Category archive: Finance & Banking

Stock Market Tip: Use Google Trends

What a curious thing the stock market is; so powerful, yet so flighty. Like a school of sardines, it moves as one, changing direction nimbly when danger looms or advantage beckons. What it will do next has always been difficult to predict.

But what if you could now – using nothing more than a free, public online tool?

Research published today in Nature Scientific Reports finds that Google search behaviour is not only a clear indicator of movements in the market; it also gives insight into the likely future behaviour of economic actors:

These warning signs in search volume data could have been exploited in the construction of profitable trading strategies.

Mind reading from data mining

Stock market prediction is so difficult, says Warwick Business School researcher and first author Tobias Preis, due to “herding behaviour”.

Investors are influenced by the collective thinking of others in the market, as well as their own personal reasons, so trading patterns in one week are nearly useless for predicting what will happen the following week.

Knowledge is power … and may be highly profitable.
MyEyeSees

To predict the market, Preis says, you need to know what is going through people’s minds before they make their financial decisions – and one way to do this is to see the words they Google.

Data mining tools such as Google Trends and Google Correlate are putting powerful analytical toolkits into the hands of investors keen to parlay a small advantage into a large gain.

As a point in principle, the price of stock in Apple Inc. is seen to positively correlate with search volume, in this recent article from the Harvard Business School.

Twitter feeds are also showing promise as sources of strategic investor information.

This was demonstrated in spectacular form on Tuesday when the hacked Associated Press Twitter account reported two explosions in the White House with US President Barack Obama injured.

Twitter

Associated Press immediately corrected the tweet, but the Dow Jones Industrial Average dropped 143 points in a “flash crash”.

And while the market recovered within minutes, the crash showed just how intertwined Twitter and the stock market are.

Previous work by German economists Dimpfl and Jank looked at whether internet search queries could predict stock market volatility.

They concluded that daily search query data gives clear insight into people’s interest in the market as a whole.

Investors are more active with their queries during times of strong market movement.

Like Preis, they found a rise in investor attention is followed by a period of heightened market volatility.

This was also supported by a group of European researchers who, when studying the American stock exchange NASDAQ-100, found:

Query volumes anticipate in many cases peaks of trading by one day or more.

In other words, there is a correlation between trading volumes of NASDAQ-100 stocks and the volumes of queries related to the same stocks.

The advantage of using real-time data analytics is, of course, that it tells you what is happening right now.

Conventional channels for market data involve lags of several days. Google’s Research Blog notes that

Google Trends … provide a real time report on query volume, while economic data is typically released several days after the close of the month.

Given this time lag, it is not implausible that Google queries in a category like “Automotive/Vehicle Shopping” during the first few weeks of March may help predict what actual March automotive sales will be like when the official data is released halfway through April.

This work is detailed in the paper Predicting the Present with Google Trends.

So how do I make my millions?

The work done so far indicates that using tools such as Google Trends and Yahoo! can yield real-time insight into market sentiment, and that this information can be used strategically to devise profitable trading strategies.

 

What is needed, though, is finer granularity.

If investors could drill down further into the data to discern daily or hourly trends they might well be able to predict a rise or fall in stock prices.

It could also give people warning of impending crises.

With increasing volumes of data on the internet, there is a clear need for tools that can mine this data and be a window into the zeitgeist.

Google Trends, with its access to search data from the most popular search engine, is probably the most powerful such tool currently available.

And if you’re looking for a safe bet, it is highly likely we will see a lot more action in this field in the years ahead.

The Conversation

David Tuffley, Lecturer in Applied Ethics & Socio-Technical Studies, Griffith University

This article was originally published on The Conversation. Read the original article.

Divest for Our Future

What is Fossil Fuel Divestment, and Should You Join the Movement?

As more and more Australians support climate change action, fossil fuel divestment has become a highlight in environmental campaigns throughout the country. It is seen as a part of ethical investment that could help bring positive change to society and environment. But what is fossil fuel divestment, and how can you get involved?

