Economic Activity in the First Quarter and the Results of the International Select Portfolio

With the first quarter of 2017 over, we are reviewing the progress of our International Select portfolio. Over the past ten years (ending 3/31/2017) North American markets have seen an average of over 7% a year, while the MSCI EAFE has averaged only 1.53% per annum. Furthermore, over the past year, also ending 3/31/2017, the North American markets have increased by 17.34% with MSCI EAFE only rising by a little over 12.25%. Despite these differences between North American and European, Australasian, and Far Eastern markets, we believe that non-US markets will become market leaders over the coming few years. The outlook for the global economy is affected by Trump’s presidency, and the effect of this on US GDP growth rate back up to 3% per year. If this level of growth can be met, it should ensure long-term, positive effects on a global scale.

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In terms of the International Select portfolio, it has returned 9.75% pure gross, and 9.28% net while the MSCI EAFE Index has seen returns of 7.39%. Several factors have influenced the performance of this portfolio. Stock selection and country weightings in Switzerland, France, Belgium, the UK, and China have all proved beneficial, while the same processes in Canada, India, Norway, the Netherlands, and Panama have had hindering effects. Other factors that aided the portfolio’s return were positions in technology services, electronic technology, health technology, energy minerals, and retail trade. Hurting performance were positions in producer manufacturing, consumer non-durables, and transportation. However, portfolio activity was primarily in an upward direction, trailing one-year (ending 31/3/2017) and returning 19.21% pure gross, and 16.38% net versus the 12.25% result of the MSCI EAFE.

In terms of global growth, The US has been an influential presence and, on the political scene, populism has arrived in the UK, Italy, and various other nations. The hope is that the best characteristics of this doctrine will combine with proven economic activities, resulting in the resumption of global economic growth. This growth will hopefully occur in several sectors, including a period of rising GDP, corporate earnings growth, and a rising tide for economies in general. If this comes to fruition, it may open the door for non-US markets to come to the fore, where, up to the present, their currencies have underperformed the US dollar. In an environment of stronger non-US markets, the International Select portfolio, with a strategy of high-conviction, low-turnover which blends both quantitative and fundamental-based analysis, should thrive.

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Bitcoin Is Now Worth More than Gold

bitcoinOne Bitcoin is now worth more than an ounce of gold.

On Thursday, the digital currency was worth $1,273 whereas an ounce of gold was worth $1,244 (Sources: CoinDesk and APMEX)

So what is Bitcoin and what are the possible reasons for its rise?

What is Bitcoin?

Bitcoin was invented to mimic commodities such as gold whilst having the benefits of being digital.

The supply of bitcoins are determined by ‘miners’. In order to ‘mine’ a bitcoin, you have to use a special software to solve a mathematical problem for which you are rewarded a bitcoin. This controls the supply of bitcoin as time and energy is required to increase its supply; much like commodities such as gold.

Thus bitcoin is actually a decentralised currency as opposed to most currencies such as the US dollar because the central banks (The Federal Reserve in the US) controls the monetary base by issuing currency.

This makes bitcoins somewhat more appealing to investors because there is a law (an algorithm to control supply) behind the supply rather than the arbitrary decisions of governments. In this regard, both gold and bitcoin hold an advantage of regular currencies.

However, bitcoin has a few benefits over gold:

  1. Easier to store
  2. Cheaper to store
  3. Easier transactions
  4. Cheaper transactions

It’s quite clear why these are the case – bitcoin is digital and logistically much more fluid than gold. Furthermore, in contrast to regular money, there are no middlemen such as banks when it comes to transactions – instead they take place directly between individuals.

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Why has bitcoin increased in value?

A new currency is always going to be received with scepticism from the market – more so if it is not backed by any government and even more so when it’s something entirely new like a digital decentralised currency.

However, investors are growing more and more comfortable with the Bitcoin as it continually grows out of its infancy and performs whilst doing do. With eight years under its belt and its recent astonishing performance, bitcoin is a new realistic investment opportunity.

