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| Adrian Mastracci, president of KCM Wealth
Management, says "In the meantime, the short answer is
to ensure that the investment portfolio can ride out the big
storm if one develops." |
For Immediate Release
Vancouver, BC (July 15, 2002): Our consumer colleagues
in the US have been shouldering considerable financial burden in
their quest to keep the US economic engine from stalling. One that
represents over half of the total global economy.
US consumer spending has remained strong in virtually all sectors.
Especially the contribution from consumers of the younger generation.
All this, in the face of unfriendly stock markets.
Let's examine some recent US economic data (dollar figures in US
funds):
- To everyone’s surprise, the May 2002 consumer credit
increased a hefty $9.5 billion to a total of almost $1.71 trillion.
This approaches a record 7% annual growth rate. Purchases included
automobiles, clothes, appliances, electronics and vacations.
- Just as interesting, consumers incurred these credit
increases in the face of a 0.9% drop in the May 2002 retail sales.
- The total US retail sales in June 2002 increased 1.1%.
Excluding automobiles, retail sales only increased 0.4%. Yes,
the love affair of visiting automobile showrooms continues while
the incentives are plentiful.
- The Michigan consumer sentiment for July 2002 declined
to 86.5 from 92.4 in June. The street had been expecting a sentiment
around 93.
- In addition to the consumer debt, the average US family
unit is also shouldering nearly a $67,000 slice of the Federal
debt. Not to mention state and local borrowings.
Those resilient US consumers are doing their very best to keep
the economic engines fired up. Approximately two-thirds of US economic
activity is driven by consumer spending, which in turn is driven
primarily by employment.
The immediate concern is how long consumers can keep fuelling the
economy. Therefore, investors coping with fear worry about various
scenarios for the US economy:
- After-tax wage gains are unlikely to cover the payments
incurred for new borrowings.
- Credit card interest of 18% catching up to consumers
who make minimum payments.
- More personal and business bankruptcies occurring if
interest rate increases materialize.
- Automobile purchases slowing down when the 0% incentives
fade away.
- Current economic results may mean that we’ve borrowed
from future economic activity.
- Consumer jitteriness increasing as the bear markets continue
to shave investments.
- Confidence that companies need to hire staff continuing
at low levels.
- Prospects of a double dip recession surfacing if consumer
spending slows down.
- Longer US Federal deficits placing upward pressure on the Federal
debt and interest rates.
Adversities such as workforce reductions, slow wage growth, rising
interest rates and tattered retirement nest eggs weigh heavily on
consumers. They spend money when they are employed and have confidence
in retaining their jobs.
Thanks to consumers, the US economy has moved out of the intensive
care unit. The remedy of a strong spending partnership between confident
consumers and businesses would be very welcome news to sustain the
fragile economic recovery.
In the meantime, the short answer is to ensure that the investment
portfolio can ride out the big storm if one develops. Three areas
come to mind:
- Pick the stocks and funds only after constructing the
investment plan.
- Handle investment losses quickly and don’t let
them run away.
- Know the investment profile and resist the temptation
to invest outside of it.
Clearly, some challenges still lie ahead. However, the marathon
of money management does not have to be complicated.
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