Definition and purpose

According to climate organisation 350, divestment is “the opposite of an investment – it simply means getting rid of stocks, bonds, or investment funds that are unethical or morally ambiguous.” Emma Howard of the Guardian wrote that the global fossil fuel divestment movement is about “asking institutions to move their money out of oil, coal and gas companies for both moral and financial reasons. These institutions include universities, religious institutions, pension funds, local authorities and charitable foundations.”

350 believes it is not enough to demand a halt on infrastructure projects, such as building new pipelines or coal mines. “We need to loosen the grip that coal, oil and gas companies have on our government and financial markets, so that we have a chance of living on a planet that looks something like the one we live on now,” said the organisation in its Fossil Free website.

“It’s time to go right at the root of the problem–the fossil fuel companies themselves–and make sure they hear us in terms they might understand, like their share price.”

Why should you divest?

Australia’s energy sector still has not considered its impacts on environment, according to Daniel Gocher, head of research at Market Forces.

“Not only is Australia’s energy sector largely ignoring the Paris Agreement, nor planning for its implications, but they’re also projecting “long life growth”, as though there is no possibility that their business models could be disrupted,” said Gocher.

“Most Australian investors, including the vast majority of our super funds, have eschewed the fossil fuel divestment movement, which exceeds a staggering $3.5 trillion globally, preferring to remain invested in energy companies and use their influence as shareholders to change them from within.”

However, from a business perspective, clean energy could be more competitive today. Many experts believe that renewable energy, such as wind and solar, could now be more profitable than coal, thanks to cheaper technologies and government incentives in the US.

Furthermore, 350 argues that fossil fuel investments are “very risky”, with “disasters like Exxon Valdez, the BP oil spill, along with massive fluctuations in supply and demand of coal, oil and gas” making energy markets volatile.

Therefore, fossil fuel divestment is not only ethical and beneficial for the society and environment, but it is also potentially more profitable, as you can shift your money to other, more stable sectors.

To get involved, you can start a campaign for your institutions’ divestment, or divest your money as well.

For more information about divesting and starting a campaign, go to these websites: Investor Group on Climate Change; 350; Market Forces; and the Australia Institute.

Taxes/Regulations: Best Things To Spend Your Tax Return On

Getting your tax return back is like celebrating Christmas early. The possibilities are endless – but should you be smart or careless with your tax return money? Money Crashers gives us a few tips and ideas on what to spend our tax refund money on:

Spend It On Something You Need
Low on groceries? In need of a new pair of shoes or a laptop? Your tax return could you save you from saving up. The extra cash bonus is a good way to ticket those items in for when you need them most.

Pay Off High-Interest Debt
The best time to eliminate any high-interest debt that you’re carrying is with your tax return money. Use this as an opportunity to pay off payday loans, title loans, debt consolidation loans, high-interest private student loans, car loans, or credit card debt.

Start Itemized Savings Accounts
Create a budget and divide your refund into pieces, with each set aside for savings for different items you’ll need in your bank account for important future purchases. Putting your refund toward specific savings goals can prevent you from debt.

Start or Increase Your Emergency Fund

According to Money Crashers, experts say “that your fund should contain about six to eight months’ worth of savings in an easily accessible interest-bearing account (such as an online savings account or money market account). Storing that much money might take months (or even years) if you’re just taking a little bit out of each paycheck, so use your refund to make a significant deposit to your emergency fund.”

Donate to Charitable Causes
Donating to charity may seem like the least priority on your list, especially if you are low on money. But giving back to the community can be a generous and a much more rewarding option than splurging on useless things.

Spend It On Something You Want
You’ve worked hard all year, it’s time to treat yourself to what you’ve earned. Set aside a desirable amount for your savings and an allowance on what you want to splurge on. That way you can use it for something fun like a holiday or shopping trip without surging into a financial chaos.

Personal Finance: Debt vs More Debt – Are Personal Loans A Good Idea?

