Applied Investments Program 1 Costco Wholesale Corp. Ticker: COF Change Insider Positions: +3.09% Current Price: $78.32 EV/EBITDA: 8.96 52 wk. high July 2014: $85.39 Market Cap (mil): $43,151 Bberg Fair Value: $91.71 Shares (mil): 551.6 MStar Fair Value: $93.00 Sector: Financials Beta: 1.05 Net Inc. Margin: 18.55% EPS T12 $7.66 P/E T12: 10.2 P/E: 10.21 ROA: 1.5% 5 Yr DuPont ROE 10.78% Consensus Rating: 4.27 Stewardship rating: Standard Morningstar credit rating: A- Economic Moat: Narrow ROE 2014: 10.02% Dividend Schedule: 02/20/2015 Cash Div. $0.30 11/20/2014 Cash Div. $0.30 08/21/2014 Cash Div. $0.30 05/22/2014 Cash Div. $0.30 Stock Type: Cyclical Stock Style: Large value Wall St. Recommendations Buys 21 Holds 12 Sell 0 Liquidity/Financial Health (Latest Quarter) Debt/EBIT 7.38 Revenue Growth 4.06 Operating Margin 24.43 Debt/Equity 1.1 Company peers Visa Inc. MasterCard Inc. American Express Co. Discover Financial Profitability C Price/Book 1.0 Price/Sales 2.0 Price/Cash Flow 4.7 Price/Earnings 10.3 DCF Model Results AIP FCF Capital One.xlsx Research Highlights and Investment Thesis Research Highlights Capital One has been able to stay well below average provisions for credit losses when looking at peers; Discover, American Express, and Synchrony Financial. Improvements in operational efficiency coupled with investments in technology have contributed to the company’s ability to grow net income at an average rate of 12.22% over the past four years, while revenue has grown at a rate of 6.32%. Further, strategic acquisitions have also aided in the growth of Capital One’s revenue and net income, while adding diversification to Capital One’s portfolio of business segments. Based on recent decreases in unemployment and better than expected improvements in the economy coupled with a strong dollar we expect consumer spending to increase over the next few years. Capital One’s Net Charge-off rate decreased by 32 basis points in 2014 down to 1.72% from 2.04% in 2013. The company expects that this will continue to decline with continued improvements in economic conditions. Additionally, the company’s loans held for investment increased by $11.1 billion to $20.8 billion. Capital One has earned a narrow economic moat due to their position as the leading credit card issuer in the U.S. credit card market. Richard Fairbank has been chief executive officer since 1994 and has improved the company’s diversification through successful acquisitions of multiple companies. Since 2005 Capital One has expanded its retail banking arm by acquiring Hibernia National Bank in 2005, New York Based North Fork Bancorporation, and Chevy Chase Bank in 2008. Capital One also purchased ING’s American ING Direct division, HSBC’s credit card operations, and lastly in January 2015 Capital One acquired level money, a mobile budgeting app. Finally, Capital One also purchased Best Buy’s credit card portfolio for $7 billion which was sold less than one year later. Investment Thesis I recommend a buy on Capital One, when taking into account my DCF analysis, and my research of the company. I believe Capital One can make for a beneficial holding to our portfolio by further equalizing our weight in financials as well as adding diversification to our holdings within that sector. I would like to invest 2.5% of the fund in Capital One and derive funds for investment from multiple sources; Financial Select Sector SPDR (1.5%), CVS Health (0.5%), and Wells Fargo (0.5%). Alternatively, in spite of transaction costs the fund may prefer to pursue investment in Capital One with a sources of funds derived from the Financial Select Sector SPDR, but I believe we should consider the earlier option. The main reasons I would like to draw from Wells Fargo (0.5%) and CVS Health (0.5%) is that both have exceeded their adjusted sell targets. CVS Health has exceeded its adjusted sell target by about 16% and has been flat to slightly down since mid-February. Additionally, I would like to draw 0.5% from Wells Fargo as part of a financial sector rebalance. We have owned Wells Fargo since December of 2012 and the stock has grown from $35.06/share to their current price of $55.59/share. This strong growth in share price has caused WFC to account for the largest holding within the portfolio at 4.21% followed by CVS at 4.07%. Given the fact that both holdings have exceeded their adjust sell target and have become very large positions within the portfolio I see some significant risk associated with holding over 8% of our fund in positions above their adjusted sell targets and recommend a slight trim of each in an effort to reduce that risk and rebalance those holdings. 30 40 50 60 70 80 90 2010 2011 2012 2013 2014 2015
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Applied Investments Program 1
Costco Wholesale Corp.