More short term causes of its rise is the speculation that a bitcoin ETF could be approved by the Securities and Exchange Commission (proposed by Tyler and Cameron Winklevoss). A decision is expected by March 11.

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What are the disadvantages of bitcoin?

Being a digital currency, bitcoin is vulnerable to theft via hacking. Recently, Bitfinex said it was hacked for 119,756 bitcoins, worth about $70 million. With this said, some will argue, almost anything can be stolen – be it gold or regular money – so is it really a big disadvantage?

Another disadvantage is that investing in bitcoin is exploring the unknown and that anything could happen – making the investment rather risky. This is in contrast to gold which has been an investment option since antiquity and thus, to some, a much more secure investment. Again, some will argue that risk is part of investment and that many firms and economies caused huge losses to investors due to unforeseen events so bitcoin in no different.

Regardless of the pros and cons of bitcoin, it certainly seems like it will be a contentious topic for all investors for a while.

Moreover, the possibilities it brings with it are endless and something we should all keep an eye out for as investors and regular spectators alike.

Bitcoin3Disclaimer: we do not endorse bitcoin the blog is for informational purposes only and losses may occur

Predictions for 2017

Two weeks into the new year, as Barack Obama prepares to hand over the Presidency, it is time to start looking ahead at what 2017 might bring economically.

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President Elect Trump has released his 100 Day Action plan, and the response from economic experts has been restrained. The plan, which includes intentions to withdraw from the Trans-Pacific partnership, renegotiate NAFTA, and reverse the decisions made on infrastructure projects such as the Keystone Pipeline, has the reported goal of improving the lives and job prospects of everyday Americans. The experts, however, have their doubts – not agreeing with the statement that this plan would improve the economic prospects of either middle-class or low-skilled Americans.

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There are some things, however, which most experts believe will happen. One is a return to 3% GDP growth, after plateauing at 2% for the last eight years. Founder of the Hispanic American Center of Economic Research, Alejandro Chafuen, even stated in Forbes last week that he did not believe reaching growth of nearly 4% would be impossible. The factors which previously stunted US GDP growth – including the uncertainty surrounding the election and the generally-weak performance of most Western economies – look unlikely to hold the country back for 2017.

One of the biggest roadblocks to GDP growth was the regulatory pressure previously placed on US businesses. This pressure has reportedly increased by 80% since 2010, and this year is the first sign of things going the other way. One of Trump’s major promises was to enact extensive regulatory reform which ought to save the government money and give small and big businesses alike a little more breathing space.

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Indeed, if the growth predicted does become a reality, 2017 could be an excellent year for small businesses and start-ups. Small business expert Jim Blasingame predicts that we will see an uptick in small business loan requests, profitability and in the number of new start-ups this year, and he expects the National Federation of Independent Business to see small business optimism growing.

One other area of interest is employment. Donald Trump plans to kick-start vast infrastructure and energy projects, as well as ceasing imports from China and Mexico in favour of production in the US, but experts say this is no guarantee of more jobs for ordinary people. Technology has made great leaps in the last eight years, making many jobs obsolete and those jobs which do remain may require a new set of skills many American jobseekers do not possess.

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Young people especially seem to think there is trouble ahead. Usually the most optimistic group when questioned on financial futures, this year Bloomberg reported that millennials are the only generational group who believe the economy is set to take a turn for the worse this year. Baby Boomers, the Silent Generation, and Generation X all seem to be feeling positive – an optimism shared by Wall Street as stock markets continue to perform strongly.

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Whatever happens, 2017 looks set for seismic shifts economically. We better just wait and see.

For questions about this, or any other financial matters, please reach out to us over Twitter or get in touch via telephone on 917-951-5170 or by email at info@hj-intl.com.

Discount December – Sales this Christmas Season

Happy New Year! 2017 is here, the holidays are over, and many of us are slowly getting back into work. The festive season may simply be a welcome break for millions of Americans, but it is a crucial time for the economy, a chance to up sales and make money in the last few weeks of the year. So how did Christmas 2016 perform financially?

