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Gen Z Is Spending At 125% Of Pre-Covid Levels, Amex CEO Says

Gen Z Is Spending At 125% Of Pre-Covid Levels, Amex CEO Says

No sooner did we just get done detailing how the time to build wealth was passing millennials by quickly than we find out that Gen Z is also doing everything they can to prevent…

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Gen Z Is Spending At 125% Of Pre-Covid Levels, Amex CEO Says

No sooner did we just get done detailing how the time to build wealth was passing millennials by quickly than we find out that Gen Z is also doing everything they can to prevent themselves from building wealth.

Notably, they're spending themselves into oblivion, a new Bloomberg report notes.

In fact, Gen Z is spending more now than they were before the pandemic. This is notable because Gen Z has less saved than older Americans, the report notes, meaning the increased spending likely hits their ability to build wealth over the long term harder than it would for other generations.

American Express Co. Chief Executive Officer Steve Squeri said on Friday: “We assumed there was such pent-up demand -- not only for travel, but such a pent-up demand for consumer goods -- that the U.S. recovery would be like it is right now.” 

Squeri

He continued: “When you look at your millennials and your Gen Zs right now,” they’re at “125% spending of what their pre-Covid levels were in 2019.”

The spending has been a boon for American Express, despite the company believing that corporate travel still won't return to pre-pandemic levels until 2023. 

And to the extent that there is still a small space where the company can offer credit to literally anyone with a shred of a credit score, the company said it was considering a debit card - a risk for a company whose prestige and brand name carry its weight with its customers.

“It really didn’t work for us -- the unbanked was really not our customer, and the prepaid market was not our customer, and we learned that,” Squeri said. “But is there something in between our everyday credit card and the prepaid card? And that potentially could be a debit card. That all needs to be worked out.”

While AMEX figures out ways to plunder new customers, its worth recalling that we recently noted how millennials have also spent themselves into oblivion. 

We wrote that the Covid recovery could be the last chance for those around the age of 40 to build the wealth they will need for their later years.

Most millennials, instead of basking in an incredible recovery and acutely focusing on re-bulding (or building for their first time) their finances, feel like 40 year old Kellie Beach, a real-estate attorney. She rode out the pandemic like most Americans: “I stayed afloat with credit cards. I was just used to swiping and overspending.”

Now that the government dole is running out and the Covid scapegoat is working its way (albeit, slowly) out of the discourse, it has become clear that it's time to pay closer attention to her finances. She told Bloomberg: “Now I have this feeling — like this fire — of urgency. I’m not going to be in this place again. I can’t wait to get out of this debt. I can’t wait to save up for my emergency fund and invest again.”

40 year old Dustin Roberts was similarly situated - he had $38,000 remaining in student debt when finally put together what he could to buy his first house in April.  

He said: “My dad had always tried to tell me how important it was to buy a house, how that was a mode of financial security for him. I’m making more than my dad did, but am I better off? I don’t know that I can say yes.”

Millennials were 27 years old when Lehman went bankrupt and are now about 40 years old coming out of the Covid crisis. They have ridden out two major recessions during peak saving and investing years, the report notes. William Gale, senior fellow in the Economic Studies Program at the Brookings Institution said: “The Great Recession knocked everyone for a loop. It caused unemployment. It caused slow wage growth. It made it harder to accumulate wealth.”

Like Roberts, more millennials borrow to finance college that previous generations. "Millennials, who started college in 1999, paid an average of $15,604 per year for undergraduate tuition, fees and room and board," Bloomberg wrote. "When Gen Xers and Baby Boomers started college, that number — adjusted for inflation — was about $10,300 for each of them."

40 year old Summer Galvez went to Clark Atlanta University in Georgia for a couple of semesters before pulling out because it cost too much. She now "relies on her own skills and hustle," working two jobs and still paying off loans from 20 years ago. 

“There are always economic factors that could happen that could just really upend your life,” she said.

Lowell Rickets, data scientist for the Institute for Economic Equity at the Federal Reserve Bank of St. Louis commented: “That’s one of the stark evolutions of the job market, where education has become a greater predictor of success.” 

Buying homes has been a scramble coming out of the pandemic, forcing prices higher and contributing to why millennials have a lower home ownership rate than previous generations at the same point in their lives: 61% for millennials versus 68% for Gen Xers and 66% for baby boomers. 

Millennials pay a median of $328,000 for homes while boomers only had to pay $216,000, the report notes. 

Richard Fry, a senior researcher at Pew Research Center, noted: “The basic way that middle American households build wealth is through their homes. Millennials have been less likely to be homeowners. Fewer of them have begun the process of building home equity.”

