Savings down, spending up, outlook…strong?

Thursday, 7 September 2017
Melbourne, Australia
By Bernd Struben

  • These two pictures paint 2,000 frightening words
  • Let the trade come to you
  • Cryptos’ one-day $20 billion rebound

US markets breathed a small sigh of relief on Wednesday. The reason? Donald Trump’s surprise deal with Democrats to extend the debt limit.

The US federal government is now funded until 15 December, when we can look forward to more political shenanigans.

The S&P 500 closed the day up 0.31%. Few things cheer the markets more than learning governments are taking on additional debt.

The US federal government is already in debt to the tune of approximately US$20 trillion. That’s just the feds, mind you. It doesn’t include state and local government debt. Or corporate or household debt, for that matter.

And it works out to roughly US$62,000 (AU$75,000) for every man, woman, and child in the US. Yet it’s still not enough to keep the nation afloat.

One day it will need to be repaid. Or defaulted. Our bet is on the latter.

But with record low interest rates, the debt balloon may well keep inflating for years.

Meanwhile, in Australia, wage growth remains lower than we’ve seen it in decades. Wages actually went backwards 0.1% in the June quarter.

Flying against that reality, Australians ramped up their spending, driving savings rates to the lowest levels seen since 2009.

With Australian household consumption making up about 57% of GDP, it’s little surprise Treasurer Scott Morrison tried to put a positive spin on it.

More after the markets.

Markets

Overnight, the Dow Jones Industrial Average gained 54.33 points, or 0.25%.

The S&P 500 rose 7.69 points, or 0.31%.

In Europe, the Euro Stoxx 50 index closed up 12.94 points, or 0.38%. Meanwhile, the FTSE 100 lost 0.25%, and Germany’s DAX index gained 0.75%.

In Asian markets, Japan’s Nikkei 225 index is up 21.06 points, or 0.11%. China’s CSI 300 is up 0.02%.

In Australia, the S&P/ASX 200 is down 4.83 points, or 0.08%.

On the commodities markets, West Texas Intermediate crude oil is US$49.13 per barrel. Brent crude is US$54.13 per barrel.

Gold is trading for US$1,3334.40 (AU$1,668.63) per troy ounce. Silver is US$17.85 (AU$22.32) per troy ounce.

One bitcoin is worth US$4,557.61.

The Aussie dollar is worth 79.97 US cents.

These two pictures paint 2,000 frightening words

In 2012 Aussies were saving 10% of their incomes. The latest figures show this rate has more than halved to only 4.2%.

As reported by The Age today:

Household spending is growing faster than household income, and has been for five quarters — the longest unsupported boom in spending since the global financial crisis.

The steady increase in spending, funded by a steady decline in saving, has propelled economic growth to 0.8 per cent in the June quarter…

‘[Treasurer Scott] Morrison defended the slide in saving, saying it was a sign of improving confidence. “It’s how people see things out over the next 12 months, two years and so on and how they see things moving.’

Does it sound to you like Scott might be a tad out of touch with the reality facing most Australian families?

Could it be that household savings are plummeting for other reasons? Like wages going backwards? Energy and house prices soaring. And, even with record low rates, the burden of interest payments on the rise?

Nah. Surely, it’s just that folks are convinced they’ll finally get their long overdue pay rise next year. Though that’s not how Deutsche Bank economist Adam Boyton sees it.

As noted by The Australian Financial Review, ‘“You’ll need to go back to the 1990s recession to find a sustained weaker picture,” said Adam Boyton, an economist at Deutsche Bank, referring to the slump in income and wages growth.

We’ll finish off our review of what Morrison says indicates ‘better times ahead’ with a look at two graphs.

First, Australian household debt compared to income.



chart image

Source: RBA, The New Daily
Click to enlarge

Data from the Reserve Bank shows that Australian household debt in the March quarter stood at 190% of households’ annual disposable income. That’s a new record high.

If wages were growing rapidly, this might not be such cause for alarm. But we know wages have been flat, and even falling, with wages growth the lowest in decades.

You would hope, then, that people are squirrelling away a good chunk of the income they are making for a rainy day. To make their mortgage payments, for example, if they unexpectedly find themselves without work.

You know, however, that’s not the case. And you can see this on the graph below.



chart image

Source: CBA, IFM Investors, AFR
Click to enlarge

With incomes flat or even falling, debt soaring and savings plummeting, you have to wonder how long this can continue.

The only thing keeping the economy ticking along at an estimated 1.8% annual growth rate is debt. And the only thing enabling that debt is record low interest rates.

As with the US government’s freshly extended debt ceiling, this could continue for years yet. Or it could come crashing down a lot sooner.

No one is more aware of this than market veteran Vern Gowdie. In Gowdie Family Wealth he keeps his finger on the pulse of our economic house of cards. He also shares his tips on how to survive the coming collapse. And how to prosper afterwards.

Find out more here.

Let the trade come to you

I’ve written to you about controversial economist Phil Anderson, and his premium trading service Time Trader, a few times over the past week.

One of the things I’ve come to appreciate about Time Trader is that Phil and his team of analysts won’t recommend a stock simply to get another trade on the board. If a stock doesn’t tick all their boxes — and they have a lot of boxes to tick — they’ll watch and wait.

This means, on occasion, a few weeks might pass without a new trade. And that can be frustrating to subscribers. Particularly for new subscribers that are eager to get trading.

Yet Phil refuses to be pressured into making trades he’s not convinced about. And just as there are occasional stretches when no suitable trade presents itself, some weeks he’ll give you three or four new promising trade recommendations.

It’s all about letting the trade come to you. And getting in — and out — at the right time.

Discover the secret of Phil’s T.I.M.E.D stocks here.

Cryptos’ one-day $20 billion rebound

If you thought China banning new ICOs would deliver a lasting blow to cryptocurrencies, think again.

In a sign of their resilience — and volatility — the combined value of all cryptocurrencies leapt US$20 billion in just 24 hours from their low on Tuesday.

As CoinDesk reports:

After declining nearly 25% from an all-time high observed earlier this week, the cryptocurrency market is once again in the green.

Heading into Wednesday’s trading session, the value of all publicly traded cryptocurrencies was once again on the rise, climbing 17% from a low of $134 billion observed Tuesday. At press time, this figure had recovered to $157 billion, a gain of over $20 billion in just 24 hours.

The impact of China’s decision was widely reported. And the crypto bears quickly emerged from hibernation, predicting an end to bitcoin’s remarkable run.

And they were right. At least for a day.

Even though China hasn’t banned bitcoin (just new initial coin offerings [ICOs]), bitcoin took a tumble. But in these instances, it helps to take a step back.

If we step back three months, for example, you can see bitcoin’s performance since 8 June. At the time, it was trading for US$2,825.03. As at writing it’s fetching US$4,557.61.



chart image

Source: CoinDesk
Click to enlarge

The rebound for bitcoin and ether — the two most popular cryptos — is no surprise to tech guru Sam Volkering and crypto analyst Ryan Dinse. Nor was the initial volatility following China’s announcement.

Sam describes the crypto world as the ‘Wild West’ of investing. The opportunities are almost limitless. And so are the pitfalls.

That’s why he and Ryan do all the hard work for their subscribers at Sam Volkering’s Secret Crypto Network. Whether you’re already invested in cryptos or are still on the fence thinking about it, their entry-level service is worth its weight in digital gold.

You can find out all about it here.

Cheers,
Bernd