Ticker: COF Change Insider Positions: +3.09%
Current Price: $78.32 EV/EBITDA: 8.96
52 wk. high July 2014: $85.39 Market Cap (mil): $43,151
Bberg Fair Value: $91.71 Shares (mil): 551.6
MStar Fair Value: $93.00 Sector: Financials
Beta: 1.05 Net Inc. Margin: 18.55%
EPS T12 $7.66 P/E T12: 10.2
P/E: 10.21 ROA: 1.5%
5 Yr DuPont ROE 10.78% Consensus Rating: 4.27
Stewardship rating: Standard
Morningstar credit rating: A-
Economic Moat: Narrow
ROE 2014: 10.02%
Dividend Schedule: 02/20/2015 Cash Div. $0.30
11/20/2014 Cash Div. $0.30
08/21/2014 Cash Div. $0.30
05/22/2014 Cash Div. $0.30
Stock Type: Cyclical
Stock Style: Large value
Wall St. Recommendations
Buys 21
Holds 12
Sell 0
Liquidity/Financial Health
(Latest Quarter)
Debt/EBIT 7.38
Revenue Growth 4.06
Operating Margin 24.43
Debt/Equity 1.1
Company peers
Visa Inc.
MasterCard Inc.
American Express Co.
Discover Financial
Profitability C
Price/Book 1.0
Price/Sales 2.0
Price/Cash Flow 4.7
Price/Earnings 10.3 DCF Model Results
AIP FCF Capital
One.xlsx
Research Highlights and Investment Thesis Research Highlights
Capital One has been able to stay well below average provisions for credit losses when looking
at peers; Discover, American Express, and Synchrony Financial.
Improvements in operational efficiency coupled with investments in technology have
contributed to the company’s ability to grow net income at an average rate of 12.22% over the
past four years, while revenue has grown at a rate of 6.32%. Further, strategic acquisitions have
also aided in the growth of Capital One’s revenue and net income, while adding diversification
to Capital One’s portfolio of business segments. Based on recent decreases in unemployment
and better than expected improvements in the economy coupled with a strong dollar we expect
consumer spending to increase over the next few years.
Capital One’s Net Charge-off rate decreased by 32 basis points in 2014 down to 1.72% from
2.04% in 2013. The company expects that this will continue to decline with continued
improvements in economic conditions. Additionally, the company’s loans held for investment
increased by $11.1 billion to $20.8 billion.
Capital One has earned a narrow economic moat due to their position as the leading credit card
issuer in the U.S. credit card market. Richard Fairbank has been chief executive officer since
1994 and has improved the company’s diversification through successful acquisitions of
multiple companies. Since 2005 Capital One has expanded its retail banking arm by acquiring
Hibernia National Bank in 2005, New York Based North Fork Bancorporation, and Chevy
Chase Bank in 2008. Capital One also purchased ING’s American ING Direct division, HSBC’s
credit card operations, and lastly in January 2015 Capital One acquired level money, a mobile
budgeting app. Finally, Capital One also purchased Best Buy’s credit card portfolio for $7
billion which was sold less than one year later.
