Students Lobby to Keep Loan Rates Lower

With little more than three months until the interest rates on federally subsidized student loans double, students are pushing lawmakers to help them out.

On July 1, the interest rate on federal subsidized loans will double to 6.8%. That means students taking out loans for the next school year will eventually dig deeper in their pockets to pay them off.

Nearly 8 million students have subsidized student loans, which means the federal government subsidizes the interest rate for lower-income and middle-income families based on financial need.

Without congressional help, students borrowing the maximum $23,000 in subsidized loans are poised to pay an extra $5,000 over a 10-year repayment period.

That's why the consumer advocacy group U.S. Public Interest Research Group delivered 130,000 student petitions to lawmakers on Capitol Hill on Tuesday, asking Congress to stop the rates from doubling.

"We've got 110 days to fix this problem," said Rep. Joe Courtney, a Connecticut Democrat, who is sponsoring a bill to extend current interest rates. "Middle class families, every single day, are struggling in terms of making sure their kids have a chance to succeed in life."

Subsidized student loan interest rates used to be 6.8%. But when Democrats took over the House in 2007, they passed phased-in cheaper rates for subsidized student loans. The rates fell to a current low of 3.4% for subsidized Stafford loans this past school year. The rates are scheduled to revert back to 6.8% for the 2012-2013 school year.

Student loans are a big deal. The Federal Reserve of New York last week reported that the $870 billion in student loan debt tops $693 billion in credit card debt and $730 billion car loan debt.

And with unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school, according to new data by Equifax. Last year, new student loans grew by 4%, the firm reported Tuesday in its National Consumer Credit Trends Report.

Additionally more students struggle to pay back those loans. Student loan delinquencies involving payments more than three months late rose 14.6% in 2011 from the year before, according to Equifax.

President Obama urged lawmakers in his State of the Union address to stop this student loan rate hike from going into effect. But the deficit-conscious Congress has yet to act, especially since extending the 3.4% rate would cost $5.6 billion a year, according to FinAid.org.

While the president has focused on expanding access to college for low-income and middle-income children, lawmakers have taken several steps to whittle away at student aid.

Congress has eliminated subsidized loans for graduate students, as well as most discounts. They also cut $8 billion out of the Pell Grant program for low-income students and reduced the income threshold for eligibility for a full Pell Grant.

The impending higher interest rates on subsidized Stafford loans worries Samantha Durdock, a sophomore at the University of Maryland in College Park, who currently has $8,000 in subsidized Stafford loans and expects to borrow another $15,000.

"Even though graduation is several years away, I am worried about the amount of debt I will have," Durdock said at the Capitol Hill event. "If interest rates double, the extra debt might also impact my ability to pay basic expenses like rent."

Silver Poised to Hit New Highs This Year

After the last 12 months of extreme volatility, traders can be forgiven if they've become hardened to moves in precious metals. Those who swore off semi-precious silver last summer should take another look: Silver has rather quietly staged a more than 20% rally since the beginning of 2012.

According to Michael Purves, chief market strategist at BGC Financial, silver is apt to warrant more attention. "Silver is a poor man's gold and it's also very volatile," he says. "I think a lot of that volatility will be skewed to the upside."

And by "upside," he means a move to all time nominal highs. The semi-precious is "setting up for something more powerful; we could see $50 later this year," he states.

To support his case Purves notes the encouraging price action since last May when silver pushed that same $50 level before collapsing hideously. The bright side of that sell-off is that silver never returned to whence it came before going parabolic at about $19. A true bubble would have taken back all the gains; silver may still do so but at least for now it remains almost 70% higher than it was in September of 2010.

The drivers for a move higher are silver's status as a hard money and industrial demand. In a world of systemic currency abuse and slow yet positive growth, silver wins, at least as Purves sees it.

For those more equity inclined Purves suggests looking into the gold and silver miners. Since the stock market bottom made three years ago last week, the Market Vectors Gold Miners ETF (GDX) has gained about 60%. That's a terrific gain unless it's compared to the S&P 500's 100% gain or the 150% move in silver itself.

"It's only a matter of time" until that performance spread tightens says Purves, noting the positive technicals and tight range in which the GDX has traded. The fact that the same could be said of many things and most of them are unpleasant doesn't dissuade Purves. He likes the miners and is willing to wait, provided he can do so while holding silver.

5 Moves Emerging Markets Veteran is Making

Emerging markets investors were hammered in 2011. The uncertainty and volatility that swept the U.S. and the euro zone hit emerging countries harder, reflecting concern that these regions' growth would decline sharply. Yet emerging markets have rebounded nicely so far this year as investors have become more optimistic that the worst of the euro-zone debt crisis has been priced in — a position Mark Mobius took in a late 2011 telephone interview, as well as later emailed remarks.

Mobius, a pioneer investor in emerging markets, builder of the BRICs, and an early believer in the power of globalization and the potential for developing Asia, Latin America, the Middle East and Africa, as well as Russia, oversees around $40 billion in assets. According to him, "It's not the end of the world; this will be worked out. Europe will not disappear; the euro will not disappear. There will be a solution. Of course, people will have to pay for that solution."

Indeed, Mobius is a confirmed euro bull. "There are challenges, such as member countries' need to control government spending, but once these are sorted out, I believe the euro should be very successful and, in fact, it could possibly play a greater role in the global economy in 2020," Mobius said.

