum required payment each month. This can help you pay off the loan faster and reduce the total interest you’ll pay. But, check if there are any prepayment penalties first.
- Avoid Unnecessary Add-Ons: Dealerships often offer additional products and services, such as extended warranties or insurance, which can add to the cost of the loan. Evaluate whether these add-ons are truly necessary before including them in your loan.
What Else Is New?
- Former President Donald Trump was indicted by a grand jury in Georgia on charges of felony racketeering and multiple conspiracy counts.
- Michael Oher, the former NFL star whose life inspired ‘The Blind Side,’ claims the narrative the Tuohys have crafted about his adoption is a lie.
- CRISPR-based gene editing technology could be the key to early cancer detection.
- For many millionaires, achieving the American Dream isn’t enough. Check how your income stacks up in your area using this Bloomberg calculator.
Personal Finance Resources
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