Investment Thesis I recommend a buy on Capital One, when taking into account my DCF analysis, and my research of the
company. I believe Capital One can make for a beneficial holding to our portfolio by further equalizing
our weight in financials as well as adding diversification to our holdings within that sector. I would like
to invest 2.5% of the fund in Capital One and derive funds for investment from multiple sources;
Financial Select Sector SPDR (1.5%), CVS Health (0.5%), and Wells Fargo (0.5%). Alternatively, in
spite of transaction costs the fund may prefer to pursue investment in Capital One with a sources of
funds derived from the Financial Select Sector SPDR, but I believe we should consider the earlier
option. The main reasons I would like to draw from Wells Fargo (0.5%) and CVS Health (0.5%) is that
both have exceeded their adjusted sell targets. CVS Health has exceeded its adjusted sell target by
about 16% and has been flat to slightly down since mid-February. Additionally, I would like to draw
0.5% from Wells Fargo as part of a financial sector rebalance. We have owned Wells Fargo since
December of 2012 and the stock has grown from $35.06/share to their current price of $55.59/share.
This strong growth in share price has caused WFC to account for the largest holding within the
portfolio at 4.21% followed by CVS at 4.07%. Given the fact that both holdings have exceeded their
adjust sell target and have become very large positions within the portfolio I see some significant risk
associated with holding over 8% of our fund in positions above their adjusted sell targets and
recommend a slight trim of each in an effort to reduce that risk and rebalance those holdings.
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2010 2011 2012 2013 2014 2015
Applied Investments Program 2
Business Description Notes Capital One has significantly improved
is position and diversification since 2005 and has had a strong leader through many acquisition that we expect to continue to offer insight for the company going forward.
The company’s Net charge-off rate is a percentage representing the amount of debt a company believes it will never collect compared to average receivables.
Balance sheet total loans outstanding (USD millions)
Provision for loan losses as a % of
total loans
Net Charge-Off Rate %
Business Description Capital One Financial Corporation is a diversified bank, which through its
subsidiaries, offers a broad spectrum of financial products and services to consumers,
small businesses and commercial clients both domestically and internationally.
Capital one was established in 1994 and was headquartered in McLean, Virginia.
In November of 2013 Capital One acquired Beech Street Capital, a privately-held,
national originator and servicer of Federal National Mortgage Association (Fannie
Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal
Housing Authority (FHA) multifamily commercial real estate loans. This acquisition
was used to expand and enhance the company’s existing multifamily capabilities.
Capital One (COF) is traded on the New York Stock Exchange and is included in the
S&P 100 Index.
Capital One’s expenses are generally derived from provisions for credit losses,
operating expenses (including salaries and associate benefits, occupancy and
equipment costs, professional services, communication and data processing expenses
and other miscellaneous expenses), marketing expenses and income taxes.
Capital One is broken up into three main segments being:
Credit Cards: Consists of domestic consumer and small business card lending.
Consumer Banking: Consists of branch based lending and deposit gathering
activities for consumers and small businesses, national deposit gathering, national
auto lending and consumer home loan lending and servicing activities.
Commercial Banking: Consists of lending to companies with annual revenues
between $10 million and $1 billion.
Capital One must abide by limitations set by the Truth in Lending Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act and the Service members Civil
Relief Act.
Capital One has approximately 46,000 employees and invests heavily in information
technology to achieve the company’s business objectives. Investments in efficient,
flexible computer and operational systems such as cloud technology aid to support
complex marketing and account management strategies.
Capital One reported net income of $4.4 billion on total net revenue of $22.3
billion for the year ending 2014, which was derived from all three business
segments.
In 2014 the three business segments accounted for the following portions of
operating income (millions):
Credit Card $3,808
Consumer Banking $1,860
Commercial Banking $1,025
On March 26, 2014 Capital
One’s board of directors
announced a $2.5 billion stock
repurchase program. Through
Capital one was able to repurchase
approximately $2.0 billion worth of their $2.5 billion repurchase program. The
company expects to complete the stock repurchase program within the first quarter
of 2015.
