A basic strategy which many countries have used to stimulate growth is the multiplier effect. By increasing the money supply in an economy, it can kick start growth . For example, if a Government decided to build a motorway; the effects of this extra money supply is felt through each economic participant. Builders, Engineer and Contractors are required for the construction and therefore receive more work. The increased earnings are then spent on food, clothes, entertainment, etc generating profits for more businesses. This cycle continues on, as the additional money is felt throughout the economy.
Confidence can have the same effect. As people become more optimistic about their
situation, pressures to save are reduced and spending generally increases.
One of the most effective drivers of confidence are increasing house prices. Receiving the news property values have risen provides the feeling of increased wealth, although in many cases this is not realisable immediately.
As the effect of rising house prices is felt by so many, it can have a profound impact on the economy as a driver of economic growth.
In the U.S we have certainly seen signs of improvement in the housing market. Since 2008, after the credit crisis, housing inventories have been declining from record highs. So much so, that low mortgage rates being utilised are increasing demand and construction for new buildings. As demand picks up, so have prices and the chart below details the acceleration during 2012.
One of the most effective drivers of confidence are increasing house prices. Receiving the news property values have risen provides the feeling of increased wealth, although in many cases this is not realisable immediately.
As the effect of rising house prices is felt by so many, it can have a profound impact on the economy as a driver of economic growth.
In the U.S we have certainly seen signs of improvement in the housing market. Since 2008, after the credit crisis, housing inventories have been declining from record highs. So much so, that low mortgage rates being utilised are increasing demand and construction for new buildings. As demand picks up, so have prices and the chart below details the acceleration during 2012.
Source: Standard & Poor Case-Shiller - 20 Composite Index
With so many feeling the positive effects, consumer confidence is reaching higher levels and certainly an indicator the U.S economy is recovering. This information can be relayed into investment ideas ranging from construction companies through to mortgage lenders.
With so many feeling the positive effects, consumer confidence is reaching higher levels and certainly an indicator the U.S economy is recovering. This information can be relayed into investment ideas ranging from construction companies through to mortgage lenders.
Wells Fargo, one of the largest mortgage lenders in the U.S is a prime example, and many North American equity funds have had this as a holding, well positioned to take advantage of increasing demand for houses.
North American equity funds, such as JP Morgan U.S Equity Income and Schroder U.S Mid Cap have had a focus on more cyclical investments over the past year as they take advantage of growth from industry and housing.
Confidence is a powerful tool and one should watch for those key indicators!
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