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Economy Trends In US and China – Observations

Aug 31, 2016

Whilst the United Kingdom battened down the hatches and reduced its interest rates by a quarter percent this month, the European economy continues to struggle and China has its own declining economy to contend with, the United States is discussing an increase in the Federal Interest rates due to numerous positive economic factors including increases in property values, increased spending, reduced unemployment figures, and continued job growth.

The increased confidence model that U.S. policies have driven has been self-perpetuating in such a positive way. Although the existing confidence issue and no doubt upcoming economic problems in the UK will have some negative impact on the U.S., this month the one-month Libor (a measurement of the cost for banks to lend money globally) rose to 0.52217%, its highest since March 2009, while the six-month Libor climbed to 1.229%, its highest since June 2009. The three month Libor, which is the main benchmark for the majority of financial transactions worldwide, fixed at 0.82544 percent for three days straight, also a high. The U.S. has the benefit of perceived stability for foreign and domestic investment and that strength will outshine the Brexit wave.

You also have to factor oil prices into the equation, which saw a slight decline at the end of 2015 but have now been at an all-time low for such a time now that they are no longer a big story. This is actually good news, because if they stabilise at $40-55 U.S. per barrel for long enough, it will become the norm and stability will ensue.

The U.S. has also weathered the China downturn bubbling away pretty well. Even with such a close trade partner, the U.S. is finding ways to combat the impact of this on its own economy. I believe this factor is all due to how it dealt with the economic crisis of 2008 and this has held the country in good stead for these other external factors. If you are an avid reader of my blogs you will remember the piece I wrote on how the U.S. had handled their economic policies after this crisis and the difference between that and the harsh austerity measures used by many other countries including the UK.

And now we see the latest labor statistics for the U.S. smashing my point home. Confidence means more money and innovation, which results in more staff requirements and a healthier economy. An addition of 459,000 jobs to the U.S. economy in the months of June and July of this year shows real signs that the economy is healthier.

Arizona looks to top the list for job growth over the next three years with Nevada and Florida following close behind. This may be due to the hit that these three states took in the last eight years after the banking crisis of 2008, leaving them plenty of room to rebound. I believe in stability of a state over rapid growth due to such external economic factors having such an impact on your investment for which you are helpless to do anything about after the event. I believe it’s best to diversify your portfolio over different areas and look for states and cities that have the best resilience against adverse market conditions; states like Minnesota and New York come to mind for optimal investment opportunity.

Of course, as a director of an alternative U.S. property investment fund I am biased toward such offerings. But you have to ask yourself why, after all the due diligence I conducted over the many years in this industry, did I pick the U.S. real estate marketplace to spend my clients’ and my own money? The reason for this comes from clear facts and figures after the financial crisis. The individual nature of the different states within the U.S. gives you an opportunity to diversify your portfolio and protect your investment. Around every corner there is an outside influence ready to take your investment dollars from under you; because of this you must conduct your own due diligence and be prepared to battle unforeseen outside influences beyond your control. There isn’t a country in the world that has as much data published as the U.S. on both a macro and micro economic basis. This allows you to make more informed decisions, which should give you confidence in your investments.