Capital One is one of 31 banks that must submit to the Comprehensive Capital
analysis and review, as well as the stress tests administered by the Federal Reserve,
which will be discussed later.
Capital One serves clients both domestically and internationally and has bank
locations in Connecticut, Louisiana, New Jersey, New York, Virginia, Maryland,
Texas, and the District of Columbia. Similarly, Capital One is one of ten of the
largest banks based on deposits as of December 31, 2014.
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Applied Investments Program 3
Percentage of portfolio financials sector holdings
Financial sector holdings
adjusted sell target upsides
Financial sector holdings adjusted sell target v current stock price
Capital One Morningstar fair value,
sell target & current price
Capital One Historical Chart (COF) Financial sector holdings performance since purchase
Portfolio Positioning Currently, when adjusting for our holdings within the “funds” sector we are underweight the
financial sector by 3.87% which is our second largest underweighting falling just below our
significant underweight in the Healthcare sector. Financials account for 12.95% of our portfolio
and our holdings are American Tower Corp (1.95%), Goldman Sachs Group (3.21%),
JPMorgan Chase & Co (3.07%), and Wells Fargo & Co (4.11%). We appear to be in a strong
position within this sector as nearly all holdings currently have some upside based on their
adjusted sell targets. The sector currently has a weighted average upside of 9.23%. The weakest
of all four holdings appears to be Wells Fargo, which accounts for our largest holding within the
financial sector, while also having an estimated negative one percent upside. Based on these
conditions it is my recommendation that we consider trimming some of our Well Fargo holding
as part of a rebalance within the sector while using a portion of that to fund investment in Capital
one. Our current holdings in the financial sector were acquired over a period of approximately
two years with our first position being Wells Fargo, purchased December 20, 2012 follow by
Goldman Sachs February 2, 2014, then JP Morgan March 26, 2014, and lastly American Tower
May 20, 2014.
The four holdings are highly correlated, excluding American Tower, mainly due to
operations within the financial sector and more specifically, the Investment Banking
and Corporate Banking subcategories. Overall, American Tower has the lowest
correlation relative to other holdings with an average correlation of about 0.79.
Additionally, we can see that our four holdings within the sector are highly correlated
with Vanguards Financials ETF (VFH)
All of our holdings within the financial sector of the portfolio have a narrow moat for
varying reasons:
Goldman Sachs: Morningstar provides a narrow moat on Goldman because of their
ability to recruit highly talented employees, maintain strong brand recognition and
the firm’s competitive advantage for garnering investment banking deals.
JP Morgan: Morningstar gives JPM a narrow moat due to their massive scale and
cost advantages. Morningstar also cites JPM’s intangible assets and switching costs
in their asset management and treasury services operations.
Wells Fargo: Earns a narrow moat because of their low-cost deposit base, and a
business model built on customer service and cross-selling.
American Tower: Earns a narrow moat because the firm has the best tower
portfolio quality and nearly all of their domestic towers were by tower firms or
legacy carriers such as AT&T and Verizon.
Lastly, Capital One earns a narrow moat due to their position as the leading credit
card issuer concentrated in the U.S. Credit Market and its low cost deposit base.
0.70%
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WFC JPM GS AMT
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$135.00
$155.00
$175.00
$195.00
WFC JPM GS AMT
Current Price
Adjusted Sell Target
$40.0 $70.0 $100.0 $130.0
Px Last
Fair Value
Sell Target
Buy More
Bberg Mstar
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WFC JPM GS AMT
Applied Investments Program 4
Capital One Feb 26 purchase stock vs sell put payoff
Capital One Bond Issue YTM v Bond price 3.2% 2025 Maturity
Capital One Bond Issue YTM v Bond price 1.65% 2018 Maturity
30/02/15 Treasury Yield Rates
Recent News March 11, 2015 Capital One announced that the Federal Reserve has completed is
2015 Comprehensive Capital Analysis and Review and did not object to Capital
One’s proposed capital plan that was submitted on January 5, 2015. Additionally,
Capital released news that it plans to increase the quarterly dividend on common
stock from $0.30/share to $0.40/share which is the first increase in the company’s
dividend since February 7, 2013 when the company raised the dividend from
$0.05/share to $0.30/share.
