Broker Check

Economic Eye Candy

September 01, 2023

I like changing our blog every few months by expressing my thoughts in easy-to-read charts. Sometimes, the most effective way to communicate is through visuals.   

So, without further adieu, here are some of my favorite charts that I've come across in the past few weeks: 

The two-sided coin of credit card debt – 

The headline will read “CONSUMER CREDIT CARD DEBT TOPS $1 TRILLION". The news media couldn't get enough of this harrowing figure as consumer credit debt hit $1 trillion for the first time in history. It's painted as scary because it's a huge round number, but it’s relatively intuitive that as wealth increases, so too does debt. And since wealth expansion is the story of human progress, it would be odd if debt did not also increase over time. Even considering that fact, there's more to this story than just the headline, as we'll dive into below. (Source: Reuters)

The other side of the coin is that the debt service ratio is still very low. While $1 trillion in credit card debt sounds scary, you can see that the percent of disposable income required to make the debt payments (debt service ratio) is still below pre-pandemic levels and considerably below the average level of the last forty years. (Source: JP Morgan – Slide 24)

The Long Cycle of U.S. Dominance – 

Over the last 15 years, the S&P 500 ($SPY) has gained over 360% vs. a 58% increase for the MSCI World ex-US EFT ($ACWX) and just 33% for the Emerging Market ETF($EEM). This is the longest cycle of U.S. outperformance that we've ever seen. 

However, this may be changing:

Corporate Balance Sheets are improving - 

The underlying health of Corporate America continues to be encouraging as DIVIDENDS CONTINUE TO GROW WITH REMARKABLE CONSISTENCY: As volatile as stock prices have been over the past couple of years, dividends have been better than stable, growing at about 9% per year over the past two years. Additionally, as you can see on the right side, companies have been aggressively "buying back" their stock, increasing our percentage ownership with no additional investment required from us. This is all good for long-term investors like us. (Source: First Trust)

Inflation is starting to act like a dog and rollover – 

There are no promises here, but I hope this is the last thing I write on inflation for a while. I've said for the last year that shelter inflation (the primary point of continued inflation) has a significant lag compared to general inflation. It appears that it has finally peaked and has now turned the corner. As it (hopefully) continues to fall, it should help push us toward the Fed's stated 2% inflation goal and general price stability. (Source: Federal Reserve Bank of San Francisco)


Once again, data wins –

Once again, and I will die on this hill, it pays to stay the course over the long term. As you can see on the bottom-left of the graphic below, investors, as a group, underperformed their investments by about 1.7% per year across all asset classes. On average, this means that every decision other than continuing to hold the fund was likely to result in a decline in overall investor return. I say this all the time, but there is only one thing required to earn the market's (or fund's) full return…of course, that is to own it for the entire period. This is just another example of the value of "staying the course." (Source: Morningstar)

Rarely does it benefit the patient long-term investor to buy into short-term narratives. Unfortunately, short-term narratives are a primary source of revenue for media outlets, so don't expect any reprieve from the fear-mongering anytime soon.  

Given that we have an election just a shade over 12 months, expect the media to double down on their efforts to scare you out of your portfolio's performance. 

In the meantime, should you ever wish to discuss the current state of the markets, the economy, or your investments, always remember that we are here for you and that no matter how bad things seem, there is still much to be optimistic about. 

Stay the course, my friends!