The US: wanted dead or alive
Filed under: Investing
The death of America was grandly proclaimed. Investors were advised to steer clear.
Death becomes her
At the start of this year, the patient was discovered alive. In January, GDP growth forecasts were revised upwards to 2.3%, a figure that left Europe trailing. In February, the US created 240,000 new jobs, the fourth month in a row that figure had topped 200,000. There was also a big step forward for the US housing market. Industry was coming back as China became more expensive. The phrase onshoring was coined.
All the data delighted on the upside.
The country still owed $15.8 trillion and Washington remained gridlocked, but the Yanks were in recovery mode and even promised to jolt the rest of us out of our lethargy.
Rumours of its death had been greatly exaggerated. Investors were advised to pile in.
God bless America!
Remember how stock markets and banking stocks greeted 2012 with a euphoric bang? The memory is somewhat tarnished now, and so is the US rebound.
Revised US GDP data showed 1.9% growth in the first quarter, down from the estimated 2.2%. The US jobs market recovery stalled in March, creating just 120,000 jobs, backfired in April (115,000 jobs) and ran out of road in May (69,000 jobs).
Consumer confidence has just hit its lowest level since January, despite falling gas prices.
The data no longer delights. What goes down can go up, and then down again.
Worse lies ahead, in the shape of that looming fiscal cliff, a combination of tax hikes and spending cuts worth 4% of GDP that's due to hit the US on 31 December. Some analysts claim it could do more damage to the global economy than the eurozone car crash, dragging the rest of us back into recession.
And now the Organisation for Economic Co-operation and Development (OECD) has warned that raging US income inequality and relative poverty isn't just socially damaging: it is also harmful to economic growth.
America is often called a land of extremes. The data certainly points that way. But should you invest in it?
The US may be on the verge of celebrating Independence Day but, as Paul Atkinson, manager of Aberdeen's North American Income investment trust, points out, it is highly dependent on the global economy. "S&P 500 companies derive over 40% of their business from overseas markets. The financial turmoil in Europe and any notable deceleration of growth in China could have an adverse impact on US corporate profitability."
The US also has plenty of problems at home, including high unemployment, stagnant wage growth and an uncertain housing recovery, Atkinson says.
Cash, glorious cash
But there are also plenty of positives. The US has enough shale gas and oil to become self-sufficient in energy. Falling petrol prices could kick-start the US consumer. The dollar remains the world's reserve currency. Birth rates are health and its technology industry is the most innovative in the world.
When the crisis eases and they really start working that cash, the economy could motor. You might have to be patient, though.
I've been buying bits of America, using the low-cost HSBC American Index tracker, which has a total expense ratio of just 0.27%. You might prefer a global behemoth like Apple (NAS: AAPL), Coca-Cola, Google (NAS: GOOG), McDonald's or Pfizer.
If you're investing for the long term, now is a good time to get a piece of the US. If its stock markets do fall off a fiscal cliff at the end of the year, that would be an even better time.
The US is a unique investment opportunity: wanted dead or alive.