Tyler Durden Mon, 06/07/2021 - 05:45

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Economics

Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens…

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Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens of local businesses threatened the new city government, run by Mayor Brandon Scott, to not pay taxes because they're "fed up and frustrated" with the outburst of violence. 

Last week, 37 restaurants and small businesses sent a letter to the mayor's office titled "Letter to City Leaders From Fells Point Business Leaders." They threatened to stop paying city taxes and other fees until "basic and essential municipal services are restored." This comes as Madam State's Attorney Marilyn Mosby halted petty crimes during the pandemic and made such a measure permanent - the idea was to decrease violent crime, but that seems to have severely backfired.

What's happened in the historic bar strict is absolute mayhem at night, transformed into a dangerous area where violent and rowdy crowds have ruined the once pleasant atmosphere along with multiple shootings. 

So this weekend, BPD closed down streets around Fells Point, which includes parts of Aliceanna, Thames, and Bond streets.

In addition, Maryland State Police will conduct sobriety checkpoints in Fells Point. 

Local news WJZ13's Mike Hellgren tweets a couple of images of the increased police presence across Fells Point.

One of the 37 concerned business owners on the list is Bill Packo, who owns Barley's Backyard and has been operating in Fells Point for three decades. He spoke with WJZ13 about the out of control violence and public drunkenness:

"It's a shame. What they're letting happen to Fells Point is what they let happen in the Inner Harbor, and now it has made its way here," Packo said. "There's alcohol being sold by individuals out there, drugs, and clearly we all know about the shootings that took place last weekend. But there needs to be some control out there. There is none whatsoever."

BPD's mobile police command was spotted outside another shop in the bar district. It looks very dystopic. 

Meanwhile, Scott, who was newly elected, skipped out on the virtual community town hall meeting on Thursday at 7 p.m that was to address the issues in Fells Point. 

Packo called out Scott for not attending the meeting: 

"It's an embarrassment to the city. It's an embarrassment to the mayor no matter what the schedule was," he said.

Again, as we've said before, the chaos in Fells Point comes as the city descends into what could be the most violent period ever. Mosby has halted police officers going after petty crimes that have inadvertently backfired. Another liberal-run town with good intentions in policies not exactly panning out as they thought. 

Local news WMAR2's Eddie Kadhim interviewed a man who summed up the city's response in Fells Point: 

Another man said the violent crime in low-income neighborhoods is just spilling over into the downtown area. 

Tyler Durden Sat, 06/12/2021 - 15:00

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Visualizing The History Of US Inflation Over 100 Years

Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate..

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Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate since 2015. By comparison, inflation sits around 5.0% as of June 2021.

Given how the economic shock of COVID-19 depressed prices, rising price levels make sense. However, as Visual Capitalist's Dorothy Neufeld notes, other variables, such as a growing money supply and rising raw materials costs, could factor into rising inflation.

To show current price levels in context, this Markets in a Minute chart from New York Life Investments shows the history of inflation over 100 years.

U.S. Inflation: Early History

Between the founding of the U.S. in 1776 to the year 1914, one thing was for sure - wartime periods were met with high inflation.

At the time, the U.S. operated under a classical Gold Standard regime, with the dollar’s value tied to gold. During the Civil War and World War I, the U.S. went off the Gold Standard in order to print money and finance the war. When this occurred, it triggered inflationary episodes, with prices rising upwards of 20% in 1918.

However, when the government returned to a modified Gold Standard, deflationary periods followed, leading prices to effectively stabilize, on average, leading up to World War II.

The Move to Bretton Woods

Like post-World War I, the Great Depression of the 1930s coincided with deflationary pressures on prices. Due to the rigidity of the monetary system at the time, countries had difficulty increasing money supply to help boost their economy. Many countries exited the Gold Standard during this time, and by 1933 the U.S. abandoned it completely.

A decade later, with the Bretton Woods Agreement in 1944, global currency exchange values pegged to the dollar, while the dollar was pegged to gold. The U.S. held the majority of gold reserves, and the global reserve currency transitioned from the sterling pound to the dollar.

1970’s Regime Change

By 1971, the ability for gold to cover the supply of U.S. dollars in circulation became an increasing concern.

Leading up to this point, a surplus of money supply was created due to military expenses, foreign aid, and others. In response, President Richard Nixon abandoned the Bretton Woods Agreement in 1971 for a floating exchange, known as the “Nixon shock”. Under a floating exchange regime, rates fluctuate based on supply and demand relative to other currencies.

A few years later, oil shocks of 1973 and 1974 led inflation to soar past 12%. By 1979, inflation surged in excess of 13%.