So you’ve gotten yourself into a bit of a pickle, and you can’t get out of it without some help. Without a lot of financial options, the easiest solution seems to be taking out a personal loan. But are personal loans a good idea? They seem to be a continued chapter of another financial burden. We take a look at the factors and types of personal loans that could be suitable for you:

A Secured Personal Loan

Having assets such as a house or car can be used as security for the loan. Your provider will take these assets into consideration, and possibly offer you a lower personal loan interest rate, as there is less risk to the provider if there is a loan repayment default. In the event of a default or inability to repay the personal loan, your assets can be legally seized by the lender.

In other words, you will need to make an accurate application with your chosen lender to make certain you are not under financial pressure to pay off the personal loan. It could be a good idea to have repayments automatically deducted from your pay or bank account to guarantee they are made on schedule.

An Unsecured Personal Loan

In this scenario, you won’t have any assets to protect the lender, and your personal loan will incur a higher interest rate. Nevertheless, the same rule of thumb applies, and you need to ensure that repayments are affordable and ongoing for the duration of the loan.

It’s a good idea to compare various lending institutions to make sure you get the best possible deal. A dollar saved is a dollar earned and a step closer to becoming financially solvent.

Interest Rates

As with other types of loans, there are several ways of making repayments. The most popular methods are Variable Interest Rates and Fixed Interest Rates.

Variable interest rates are influenced by the final decisions made by the Reserve Bank of Australia. Changes to the Reserve Bank cash rate filters down to the banks and their customers. Taking out a variable rate is the option to make additional repayments on the personal loan without incurring any additional fees – which can be a major perk. On the downside, the nature of variable means that your interest rate can go up or down at any time, and repayments could become unsustainable if finances are tight.

Fixed interest rates can provide you with confidence in knowing that your repayments will remain steady for the entire duration of the loan. The downside is that fixed interest rates are generally higher than the prevailing variable rate at the time of taking out a loan.

Additional repayments on top of your scheduled repayments may also not be allowed with a fixed rate, or will incur a fee. Extra charges in the case of early termination or a change of loan agreement are also the norm for a fixed interest rate loan.

All information sourced from: http://aussiefinanceblog.com.au/personal-finance/should-i-get-a-personal-loan-to-pay-off-debt/

Insurance: Rundown on Life Insurance

Your life is worth the investment and considering life insurance can secure you and your family in times of great need. For example, if you were to leave dependants behind, your policy will ensure they are financially secure and able to meet ongoing expenses.

According to George from Aussie Finance Blog, “everyone is ultimately vulnerable to health complications and accidents, so it’s hard to understand why anyone with available finances would remain uninsured. It’s true that nobody wants to contemplate death for themselves or their loved ones, and when things are going along nicely, life insurance is easily forgotten. However, there’s no denying that life insurance cover could prove invaluable in a time of need.”

Let’s take a look at the different types of life insurance options available and are suitable to your needs:

Term Insurance

The most common life insurance policy is a term insurance. You are able to choose the length of your insurance plan, with policies generally set for a period between 10 to 25 years. The agreed payment, or ‘sum assured’ is agreed upon when you take out the policy, but remember to read the fine print as some policies don’t pay out if you die soon after taking out cover. If the set policy time-frame expires before you die, there is no pay out. There are several term insurance variations:

  • Level term insurance: The ‘sum assured’ amount of cover remains the same for the duration of the policy.
  • Decreasing term insurance: Your pay-out will reduce over time, usually in keeping with reduced mortgage repayments or other debts.
  • Increasing term insurance: Your pay-out increases over time to keep pace with the cost of living, and is usually pegged at 5%, or in line with inflation.
  • Guaranteed premiums: Your payments will remain the
    • same over time, assisting you with budgeting.
    • Reviewable premiums: This can be less expensive initially, but is subject to review, with the potential for payment increases over time.

     

    Factors that will be considered:

    The good news is that life insurance premiums are currently much lower than they were previously. Factors that influence the cost of your insurance cover include:

    • Your age
    • Health considerations
    • Occupation
    • Smoking status

    If you stop smoking after taking out cover, let your insurance company know, as they may reduce your monthly premiums. Honesty is important, and if you provide false or misleading information regarding your health or smoking status your policy will be invalidated and you won’t get a pay out.

