Political and economic noise has been prevalent in the first two months of 2016 and as we approach February 29, we here at CMF are asking ourselves, how do we leap over this noise to understand the cadence of the next trend in the US?
A few points on the current economic data:
- Food prices have tumbled 40% since their peak in the summer of 2012
- Crude oil prices have tumbled 72% from an average of $111.67 in 2012 to an average of $31.00 per barrel in Jan 2016
- Interest rates on 30 year mortgages are at historic lows
- The US Dollar has strengthened by 15% against the Euro from $1.30 in 2012 to $1.10 in January 2016, which makes US manufactured and exported products more expensive to the European customer. However, in 2012 European Union GDP grew by 0.5% and over the second half of 2015 it grew by 1.8% – could the exchange rate strength, be offset by higher GDP in Europe? Perhaps – US exports to the EU were $265B, $262B, $276B and $273B for each year from 2012 to 2015 – not what the theorists would have predicted with a substantial increase in the USD to the Euro
- Total Exports have represented approximately 13.5% of GDP from 2012 through 2015
- According to the University of Michigan, the Consumer Sentiment Index continues to be above 90 through the fourth quarter of 2015 and into January 2016
We do not believe that the global issues rattling the economy will have a substantial impact on main street USA in the medium term. We see economic global warming gathering steam from the psyche of the U.S. consumer, powered by low gas prices, lower grocery prices and low housing interest rates. Furthermore, we believe that millennials have started to accumulate cash and are considering purchasing homes. We also believe this positive development will be muted somewhat by boomers who are now retiring to the prospects of lower returns (i.e. retirement spending money) on their life’s work.
See full newsletter here.