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This year, the retail industry was taking no chances, with early sales and pre-Christmas deals set to catch the organised and the last-minute shopper alike. Up until the day itself, stores across America were offering discounts and promotions in a bid to prop up their bottom line and avoid, if possible, profit-margin-destroying left-over inventory post-festivities. This reflects a growing discipline among retailers, with many larger stores acting more quickly to close failing branches and only stocking as much inventory as they expect to sell.

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And it is a tactic which seems to have paid off. The National Retail Federation originally predicted an uptick in both online and in-store sales of 3.6%, but this week companies such as Customer Growth Partners estimate the holiday sales growth as being as high as 4.9% for 2016. A recent Wall Street Journal report states that 2016 may have been the best shopping year for retailers since 2005, when sales increased by 6.1%.

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This boost is credited to a combination of late-season and internet shopping, the latter of which increased by an estimated 19% over the holidays, according to a survey carried out by MasterCard. This may be good for the country’s sales overall, but department stores in particular have been badly hit by the public’s new preference for buying online. Retailers made a record $79.2bn from online sales between November 1st and December 20th, an increase of more than 10% on last year’s numbers. According to Accenture’s Annual Holiday Shopping survey, this year 84% of people said they planned to check Amazon before buying elsewhere – a trend which looks likely to grow in 2017.

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So, in spite of the more than $1 trillion spent in this year’s holiday sales, the consumer’s love for –  and often expectation of – a bargain, and the growing reliance on online stores to provide this could mean industry-defining changes for retail in 2017.

For questions about this, or any other financial matters, please reach out to us over Twitter or get in touch via telephone on 917-951-5170 or by email at info@hj-intl.com.

December Debt – The Price of Christmas in 2016

With less than a week to go until Christmas, many families and industries are going into overdrive in an effort to have everything ready for the holidays. Last week saw freezing temperatures across much of the US, in contrast with a warmly welcomed recovery from the oil and gas sector. Good news too for the financial sector, with Novembers Bank of America Merrill Lynch survey showing fund managers’ allocations to banking stocks had leapt up, with a net 31% overweight, up from net 25% last month. But how is this Christmas going to be financially for the average Joe? Studies suggest the outlook may be quite different.

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According to global performance-management company, Gallup, the average American adult will spend around $785 on gifts this Christmas, up from the $728 they planned to spend in 2015. This fits in with the gradual upward trajectory in Christmas spending seen over the last few years, but is still a long way off from the $900 average seen just before the recession hit. These are, however, only average spends, 54% of those who took the Gallup survey said they planned to spend between $500 and $1000 this Christmas.

Last year 78% of those buying gifts for Christmas did not expect to borrow to fund these purchases, but this year it may be a different story. In a poll run earlier this year by the Associated Press and the NORC Center for Public Affairs Research it was discovered that two thirds of Americans say they would have difficulty in find $1000 to cover an emergency, even in higher-income households. So, where are Americans finding this money to cover Christmas gifts?

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An article published on NerdWallet this week states that overall US household debt has grown by 11% in the last decade, with a considerable chunk of that being credit card debt. Another article in Magnify Money from January last year claimed that holiday debt added almost $1000 to American households’ debt.

And for those Americans who do not use their credit card, there are a pool of loan companies who go into overdrive to offer Christmas loans to families to help cover their holiday expenses. These tend to be glorified payday loans with extortionate rates of interest, which may leave individuals in so much debt that they are still paying it off next Christmas. What it means to be building an American Christmas on debt remains to be seen. Let’s hope that the USA achieves a 3% GDP rate of growth in 2017 and that middle-class America receives the gift that an expanding economy gives – an increase in disposable income and a brighter future.

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For questions regarding anything in this article, or all other investment matters, please do not hesitate to reach out to us via telephone on 917-951-5170 or by email at info@hj-intl.com.

The Run-Up to Christmas

The period running up to Christmas can be one of the most important months of the financial year. Not only can increased consumer spending help to motivate the retail sector, but it also gives a clear indicator as to how the public are feeling economically, whether they are more or less inclined to spend money.