    Family Income Benefit

    Instead of being paid a lump sum, your family will be provided a regular monthly tax-free income for the remaining duration of the policy term after you die. The downside is that if the policy expires shortly after you die, your family will only get monthly payments for a short period of time.

    Whole of life cover

    This kind of policy provides a guaranteed pay out, and as a consequence premiums are much higher than for term insurance. You will also be paying premiums until you die, even if you have already cleared your mortgage and are in a good financial position.

    Over 50s life insurance

    This policy option is popular with those who have been a little slow getting around to life insurance cover. An attraction is that you will be accepted even if you have a medical or illness history. However, these policies commonly have a maximum age limit, and will need to be in place for a period of time for a claim to be considered. Premiums can be inexpensive, but cover is also relatively low, and will only assist with immediate expenses, such as funeral costs.

    All information sourced, detailed and provided by: Aussie Finance Blog

Lifestyle: Are Credit Cards Worth It?

For most cardholders, credit cards can be your ticket to a wide range of great spending opportunities such as shopping, business, and travel. But for others who will often misuse their credit cards, owning a credit card may lead to financial hardship in the long run. Aussie Finance Blog gives us a preview of the perks and disadvantages of owning a credit.

PROS:
Convenience: A credit card will save you the trouble of finding a nearby ATM, and you will need to carry less cash with you.

Statements and records: You can easily keep track of expenditure, receive ongoing bank statements and retain records for tax purposes.

Cash flow: A credit card is a convenient way to obtain a cash advance at a time when you need it most.

Build a good credit rating: Having a history of controlled credit card use will supply banks and other lenders with a good impression of your money handling skills. It will also help negate past bad credit history.


CONS:
Overuse
: Credit cards can make you feel you have an abundance of ready cash. A credit card used inappropriately can result in overspending, leading to repayment difficulties.

Extra paperwork: It’s not uncommon to lose track of spending. You will need to keep receipts in order to check them against bank statements.

Missed payments: If you miss a payment, you may end up paying much more than required for your purchases.

High interest rates: High interest rates can often outweigh benefits. Many purchase savings offered by credit cards are also available elsewhere.

A cycle of debt: Customers sometimes obtain a new credit card to alleviate debt on their present card. This approach leads to a cycle of debt, with increased monthly payments.

Credit card teaser rates: Companies lure customers with attractive introductory interest rates. Although initially helpful, the expiry of the introductory rate is also the start of a new rate which can be much higher and difficult to manage.

Verdict: Are credit cards as bad as they seem? Credit cards are like tools, if you use them correctly and responsibly there won’t be any negative consequences. What do you think about credit cards?

coins finance

Global Economics/News: China’s Slowdown Is Biggest Economic Threat

China’s slowdown is the biggest threat facing global economy, former chief economist at the International Monetary Fund (IMF) told BBC.

Current Professor of Economics at Harvard University and former IMF economist Ken Rogoff said the economy could be “slowing down much more than the official figures show.”

“Everyone says China’s different, the state owns everything they can control it,” Rogoff said. “Only to a point. It’s definitely a worry, a hard landing in China.

“If you want to look at a part of the world that has a debt problem, look at China. They’ve seen credit fuelled growth and these things don’t go on forever.”

A Reuters poll shows that China’s economic growth next year is expected to slow down to 6.5 per cent, compared to this year’s 6.6 per cent.

The decline in global demand has resulted in the country’s exports falling 10 per cent year-on-year in September. Analysts also expect the increasing national debt levels to trigger a new financial crisis.

Furthermore, private investment has continued to drop. “The slowdown in private sector investment over the past years means that the organic growth momentum of the economy may have declined, requiring policymakers to be more vigilant in terms of keeping policies as supportive as possible,” said economists at HSBC in a statement.

The Chinese government has allocated more spending to provide fiscal stimulus, cutting lending rates six times since November 2014 and lowering banks’ cash reserve requirements to 17 per cent. However, analysts believe the government’s effort to increase liquidity in the market will not help much, as investors are more likely to save than make new investments.