Salient to Investors:
Joseph Carson at AllianceBernstein said:
- Household finances are in the best shape in decades, and the US is entering a new, stronger growth phase as healthier finances revive borrowing, spur consumer spending, generate business investment and jobs.
- Household wealth measured by net worth rose to $70.3 trillion in Q1, up almost $20 trillion from its recession low.
- The two-quarter average for the financial-obligations ratio was 15.2 percent in March, matching the lowest since at least 1980.
- Household liquid assets rose by $10 trillion in the past 4 years, and the ratio of coverage for liabilities is 2.43, the highest since 2000.
Credit demand and supply have been slow to recover because the housing rebound was delayed, unlike after most recessions, but home sales are rising, foreclosures have waned and banks are more willing to lend against an asset that’s gaining value.
The rebound in housing and employment needs to be sustained for credit to pick up.
All the easy monetary conditions won’t work if the consumer does not take advantage of credit and banks are not willing to lend.
James Paulsen at Wells Capital Mgmt said:
- The credit-driven cycle is good for investors and could help the S&P 500 to double-digit gains in 2014 after an advance of as much as 20 percent in 2013.
- Financials like banks will continue to outperform as they are at the heart of the credit-creation process, which is becoming noticeable.
- Industrial, materials and tech stocks are attractive.
- Consumer cyclicals have less room to rise after outsized increases, but if unemployment falls close to 6 percent, expect a lot more demand for credit and spending.
The improvement in borrowing and lending is not yet strong enough to get front-page coverage
We won’t get another bubble economy or Gekko environment.
Keith Leggett at the American Bankers Association said bank-card delinquencies in Q1 were the lowest since June 1990, and said we are on the cusp of a trend toward more risk-taking, with consumers becoming a bigger contributor to economic growth.
Michelle Meyer at Bank of America said property prices may jump 11.8 percent in 2013 after climbing 7.3 percent in 2012, and mortgage debt as a share of disposable income will continue to fall. Meyer said consumers will provide a bigger lift to consumption over time as the housing recovery helps to heal households’ balance sheets.
Barry Bosworth at Brookings said Americans said the Fed may keep the federal funds rate near zero until 2015.
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