Financial expert Jeff Yastine says that stock prices are going to rise in the months to come, but there is one thing that concerns him. That one thing is consumer debt. Consumer debt comes in the form of credit card debt, car loans and student loans, and all of these debts are going to have the effect of stamping an expiration date on the stock market’s rises, according to Yastine.
The credit card data site WalletHub.com conducted a study that found that Americans were carrying more than $1 trillion in credit card debt in the fourth quarter. Second, in the year 2017, Americans added more than $92 billion to their credit card debts. Third, the largest accumulation of debt in the last 30 years occurred in the fourth quarter of last year. That would be $67 million in credit card debt.
Those numbers are too large to contemplate and make sense of, so Yastine helped Americans see how these numbers relate directly to them. The numbers are showing that every average American household carries around $8,600 in credit card debt.
What does this mean for the average American?
According to Jeff Yastine, Americans can’t carry an unlimited amount of debt, and this lesson became clear in 2007. At that time, Americans were carrying large amounts of mortgage debt, so a similar situation is taking place now, but the debts are car loans, credit cards and student loans and not mortgage debt.
The Reaction of the Stock Market
The rumor is that the Federal Reserve intends to raise interest rates, and if this happens, America’s debt is going to continue to grow. Yastine is bullish when it comes to the stock market, and he believes that most stock prices will continue going up in the near future, but it is not likely to last.
Several things are going on at the present time that make stock market increases a real possibility. Economic activity seems to be increasing, and the Gross Domestic Product is expanding. There is also moderate inflation, deregulation, a soft dollar, tax cuts and an increase in government spending. Positive sentiment exists among the population, and all of these factors are likely to fuel an increase in the stock market.
Chances to Make Gains
Jeff Yastine has ideas on how Americans can make money while consumer debt is increasing, and he is certainly qualified to discuss this matter. Although he went to the University of Florida to study journalism, he made a name for himself by interviewing financiers, entrepreneurs and the top stock market experts. Some of these interviews were with Steve Ballmer, Sir Richard Branson, Michael Dell and Warren Buffet. He paid close attention to what these experts had to say, and he became a highly successful investor on his own.
As was mentioned above, the average American household is carrying $8,600 in credit card debt. According to WalletHub.com, this is $138 more than the amount experts believe is “sustainable.” In addition to that, Jeff Yastine has found that the only ones sounding the alarm bells over consumer debt are not just those at WalletHub. They can also be found at New York Federal Reserve Bank’s Center for Microeconomic Data. This entity performed its own study of the last quarter, and its results look a lot like WalletHub’s results.
These studies are telling Mr. Yastine that Americans are more burdened by debt than they were 10 years ago. The Federal Reserve Bank’s study showed that in the fourth quarter of 2017, consumer debt equaled $13.15 trillion. In 2008, debt peaked in the third quarter at $12.68 trillion.
According to Yastine, the amount of debt owed is not necessarily terrifying at this time. That is because there aren’t as many people falling behind on their mortgage payments as there were in 2008. Delinquency rates for all debt were also lower in the fourth quarter of 2017. This means that as long as Americans continue to pay their bills, we can expect to avoid a bursting bubble.
Interest rates are currently low, and that is why Americans are expected to be able to continue to pay their bills. According to Moody’s, the monthly cost to service our debt is the lowest it has been in 35 years. In the event that the Feds raise interest rates, Americans could begin to have difficulties making their payments.
Will Interest Rates Rise?
Jeff Yastine doesn’t believe that the Feds are going to raise interest rates so quickly that Americans will begin to default on their loans. The fact that many Americans spent the years during the financial crisis refinancing their loans makes this less likely to happen. Debts are largely carrying a low interest rate, and the rates are fixed and long term.
The danger still remains that the Feds will raise interest rates, but if that is going to have the effect of creating a crisis for many Americans, why would the Feds to that?
The Simple Truth
The simple truth is that the Feds may believe that inflation is a real possibility. The indicators, however, are not showing that inflation is on the horizon. Jeffrey Bartash reported that core consumer-price inflation has increased to 1.8 percent from 1.7 percent in the last year, but the good news is that these numbers are remaining within that range and have done so for the past 8 months.
Opportunities for the Future
Mr. Yastine promised to let us know how we can benefit monetarily from growing consumer debt, and here it is. Debt collection stocks have been going up recently, and PRA Group is one example of this. The company purchases non-performing loans from creditors and banks, and its stock started to rise in September of last year. It is currently up by almost 40 percent. This stock reached a peak in 2014 and 2015, and they are expected to reach those heights again very soon.
Another stock that Jeff Yastine has his eye on is Regional Management Corp. Over the past year, this stock has increased by more than 50 percent and is close to reaching its highest level to date.
Regional Management Corp. is a non-traditional lender, so it deserves to be mentioned along with the debt collection agencies. This company offers loans to people who don’t have the option of obtaining a loan from a bank or receiving credit. Its clients are people with limited options, but they still need to borrow money.
Jeff Yastine is currently the editor of Total Wealth Insider in which he discusses how people can maintain and grow their portfolios.