Also on March 11, 2015 Capital One indicated plans of a large stock repurchase
program to begin in the second quarter of 2015. The company plans to extend the
program into the second quarter of 2016 and estimates the repurchase of $3.125
billion worth of shares over the course of the program. The timing and exact amount
of the program at this time are unknown and will be adjusted based on market
conditions, opportunities for growth, the company’s capital position, and the amount
of retained earnings. Similarly, management has not released details on any specific
price targets or whether they plan to carry out the buyback program through open
market purchases or through privately negotiated transactions.
On March 5, 2011 Capital One announced that it will apply $150 million in
community grants and initiatives over the next 5 years to help empower more
Americans to succeed in an ever-changing digitally-driven economy. Capital One
will carry out this plan through the use and launch of their “Future Edge” program.
On February 26, 2015 Capital One appeared in the news on Forbes due to an
attractive setup in the options market. New options began trading for the April 10,
2015 expiration date allowing an investor to sell a put contract with a $72.00 strike
price while collecting a premium of $0.04 while the stock was trading at $79.34.
Because selling a put option is a bullish position that is very similar to owning the
stock an investor that wanted to buy Capital One could engage in this transaction and
could in essence purchase Capital One at a discount. This strategy would work for
someone who was interested in owning Capital One if the option expires in the
money and is exercised. The writer of the put option will be required to buy Capital
One from the individual who purchased the put option. This is beneficial because the
investor wanted to own Capital One anyway and can collect the premium essentially
improving their payoff on the stock by $0.04/share. http://www.forbes.com/sites/stockoptionschannel/2015/02/26/april-10th-options-now-available-for-
Capital One appears to be in a strong financial position citing the recent increase in
the quarterly dividend from $0.30/share to $0.40/share coupled with the firms plans
to pursue a large stock buyback. Additionally, the firm has a long history of making
strategic acquisitions to grow the operations and add diversification. Similarly,
Capital One has one of the lowest EV/EBITDA ratios when comparing similar
companies; Capital One (8.96), Discover Financial (8.73), American Express (11.47),
Visa Inc. (23.57), MasterCard (15.45), Synchrony Financial (9.11).
We expect that Capital One should have no trouble paying short or long term debt
obligations. Even with the recent stock buyback, funded mainly by debt,
announcement the firm is not highly leveraged with a Low Leverage Ratio, of 6.99,
relative to other firms, and a debt to equity ratio of 1.06 in the latest quarter.
Likewise, Capital One may help to slightly reduce the overall risk within our
Financial sector holdings as Goldman has a financial leverage ratio of 12.2, followed
by JP Morgan at 12.1, then Wells Fargo at 10.1, and lastly, American tower at 5.56.
The company has been able to maintain an issuer credit rating of nearly all “BBB+”
rated bonds and I expect Capital One to continue to maintain low default risk on all
debt. Additionally, Capital One had slightly over $47 billion in long term debt on the
balance sheet at the end of 2014 with $62 billion in Total investment assets and $3.1
billion in cash and near cash items, thus suggesting Capital One will maintain short
term and long term interest payments. Furthermore, the firm’s long term assets have
grown from $169 billion in 2009 to $308 billion in 2014. On average Capital One is
able to payout slightly less than 15% of its earnings in dividends.
Capital One has been able to make continuous acquisitions while sustaining strong
returns on capital. Additionally, the company has had positive and negative free cash
flow over the past few years as the company makes significant investments in
infrastructure, mergers, and acquisitions.