A robust European currency would be a plus for emerging nations that are major exporters to Europe. Even without this tailwind, Mobius points out, many emerging economies sport impressive growth rates of three or four times that of developed markets. In addition, these countries have little to no debt and high levels of foreign reserves.

"These fundamental strengths are likely to continue in the months and years ahead, and eventually be reflected in the earnings and share prices of emerging-market companies, over time," Mobius said.

Moreover, developed-market growth is expected to remain anemic, which shifts attention to the growing consumer class in emerging markets. It remains to be seen whether domestic demand can offset the economic pinch from the developed-market slowdown, but Mobius is confident that it will have an impact.

"With emerging markets," he said, "growth in domestic consumption should be driven by, and hopefully sustained, in two ways: rising per capita income and, more importantly, the maturing of the young, working population who will be reaching the most productive years of their lives."

Yet a smooth transition is by no means guaranteed, Mobius cautioned: "If governments fail to keep up with this new and rising middle-consumer class, through a lack of employment and high unproductive government spending that could in turn lead to inflation, this could lead to political instability, a persistent poverty trap and a widening gap between the rich and the poor."

Sustained high inflation is in fact the main risk to the emerging-market growth story, Mobius said.

"In an environment of slowing global growth and easing inflationary pressures, emerging markets tend to revert their attention to stimulating economic growth," he said. "Inflation is a big challenge, and I believe it will probably be a very important consideration going forward."

So Mobius has positioned his funds' portfolios for any possibility. He's invested in cyclical areas such as energy, commodities and materials, as well as having large investments in food and other staples that wealthier consumers can now afford.

And as someone who has seen emerging markets boom, bubble and bust, Mobius is also realistic about the need for investors in these parts of the world to show tremendous patience — which, he said, will be rewarded.

"There of course will be leads and lags in the movement of markets but it is clear that over the longer term emerging markets will outperform developed countries," Mobius said.

With that in mind, here are five areas where Mobius is investing now:

1. The energy sector

Economic development and urbanization in emerging countries means that energy demand is increasing rapidly. At the same time suppliers of gas and oil have become much more sophisticated about pricing. Accordingly, prices can be maintained at high levels, and as an investor Mobius looks to energy companies with a dominant share of this favorable dynamic.

2. Software

Information technology and software is a growth story — particularly for India, Mobius said.

"Some terrific software companies in India do global software and outsourcing work," he said, citing Infosys Ltd. and Tata Consultancy Services Ltd. as examples.

"They're a beneficiary of the global outsourcing trend," Mobius added. "They have tremendous experience. Their ability is quite remarkable. Every day they are hiring and training thousands of workers in the software business, and their ability to do this is quite exceptional and unique. A lot of people complain about software companies taking American jobs — they are hiring in America."

3. Financial services

Banking is a risky play, but Mobius said he sees opportunities in emerging-market financial services firms with strong balance sheets and a focus on consumers.

Brazil offers some attractive candidates, he said. Institutions including Itau Unibanco Holding and Banco Bradesco haven't had to expand beyond their own sizeable home market, Mobius noted; plus Brazil's banking community is no stranger to sovereign debt troubles and challenging economic environments. Mobius is generally bullish about Brazil, but as an investor he is watching for signs that the government is managing spending and keeping a lid on inflation.

4. Consumer products

Mobius travels constantly, intent on seeing potential investments up close. For example, in China, he said, shopping malls are full with customers, and that spurs Mobius to think about the implications for consumer companies, electricity providers, material suppliers and other industries that support and benefit from consumer demand.

"Middle class expansion and the deceleration of population growth has triggered rising per capita income and increasing demand for consumer products," Mobius said. "This in turn has led to a positive earnings growth outlook for consumer-related companies. We look for opportunities not only in areas related to consumer products, such as automobiles and retailing, but also consider services such as finance, banking and telecommunications.

5. Commodities and materials

The consumer has always been a main driver of demand for commodities and materials. But the sea change in the economic fortune of people in emerging economies — China and India together represent more than one-third of the world's population — has created an unprecedented need for food and raw materials.

Companies that extract, grow, produce, refine and transport these goods — and do so cheaper and better than others — have enjoyed strong earnings growth. Mobius sees nothing fundamentally that would break this flow. He looks for higher commodity prices due to unbroken demand and spotty supply.

Mortgage Purchase Demand Continues to Rise

Demand for home purchases picked up for the third week in a row last week, though applications for refinancing sagged.

The Mortgage Bankers Association (MBA) said its seasonally adjusted index of overall mortgage application activity, which includes both refinancing and home purchase demand, fell 2.4 percent in the week ended March 9.

The MBA's gauge of loan requests for home purchases gained 4.4 percent.

The rise in demand coincided with data released last week that showed employers hired more than 200,000 workers for the third month in a row in February.

Even so, the level of applications was essentially unchanged compared with the same time last year, Michael Fratantoni, MBA's vice president of research and economics, said in a statement.

"Purchase activity remains subdued and within the narrow range we have seen since the expiration of the homebuyer tax credit in 2010," said Fratantoni.

Purchase application volume for February jumped 18.0 percent from the previous month, but was still down 2.0 percent from a year ago.

The seasonally adjusted index of refinancing applications slumped 4.1 percent, while the refinance share of total mortgage activity eased to 75.1 percent of applications from 77.0 percent the week before.

Fixed 30-year mortgage rates held steady at an average 4.06 percent.

The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.