David Ramsay, Founder & CEO of Income Solutions
Income Solutions Pty Ltd, Authorised Representative, GWM Adviser Services Limited trading as Garvan Financial Planning, Australian Financial Services Licensee
I have been following Nick Murray for over 30 years, and he recently wrote an interesting article about the impact the “Trump Bump” has had on the US economy and it is very hard to argue with such clear and concise data.
Isn’t it funny, the power the media has on our society, they sell us doom and gloom on a daily basis, particularly when it comes to the finance sector, and we tend to believe them and follow their advice day-in day-out, very rarely checking the facts. Now I’m not here to rant about the media, but I am here to give a bit of perspective, and with the help of Nick Murray, break down some facts and figures.
The stats in his June newsletter really caught my eye and I have compiled a list of what I feel are the most relevant and interesting bits and pieces from this article.
Unemployment
- U.S unemployment rate in April was 4.4% – down from 9.9% in April 2010
- Part-time workers are increasingly able to find full-time work
- Labour force participation rate is on the increase
Now isn’t that a great news story, this tells me that more people are working, they are happier and they are building their legacy. This also says to me that industry is booming, people are making more money, but they are also investing that money back into the economy.
Household Net Worth
- In 2007 (pre-recession) the U.S household net worth peaked at $68 trillion
- In the first quarter of 2017 this figure is over $95 trillion
Currently, “both single-family home values and financial assets making new all-time highs.”1 This figure astounds, as not only is it at an all-time high, it is set to exceed this peak by half as soon as the end of the year!
Debt Service Ratio
Nick also states that the “household debt service ratio – that is, household debt service as a percentage of disposable income – was a mere 10%, a level it has not seen since at least 1980.”1 So it looks like it’s not all doom and gloom in the finance sector as the media would have you believe, Americans are doing better than ever!
Corporate Cash
- Corporate cash as a percentage of a current assets remains around 30%
- This is twice what it was heading into the stock market collapse of 2000
Bank Reserves
- Banks excess reserves stand at around $2.5trillion
- The morning after the Lehman Brothers bankruptcy in September 2008 bank excess reserves were at zero
So, what does this mean? Essentially, these corporations and banks are making money, but they are hoarding this cash on their balance sheets.
S&P 500
- The 2017 earnings estimate is at $131
- The 2018 earnings estimate is currently at $147
Both figures will be records for the S&P 500, which is incredible as there was significant pause due to the global oil depression, but these new figures show that corporate earnings are now surging.
“Combining elements of points above, we may observe that never in American economic history have the balance sheets of banks, corporations and households been simultaneously stronger.”1
What does this mean for Australia?
Well, no one can really forecast what the market will do, and in the short term it is hard to predict what impact these results will have on the Australian economy. However, if we are looking long term and we take historical data into account, it shows that the Australian and U.S markets typically move in positive correlation to each other. Now, I’m not saying this will be the case but from where I sit it these figures do look promising.
- Murray, N. (2017). Nick Murray Newsletters. [online] Nickmurraynewsletters.com. Available at: https://www.nickmurraynewsletters.com/ [Accessed 27 Jun. 2017].
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