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Applied Investments Program 6
Revenue Growth 2009-2015
Source: Bloomberg data analyst developed chart
Net Income Growth 2009-2015
Source: Bloomberg data analyst developed chart
Net Income Margin 2009-2014
Source: Bloomberg data analyst developed chart
Credit card loan growth 2009-2014
Cash Flow Breakdown
In 2014 Capital One’s cash flow from operations amounted to -$6.8 million with $3.8
billion generated in operating Income within the credit card segment. $2.4 billion in
net income was also generated within the net income segment.
Within the Consumer Banking segment Capital One was able to generate $5.7 billion
in net interest income while allowing for only $703 million in provision for loan
losses.
Lastly, from 2009 to 2014 credit card segment total deposits have grown from $74
billion to $168 billion along with commercial banking total deposits growing from
$20 billion to $31.9 billion
Capital One’s segment and product line diversification has added to their ability to
compete with other large credit card companies such as Visa, MasterCard, and
American Express. Likewise, through acquisitions Capital One has improved their
ability to compete with firms like Citigroup and Bank of America. Capital One is working on expanding their consumer banking operations across the US to further add to
segment growth.
Income statement analysis
Capital One’s revenue has grown significantly from 2010 to 2014 and has kept the strong
pace of 11.21% per year. In 2009 Capital One had $12.9 billion in revenue growing to
$22.3 billion in 2014.
Impressively, Capital One’s provision for loan losses has remained relatively steady and
has even decline in some years. This occurrence can be attributed to better collection
practices as well as better economic performance.
Lastly, given the fact that Capital One is in the financial sector and lacks a hard
asset/manufacturing-type of supply chain, they do not rely on a long list of suppliers, as
would a manufacturing company. Rather, the company is able to indirectly be affected by
approximately 14 suppliers including; Oracle Corp, IBM, Google, Bank rate, Experian,
Fiserv, salesforce.com, Open Text Corp, Twitter Inc, CoStar Group Inc, Verisk
Analytics, Zebra Technologies Corp, Compuware Corp, and lastly Verisign Inc.
Balance sheet analysis
Total Commercial Loans have grown from $29.6 billion to $50.9 billion in 2014
similarly, Capital One’s Total Consumer Loans have grown from $60.6 billion up to
$157 billion within the same time period.
Within Capital One’s consumer loans segment Credit Card Loans have grown at an
unwavering pace growing over 550% from 2009-2014 or from $15 billion to $85
billion in the short period.
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Applied Investments Program 7
Federal Reserve 2015 Results:
Federal Reserve Comprehensive
Capital Analysis
Adobe Acrobat
Document
Federal Reserve Required
Ratios (Severely Adverse
Conditions)
Federal Reserve Required
Ratios (Adverse Conditions)
Average unemployment rate by Yr.
Federal Reserve Comprehensive Capital Analysis and
Review 2015 Due to the financial crisis of 2008 large bank holding companies have built a
significant amount of capital on hand to protect the firm would a similar crisis take
place. Firms are evaluated on a series of stress tests administered by the Federal
Reserve and are required to make adjustments if they cannot comply to the fed’s
requirements.
During the 2015 analysis of Capital One, the Federal Reserve did not object to the
capital plan and planned capital distributors for 29 of the 31 bank holding companies.
Firms are analyzed on their ability to perform a certain way under seriously adverse
economic conditions. The fed uses a series of common capital ratios being;
Capital/Risk-adjusted assets = Capital Ratio, Total Capital (Tier 1 & Tier 2)/Risk-
adjusted assets = Total Capital, Capital/Average total consolidated assets, and
common stockholders’ equity/ Balance sheet assets = common stockholders’ equity
ratio.
Additionally, the Federal Reserve conducts reviews based on a qualitative assessment
and a quantitative assessment. The qualitative assessment focuses on the internal practices that a BHC uses to determine
the amount and composition of capital it needs to continue to function throughout a period
of severe stress.
