(May 1/ 2017)
US GDP Figures Cause Some Concern
Data out on Friday showed that the economy in the US grew at its slowest pace in three years during the first quarter of 2017 – although not everyone agrees on the accuracy of the data. According to the official government data the US economy grew at an annualized rate of 0.7% in the first quarter, which is significantly below the 2% annual growth we’ve seen over the past five years or so. However, bear in mind that previous years have also recorded a weak first quarter, with faster growth in quarters later in the year making up for it (the government agency responsible has acknowledged that there are seasonal errors in its methods). With several other economic indicators suggesting that growth was more robust than 0.7%, investors aren’t getting too nervous yet.
What Does This Mean?
The bigger picture: There is a good sign on the horizon - Spending by businesses picked up
Spending on “business investment”, which means things like building new factories or buying new equipment, rose at its fastest pace in three years. It is particularly important to see investments of this kind, because it can lead to a longer-term improvement in economic growth: better machinery leads to more efficient production and, therefore, improves the performance of the economy for years to come.
For the markets: Consumer spending is very questionable currently.
About two-thirds of economic activity in the US is based on consumer spending and it barely increased in the first quarter. Part of this was likely due to one-off factors, like the unusually warm winter causing a drop in spending on heating and Americans’ tax rebates coming later this year. But weakness in auto sales and poor recent results from big consumer-facing companies, like Johnson & Johnson, suggest that problems with the US consumer may be more severe. In the coming months it will be a crucial area to watch as investors attempt to judge the real rate of economic growth in the US.
The Slippery Story of Oil?
Two of the biggest oil companies in the world ExxonMobil and Chevron, both reported their quarterly financial results on Friday – and both announced a huge increase in profits relative to last year thanks to the rise in the oil price. Oil prices hit their lowest level in more than a decade during the first quarter of 2016 . Since then, the oil price has almost doubled and so it should be no surprise that profits at oil companies are moving much higher as well. Exxon managed to double its profits versus a year ago and Chevron, which at that time was losing money, made almost $3 billion of profit. While the higher oil price has certainly helped, huge cost cuts by the companies have also played a part.
What Does This Mean?
For the markets: The biggest risk for Oil companies is the precariousness of the oil price.
The agreement by OPEC (a group of oil-producing states) to limit its production (and less supply typically leads to a higher price) was probably the major reason that oil prices rose over the past year. This deal is set to expire soon, and it may not be extended. Without a new OPEC deal that keeps the supply limitations in place, the oil price is at a greater risk of a significant selloff, which would put a big dent in oil companies’ recoveries.
The bigger picture: More and more money is being borrowed by Oil companies.
Typically the major oil companies pay their shareholders a relatively large annual cash payment (i.e. a dividend). However, for the past few years, they’ve had to borrow more money in order to maintain such high dividends. With profits back on track, they shouldn’t have to keep increasing their borrowing at the same rate. However it has still made oil companies a riskier investment: if their profits fall, they are likely to borrow more and/or to lower their dividend payments. A large investment of the movement of a dollar or two can bring huge capital gains at the right time. Clients who are interested to join our group VIP trades feel free to contact me and I will keep you posted so you can be in the right time and the right place.
Still a Long Way to Grow
We spoke last week about Google and Alphabet surpassing investors’ expectations. A client of mine asked me when I felt this market would be saturated? I believe that although large tech companies like Alphabet (which owns Google) and Amazon have become giants, there is still a lot of room for them to grow. This is simply due to the inventiveness of new tech products that give birth to new libraries and content manufactures of these new technologies.
Interestingly enough, Amazon only accounts for about 4% of total shopping in the US and, while Google is already a big player in digital advertising, the digital advertising market is still growing at a significant rate (digital ad spending grew 20% in the US in 2016 versus 2015). Also, these big tech companies are diversifying into other products, like streaming content (Amazon) and driverless cars (Alphabet) – which provide other opportunities for them to grow.” In short there is still a long way to grow.
Investments Safer Than Savings
Banks are Banking on Wall Street
Remember when you could put your savings in the Bank and it would earn you enough interest to live on? Those days are long gone. With the drop of interest rates globally some banks are now banking on Wall street. Banks whose commodity is capital have always re-invested the capital of their clients and earn much of their profits through loans. Because there is less payout to clients today the surplus of capital Banks are investing on Wall Street. The problem is that although the Banks are enjoying these new profits, they do not filter down to their clients.
GSI has a retirement fund that beats any Bank with a 300-500% return over a three year period. We simply do what the Banks do however our clients work in partnership with us so as first end users they benefit directly from our collective profits. If that's not attractive enough, clients that refer others earn an additional compound interest of 20% on each referral. Our collective retirement funds not only beat the Banks by far, but we offer a security and low risk factor that Banks cannot guarantee.
'I can't express in words how satisfied I am with GSI', said former Bank employee Richard Stewart. "I worked for 30 years in investment banking and never would have dreamed that I would put my savings into this type of investment plan. I know only too well, that even with the many perks I may have from my former workplace they do not come close to the secure rewards I have seen proven to me time and again at GSI. Within less than three years my initial $100,000 has earned over $300,000. In addition the three associates that I referred brought me another $100,000 collectively. There is no way I could have earned this type of profit from my former Bank."
If you are currently working with GSI or have associates that are looking for a serious retirement fund that can put your mind at ease contact me for more details.
Feel free to contact me here with any questions or concerns.