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.

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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