The Volcker Era

In 1979, Federal Reserve Chair Paul Volcker was sworn in, and he introduced stark changes to combat inflation that differed from previous regimes.

Instead of managing inflation through interest rates, which the Federal Reserve had done previously, inflation would be managed through controlling the money supply. If the money supply was limited, this would cause interest rates to increase.

While interest rates jumped to 20% in 1980, by 1983 inflation dropped below 4% as the economy recovered from the recession of 1982, and oil prices rose more moderately. Over the last four decades, inflation levels have remained relatively stable since the measures of the Volcker era were put in place.

Fluctuating Prices Over History

Throughout U.S. history. there have been periods of high inflation.

As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

It is measured as GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100.

According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Between 1914 and 1918 money supply doubled to finance war efforts, compared to a 25% increase in GDP during this period.

U.S. Inflation: Present Day

As the U.S. economy reopens, consumer demand has strengthened.

Meanwhile, supply bottlenecks, from semiconductor chips to lumber, are causing strains on automotive and tech industries. While this points towards increasing inflation, some suggest that it may be temporary, as prices were depressed in 2020.

At the same time, the Federal Reserve is following an “average inflation targeting” regime, which means that if a previous inflation shortfall occurred in the previous year, it would allow for higher inflationary periods to make up for them. As the last decade has been characterized by low inflation and low interest rates, any prolonged period of inflation will likely have pronounced effects on investors and financial markets.

Tyler Durden Sat, 06/12/2021 - 19:00

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Visualizing The Biggest Companies In The World In 2021

Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021,…

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Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021, up 48% year-over-year. As a point of comparison, the combined GDP of the U.S. and China was $35.7 trillion in 2020.

In today’s graphic, Visual Capitalist's Jenna Ross uses PwC data to show the world’s biggest businesses by market capitalization, as well as the countries and sectors they are from.

The Top 100, Ranked

PwC ranked the largest publicly-traded companies by their market capitalization in U.S. dollars. It’s also worth noting that sector classification is based on the FTSE Russell Industry Classification Benchmark, and a company’s location is based on where its headquarters are located.

Within the ranking, there was a wide disparity in value. Apple was worth over $2 trillion, more than 16 times that of Anheuser-Busch (AB InBev), which took the 100th spot at $128 billion.

In total, 59 companies were headquartered in the United States, making up 65% of the top 100’s total market capitalization. China and its regions was the second most common location for company headquarters, with 14 companies on the list.

Risers and Fallers

What are some of the notable changes to the biggest companies in the world compared to last year’s ranking?

Tesla’s market capitalization surged by an eye-watering 565%, temporarily making Elon Musk the richest person in the world. Food delivery platform Meituan and PayPal benefited from growing e-commerce popularity with their market capitalizations growing by 221% and 151% respectively.

Tech companies TSMC and ASML Holdings were also among the top 10 risers, thanks to a shortage of semiconductor chips and growing demand.

On the other end of the scale, Swiss companies Nestlé, Novartis, and Roche Holding were all among the bottom 10 companies by market capitalization growth. China Mobile was the only company to decline with a -12% change. The company was delisted from the New York Stock Exchange as a result of an executive order issued by former president Donald Trump, and recently announced its intention to list on the Shanghai Stock Exchange.

A Sector View

Across the 100 biggest companies in the world, some sectors had higher weightings.

Technology had the highest market capitalization and was also the most common sector, with Big Tech dominating the top 10. Companies in the consumer discretionary, financials, and health care sectors also had a strong representation in the ranking.

Despite having only five companies on the list, the energy sector amounted to almost 10% of the top 100’s market capitalization, mostly due to Saudi Aramco’s whopping valuation.

An Uncertain Recovery

From near market lows on March 31, 2020, all sectors saw increases in their market capitalization. However, top 100 companies in some sectors outperformed their respective industry index, while others did not.

Basic materials and industrials, both cyclical sectors, were high performers in the top 100 and outperformed their respective industry indexes. Technology companies also outperformed, and accounted for $255 billion or 31% of all shareholder distributions by the top 100, far more than any other sector. Apple alone spent $73 billion on share buybacks and $14 billion in dividends in the 2020 calendar year.

On the other hand, the worst-performing sectors in the top 100 were health care, utilities, and energy. While the index performance for health care and utilities was also relatively poor, the wider energy sector performed fairly well.

It’s perhaps not surprising that all sectors saw positive returns since their low levels in March 2020, buoyed by fiscal stimulus and central bank policies. As countries begin to reopen, will the value of the biggest companies in the world continue to climb?

Tyler Durden Sat, 06/12/2021 - 23:00

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