There are many reasons why one could try to argue that a decent recession is on the way in the US; the economic engine room of the world.
I, though, like many others, have been surprised at the resilience of the US consumer and the relative strength of their economy. It has been a feature of the last 15 years that the US Consumer has pulled the world through moments of worry on the economic front. It seems, from the performance of shares recently, that the world thinks they will do so again.
Whilst we can all take some comfort from this current “soft-landing” narrative, I also have to say that the voice in my head is ringing all sorts of alarm bells. The reason for this is that I have discovered recently that there is a half decent explanation for the resilience of the US consumer which I am not seeing reported in the papers.
Specifically, I did not know that the COVID Employee Retention Tax Credit, brought in by the US Government in 2020, is still delivering the goods to US companies. Apparently, even though it expired in September 2021, qualified businesses can still file paperwork retroactively and receive claims throughout 2023. Employers receive up to $26,000 per employee. Tax refunds were $30 billion in just the last month!
That inner voice of mine wonders if US employers will be quite so committed to their employees when they actually have to start paying for them again? At a time of work from home and much reduced occupancy, (I was in Boston recently and heard the shattering statistic that CBD office occupancy is still perhaps only around 30%) the potential for large scale lay-offs is not going to help a market struggling to find its feet.
This tax credit also goes a small way to explaining why the US deficit continues its upwards spiral. Another shocking revelation was that the US has added as much debt in the last four years as it has done since its inception! The numbers are staggering.
Those pieces of information suggest to me that it is time to be even more thoughtful about where and how to invest one’s money. Despite plenty of evidence that passive investment strategies out-perform active management over the long term – I normally argue that unsophisticated investors should stick with long term trackers rather than active managers – as a professional investor, I now reflect that I might rather be invested with active managers in these times of great uncertainty when one might want them to be able to move my money quickly.
For the reasons given, the active manager in me, for the first time in years, feels that the UK might well outperform the US over the coming 18 months. Time, therefore, to have a careful look at the UK which looks as well placed to me as it has done for some time. Ironic really, when the media positions the UK so negatively.