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In Brazil this holiday season, the public’s feelings on Christmas spending are clear – this is a year to tighten your belt. According to a survey by Deloitte, Brazilians will spend 20% less this year than they did for Christmas 2015. The survey shows that, on average, people in Brazil plan on buying only four gifts this year, and intend to spend just $98. This is largely based on the country’s widespread financial insecurity, with the Brazilian GDP having shrunk by 4.4% over the last four quarters. Disappointing news for all those who were hoping Brazil was primed for a turnaround, and a much more restrained holiday season for inhabitants.

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Back in the US, the 12 days of Christmas are a little more expensive this year! This is according to PWC Wealth Management’s annual Christmas Price Index. The exercise is a humorous way to track inflation, with Maids A-Milking and Pipers Piping reflecting real labor costs and Five Gold Rings representing commodities. In the study’s 33rd year, birds, pipers and drummers have got more expensive, where everything else has remained the same or gotten slightly cheaper. This is in-line with the economy’s gradual expansion and reflects the cautiously optimistic attitude of consumers.

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This turn of optimism and expansion has triggered a move by the Federal Reserve to increase interest rates again for the first time since December 2015. The demand for labor has increased almost exactly to the level predicted by Wall Street, pave of growth has quickened and unemployment has continued to drop, now standing at 4.6% from 4.9% last month. Wage growth has yet to recover but this is not enough to stay the Fed’s hand and interest rates are set to go up before Christmas.

One industry is set to have an excellent holiday season for sure, and that is the travel industry! With an expected 3.5% boost in December holiday travellers, US airlines are set to have a record-breaking Christmas season, with a predicted 45.2 million passengers flying between Decemberwhite-male-1771597_1920 16th and January 5th. This means an average of 73,000 more passengers traveling each day in year which saw over 800 million people flying in and around the US. Major airlines are set to add 99,000 additional seats each day to accommodate the rush and this, despite the persistently low fare prices, ought to provide a healthy boost to end the year.

Trump’s Effect on the US Economy

Four weeks have passed since Americans across the country took to the polls and chose Donald Trump as the next President of the United States – but what effect has that had on the US Economy?

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The first thing of note is that, contrary to the example set in Britain post-Brexit, US stocks have soared since Trump’s election. The S&P 500 index, Dow Jones Industrial Average, and Nasdaq Composite Index have all reached record highs since November 8th. This upward swing is even being called a “Trump rally” by some.

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Experts’ feelings on Trump’s economic plan – which involves boosting public spending and introducing tax cuts and reforms – is divided, though most believe it will lead to a sharp increase of both growth and inflation. Trump’s promised corporate tax cuts will be financed largely by higher public borrowing which, although it may certainly stimulate growth, will create bigger budget deficits.

The Paris-based Organisation for Economic Cooperation and Development believe GDP growth is likely to be greater under Trump than it was under Obama, with predicted figures currently standing at 2.3% in 2017 and 3% in 2018. This compares to growth of just 1.5% this year and the 2.2% average annual rate during the current president’s second term.

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Trump’s pledge to dedicate $550bn to rebuilding crumbling infrastructure across the country is likely to push the US towards full employment. Coupled with deregulation and banks being encouraged to loosen lending standards, this growth is bound to push inflation higher as time goes on.

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One thing which remains to be seen is what effect Trump’s presidency will have on the global economy. With a general move away from free trade and globalisation – including policies such as amnesty for multinationals who repatriate foreign profits – at a time where the global economy is less than strong, the US could end up endangering a number of emerging global economies.

One country at least seems to be pleased with the election results. Trump’s views surrounding climate change and global warming has translated into promises to cut red tape for the fossil fuel industry – a move which could prove very useful for Saudi Arabia. The Saudi energy minister Khalid al-Falih believes that US oil consumption will recover in 2017 leading to a stabilisation of oil prices, though it was not explicitly stated that this would come as a result of Trump’s election and potential return to a 3% rate of growth in the United States GDP.

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