Record consumer debts, large investors bought the dip and Dutch production has been falling for a year

In this week's selection, we look at the record debts of American consumers. Both credit card debt and total consumer debt peaked and may now point to economic cooling. We also see that the production figures of the Dutch manufacturing industry continue to be disappointing. In addition, we saw last week that the big players in the financial markets bought the dip and Warren Buffet owns more government bonds than the US central bank (Fed). Of course, we have some interesting charts to show.

U.S. household debt breaks records.

A recent report by the Federal Reserve Bank of New York shows that U.S. consumers are now earning a record amount of $1.14 trillion in credit card debt. This is an increase of 5.8 percent compared to last year. Credit card default rates were also higher, especially among younger adults and renters, who have likely been hit harder by the pandemic, according to the New York Fed.

Credit card debt US (source: CNBC)

According to a recent research 57% of U.S. consumers rely on credit card debt to cover the cost of their monthly expenses. This is despite the fact that the average interest rate on credit cards has recently stood at more than 20 percent, partly due to previous interest rate hikes by the Fed. The average credit card debt per consumer is now $6,329, an increase of 4.8% compared to last year.

The total level of debt of U.S. households alley in the second quarter by $109 billion (0.6 percent), to $17.8 trillion. To give you an idea: that is more than 17 times the Dutch economy and more than 66% of the American economy. The bulk of the debt is mortgages, which increased by $77 billion to a total of $12.5 trillion. Auto loans also increased by $10 billion.

Total household debt in the US (source: New York Fed)

U.S. consumers are reaching the limit of their debt burden. Consumer credit growth appears to be slowing down. Although total credit card debt reached that all-time high in the second quarter, the monthly figure in June unexpectedly fell by $1.7 billion from May. This is the biggest month-on-month decline since the Covid crisis. This can be a indication for an imminent Economic downturn. In addition to record-high credit card debt, the percentage of household disposable income that is saved rather than spent is at a record low of 3.4 percent. This points to increasing financial pressure on consumers.

About 9.1 percent of credit card debts are delinquency because payment obligations were not met on time. For car loans, this is 8 percent and mortgage defaults have also risen, although the latter remains relatively low.

Default by type of debt US (source: New York Fed)

Output in the Dutch manufacturing industry has been declining for a year

Last week we wrote about disappointing figures regarding industrial production activity in the US, today we came to the Statistics Netherlands (CBS) with Dutch figures. In June 2024, Dutch manufacturing output fell by 4.9 percent compared to June 2023. This is the twelfth consecutive month of contraction. During the pandemic in May 2020, our industry's production hit rock bottom. After that, an upward trend started until May 2022. Since then, the trend has reversed again as the competitive position of Dutch and European industry has deteriorated since the war in Ukraine. Read the article that we wrote about it earlier.

Production Dutch Industry (source: CBS)

Big players bought the dip

According to the Financial Times Major investment firms such as BlackRock, UBS, and Vontobel saw the recent stock market sell-off as an opportunity to secure cheap stocks. Institutional investors bought $14 billion worth of shares on Monday, according to JPMorgan. Hedge funds also pounced on U.S. technology stocks last Monday, with the biggest purchases in about five months, according to Goldman Sachs' prime brokerage. Semiconductor and software companies were the most sought after.

Purchases of hedge funds (source: Bloomberg)

"It's like seeing a designer bag you've always wanted, now at a 10% discount," said Max Gokhman of Franklin Templeton Investment Solutions. "It's still very expensive, but you can tell yourself it's a good deal."

UBS Global Wealth Management said on Thursday that technology stocks' fundamentals remain "solid" and that the sell-off presented an opportunity to increase exposure. 

Stephen Yiu, fund manager at Blue Whale Capital made "opportunistic" purchases of Nvidia on Monday at $95 per share. He questions the market expectations of a slowdown in AI and the critics who consider Nvidia to be a bubble and "overhyped". Yiu believes it's too early to conclude this right now and thinks AI will be groundbreaking.

Unlike the big players, many retail investors were unable to buy the dip. A large part of the U.S. Brokers experienced outages on their trading platforms on Monday, preventing retail investors from trading.

Not all major investors followed this strategy. Warren Buffett sold half of his stakes in Apple in the months before last week's decline. With the money freed up, Berkshire Hathaway bought U.S. government bonds (T-bills). The company's cash and T-bills increased from $189 billion in the first quarter of the year to $277 billion end of June. Berkshire now owns more T-bills than the Federal Reserve. Buffett's mountain of money is so huge that his company could buy McDonald's at its current share price and still have $80 billion left over.

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On behalf of Holland Gold, Paul Buitink interviews various economists and experts in the macroeconomic field. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.