In this week’s Steady Investor, we look at key stories and the questions surrounding their market impact, such as:
Too Much Bad Debt – Consumer spending in the US has driven the economy – and arguably the stock market – to new heights. Consistent and strong employment gains over the last several years plus modest, but still positive, wage increases have boosted consumer confidence. But there’s a problem with all this spending – a lot of it is going on high interest credit cards. Americans now have almost $1 trillion in credit card debt, which marks a new record. When it comes to credit card debt, nominal figures matter less than whether or not people are behind on payments. As GDP and wealth grow, we would expect credit card and other types of debt to grow as well. But in the current environment, the percentage of people far behind on their credit card payments is increasing. According to the Federal Reserve Bank of New York, the percentage of credit card debt that was overdue by 90 days or more (making it delinquent), rose to its highest level in 8 years.1
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Highlights from the Trump Administration’s $4.8 Trillion Budget Plan – The Trump administration’s $4.8 trillion budget was released this week. The plan called for an increase of 0.3% in defense spending in 2021, to $740.5 billion, while lowering nondefense spending by 5% to $590 billion for the same year. Picking apart the plan a bit further, NASA would get a 12% boost in an effort to put astronauts back on the moon by 2024, the Department of Veterans Affairs would see a 13% increase in outlays, the National Nuclear Security Administration with a +19% uptick, and the Department of Homeland Security would get a 3% bump. On the other side of the equation – spending cuts – the Environmental Protection Agency (EPA) would lose over a quarter of its funding and programs like Medicaid and food stamps would see cuts in future years. 3 Like just about every budget plan before it, the plan as outlined has a very low likelihood of actually becoming law, particularly with the House of Representatives controlled by Democrats. In all likelihood, Congress will pass temporary spending measures for the balance of the year to move past the election, and take up the larger budget questions in 2021.4
When Will China Return to Normal Economic Activity? – Reports this week made it appear as though confirmed coronavirus cases were potentially plateauing, but then news reports Thursday cited 15,000 new cases (perhaps because of a rollout of a new way of testing for infection). Corporations have largely halted production in China and retail stores remain closed in large numbers across the country. The quarantines have led to a ghost town-like environment across the country, with the economic dynamism of production and consumption largely muted. The ongoing impact of the coronavirus has led many to forget that China has already been dealing with the pressure of lower global trade as a result of the trade war with the US – global trade fell -1% in 2019, which rarely happens outside of recessions. On top of all that, China has rising inflation levels on par with jumps not seen in nearly a decade, with the consumer price index jumping 5.4%.5 We have written before that the crisis in China is likely to get worse before it gets better, and it appears the world’s second largest economy remains decisively in the “getting worse” phase. We may not see a return to normal economic conditions until the second half of the year, in our view.
There is no way to know exactly where the market
is headed or how these stories will pan out, but taking time to plan for your
financial future can give you peace of mind in times of uncertainty.
Retiring exceptionally well may seem like a
difficult goal to accomplish. However, we have compiled a list of key
investment and money management tips that, in our opinion, can help make the
most of your assets and grow your long-term wealth.
If you have $500,000 or more to invest, download
our free guide, Will You Retire as a Multi-Millionaire? 7 Things You
Can Do Now.7 This guide will provide you with tips to
potentially help grow your wealth and put you on a path to retiring a multi-millionaire.
Disclosure