The quantitative assessment focuses on the BHC’s ability to take capital actions described
in the bank holding company’s baseline scenario of its capital plan and maintain post-stress
capital ratios that are above a 5 percent tier 1 common capital ratio and above the applicable
minimum regulatory capital ratios in effect during each quarter of the planning horizon
Capital One was able to meet or exceed the Federal Reserve’s expectations when
placed in a scenario with adverse conditions and a scenario with severely adverse
conditions. Upon exceeding the Fed’s requirements Capital One announced their
$3.125 billion stock buyback program. Based on current economic conditions I
expect Capital One to meet the Fed’s requirements for the foreseeable future.
Economic Outlook Based on the International Monetary Fund’s economic projections for 2015 and 2016
we would expect continued improvement in world economic annual growth rates.
Looking back over the past few years advanced economies as a whole grew by 1.3%
in 2013 and 1.8% in 2014. Likewise, based on the economy’s historical performance
the International Monetary Fund (IMF) projects growth of 2.4% in 2015 and 2016.
Similarly, the IMF estimates that emerging markets & developing economies grew at
a rate of 4.7% in 2013 and 4.4% in 2014. The IMF places estimates that emerging
markets and developing economies will grow at a rate of 4.3% in 2015 and 4.7% in
2016.
The global economy as a whole has also offered strong performance over the past
two years growing at 3.3% in 2013 and 2014. Similarly, the IMF projects that the
global economy will grow at a rate of 3.5% in 2015 and 3.7% in 2016.
Some major developments in 2014 include the surplus in oil production resulting in a
massive decline in oil prices, a significant appreciation in the U.S. dollar and a
decline in the Euro. Furthermore, the U.S. economy grew at a faster rate than most
other economies. We expect this trend to continue for the foreseeable future as the
Federal Reserve begins to raise rates and the US sees increases in domestic
investment as foreign investors move funds into the US attempting to take advantage
of the carry trade. As foreign investors move funds into the US in pursuit of the carry
trade we expect an increased demand for the US dollar causing further appreciation
relative to other currencies. We expect that further appreciation of the US dollar
coupled with increases in domestic investment from foreign entities will add to this
historic bull market that we’ve seen since 2009. Moreover, recent positive economic
news such as improved employment is expected to further contribute to any
additional growth in the overall market.
Adding to the decline in the Euro was the European central bank’s intervention to
depreciate the Euro by purchasing over $1 trillion in assets including government and
private sector bonds by September of 2016 and will extend the program if needed.
With the U.S. projected to grow at a rate of 3.6% in 2015 and 3.3% in 2016 we
expect to see rises in U.S. Consumer Spending due to rises in incomes over the next
few years. We expect rising incomes and increases in consumer spending to push
growth in credit card debt.
U.S. Consumer Spending The U.S. household consumer debt profile is as follows: average credit card debt
$15,611, average mortgage debt $155,192, average student loan debt $32,264.
Americans have a total debt of $11.74 trillion which has increased by 3.3% since
2013. Additionally, Americans have total credit card debt of $882.6 billion, total
mortgages of $8.14 trillion, and total student loan debt of $1.13 trillion. Between
2006 and 2008 credit card debt rose steadily and reached its height in 2009, six
months into the financial crisis, as unemployment grew to 10 year highs credit card
debt began to decline. Similarly, following the financial crisis consumers became
more frugal and paid off credit cards until 2011 where average household credit card
debt plateaued. Since 2011 credit card debt has been on a slight incline
Based on the performance for the period from 2006-2009 credit card debt grew at a
very fast pace in stride with the economy along with the rise of the housing bubble
which contributed to higher incomes. With those higher income levels came higher
borrowing until the crash in 2009 when household credit card debt peaked at
$19,900/household. As household income and credit card debt grew on the way up it
was further exaggerated as the economy began to collapse and individuals who
became accustomed to higher income began borrowing in an attempt to maintain
their new income further exacerbating the decline of the economy. http://www.bloomberg.com/news/articles/2014-12-23/consumer-spending-beats-forecast-as-u-s-