Global Equities Research: The Wild Oats Have Been Sown


The wild oats were sown long ago. The antics of a colourful youth are a fading memory. The hangover is cured. Mind you, it was certainly expensive. The Bank of Mum and Dad still shows all the scars of bailing out an errant son in every line of an ugly balance sheet. But Junior is on the mend. The “Junior” in question is the US consumer, whose property market fuelled high spirits of yesteryear show many signs of being tamed. Middle-aged caution has taken over. It may be duller but at least the insurance quote on the car no longer makes you wince.

Let us start by taking a look at the levels of US household debt, which as a percentage of disposable income has been steadily rolling down the crest of the hill they reached at the time of the Global Financial Crisis. It is nice to see that this also comes at a time when wages are showing signs of real (inflation adjusted) growth.

Source: Bloomberg, 01/11/2019 

To bulkier pay-packets and lighter debt-loads comes greater solvency, courtesy of the US Federal reserve’s Lilliputian interest rates. 

Source: Bloomberg, 01/11/2019

Low rates also help to make houses much more affordable than in the decades leading up to the Global Financial Crisis.

Source: Bloomberg, 01/11/2019

But even with more coins in the pocket, less debt to worry about and the lowest interest rates in generations, not many people are taking the plunge. Ten years on from the Lehman Brothers bankruptcy, housing demand has only started its walk uphill from the weakest point it reached since records began.

Source: Bloomberg, 01/11/2019

Prudence has come at a well-known cost. Bailing out the delinquent child has transferred the debt load to the shoulders of the dutiful parent. True, as the owner of the world’s reserve currency, this particular parent will be able to tap the world’s lenders for a long time to come. But it has been costly. To avoid a slump, the government has had to step in to prop up demand, and there are no signs that the US state has found any way to de-gear from these high levels.

Source: Bloomberg, 01/11/2019

But such parental self-sacrifice has brought the relief needed. In turbulent times, it is good to see that the world’s “Spender of Last Resort”, making up 69% of the world’s largest economy’s GDP, has once again the ability to go shopping.

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CLI01535 Expiry 30/11/2020

Daniel White

Daniel White

Senior Research and Strategy Manager

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