Credit Card Debt 

What is it? 

Consumers are spending more money than they may have as the economy tightens with inflation remaining high. 

“Year over year, credit debt grew by 15%, the largest jump in more than 20 years. The New York Fed found younger borrowers — defined as those under 30 years old — registered the highest balances during the third quarter of 2022. Likewise, the share of credit card borrowers in the highest-income areas that were likely to transition into delinquency remained well under historical trends. Meanwhile, the percentage of low-income borrowers flowing into delinquency is now over the pre-pandemic level.”*

This could have broader implications for the younger generations of individual investors. 

Why does it matter?

A measure of consumer debt is analyzed as a part of our process. It is an aspect of our Blitz Index, which we discuss in our first Market Insight of each month. The impacts could continue to dampen the markets if people have higher debt burdens than they can afford. 

“‘With prices more than 8% higher than they were a year ago, it is perhaps unsurprising that balances are increasing,’ New York Fed researchers reported. ‘Notably, credit card balances have grown at nearly double the rate since last year.”* 

People and companies with lower levels of income and assets may be hurt the hardest if this trend continues. 

“The real test will be to follow whether these borrowers will be able to continue to make the payments on their credit cards.’”*

A Billionaire Hedge Fund CEO is Worried About Young Investors

What is it? 

“The collapse of FTX is likely to impact hundreds of thousands of investors, many of whom are Gen Zers. And Ken Griffin, founder and CEO of the Citadel hedge fund, says he’s worried the ripple effects could put generations off investing for some time. Griffin also mentioned “people are going to lose billions of dollars and that undermines trust in all financial markets.”**

If Griffin is correct, not only could some investors be put off investing, but the trust of the markets as a whole may be in question. We believe that people’s confidence in the markets will be restored. While the crypto market is highlighted in the prior quote, people should not assume to reach such outsized returns in the world of blockchain or crypto investments without managing or assuming the associated risks. 

Why does it matter?

“Because they were burned by heavy investments in crypto, Griffin theorized, younger people could be wary of traditional investments like stocks, bonds and debt. And that hesitation is where the trouble could lie.”** 

Griffin may have a point here as well. Some people have been burned by investing in crypto. From our perspective, those that have experienced financial hardship will be more inclined to seek out professional help from firms like ours. We do not believe that people will dismiss the idea of investments, but rather want reassurance that experts are handling it for them since they may not want the burden of trying to manage investments on top of what they already have going on. 

We still believe that crypto will grow and evolve from this current situation. If you are interested in investing in crypto, we do have a model we can allocate some of your funds to as we see fit. This is one of our tactical models that is sitting mostly in cash equivalents at the moment. We will add more exposure to cryptocurrency funds that are traded in the stock market as their performance improves. Please let us know now or in your next meeting and we can help you. 

Also, you may know someone that has experienced some financial challenges from trying to manage investments individually. If you want to help them out we would appreciate a referral to assess how we can help improve their financial future. 

Other articles we found interesting this week:

Target earnings miss by a mile amid ‘significant change in consumer shopping patterns’

Musk tells Twitter staff: Opt in for ‘intensity’ or take severance

Britain’s budget: What you need to know

Current 401(k) portfolio

Our last portfolio reallocation: 5/19/2022. 

Want more information?

The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach. 

Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.

Click here for more details about our investment management 

Sources:

*Gabriella Cruz-Martinez. “Credit card debt jumps by largest amount in two decades, Fed report says”. 11/15/2022. Yahoo Finance. https://finance.yahoo.com/news/credit-card-debt-222049660.html

**Chris Morris. “Billionaire investor Ken Griffin is worried about ‘the 20-something-year-olds to 40-year-olds who are so engaged in crypto’ and FTX’s trust-destroying blowup”. 11/15/2022. Yahoo Finance. https://finance.yahoo.com/news/billionaire-investor-ken-griffin-worried-164812190.html

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