This week on Equity Mates

Hey there Equity Mate,

Right now, economic sentiment is pretty good. Last week the ABS reported that inflation continues to trend down - 4.1% for the 12 months to December 2023, down from a high of 7.8% for the 12 months to December 2022.

It’s not just in Australia where sentiment is improving. Over in the United States, the University of Michigan reported their largest ever two-month gain in the 30 year history of their consumer sentiment index. Between November 2023 and January 2024 consumer sentiment jumped 29%.

We unpack why sentiment is improving (and whether it will last) later in this email.

As sentiment improves and the US market reaches all-time highs, now is the time to keep learning about investing. Luckily we’ve got another big week of content to help you as our Summer Series continue on both Equity Mates and Get Started Investing.

• Equity Mates Investing (Apple | Spotify)

  • It's all in the name - Corporate Travel Management

  • Averaging 26% a year for 17 years, what next? - Mineral Resources

• Get Started Investing (Apple | Spotify)

  • Boost your income: Side hustles that paid off big time

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Your questions, answered

Oliver asked via email:

What is a critical financial skill I should work on to ensure I am setting myself up after university?

We put Oliver’s question to Ben Wauchope, from Wealth Health Co.

This week’s advisor is Ben Wauchope, from Wealth Health Co. Here’s what he said in response to Sarah’s question:

When you first begin earning a reliable income, cash flow management is the critical financial skill that will help you set-up, and develop strong financial wellbeing. Here are considerations to help set-up good cash-flow management:

1. Control your spending: Develop the discipline to live within your income so that you don’t fall into bad financial habits — including debt traps such as spending money you don’t have on credit cards or buy now pay later schemes.

2. Prepare for emergencies: Once you learn to limit your expenses to your available income, you can then start building savings into your budget. Your emergency fund will have the first claim on your savings. Building an emergency fund is an urgent and essential task.

3. Invest in your future: Initiating some sort of investment is an important task at this stage. Investing now is about building good habits and putting compound interest to work over the next 30+ years. If purchasing your first home is on the goals list, consider making additional super contributions as part of the First Home Super Saver Scheme.

4. Consider insurance: Unless you have dependants, life insurance isn’t vital at this stage, however, income protection and basic health insurance are important considerations (especially if you’re over the Medicare levy surcharge income bracket).

5. Stay on top of your debts: How to best service any accumulated debt that you may have, such as student loan(s), is also an important element, as is controlling your use of debt (think credit cards). Forming bad behaviours and/or any one-off mishaps can have long-term consequences on your financial future.

If you have a question you’d like answered, hit us up at ask@equitymates.com

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What we’ve been reading

The 3 big reasons Americans are suddenly psyched about the economy

Between November 2023 and January 2024, American consumer sentiment has jumped 29%. That is the largest two-month gain in the 30 year history of the University of Michigan’s consumer sentiment index. Vibes are good in the US economy right now. Which leads to two big questions. Firstly, how did it turn around so quickly? And secondly, will it last?

This article from Business Insider seeks to answer both of these questions.

According to the author, America has seen three big changes in the past two months: a soaring stock market, falling gas prices and cheaper eggs.

Starting with the stock market, the S&P 500 index hit record highs in January which has everyone feeling good. For those that own stocks (and in our retirement accounts that is almost all of us), there is a wealth effect. Even for those that don’t own stocks, the positive headlines create a view that the economy is going well. And that positive sentiment flows through the economy, convincing consumers to spend and businesses to invest.

The second factor is gas (petrol) prices, which are perhaps the biggest driver of consumer sentiment. Fuel prices are the one price in the economy that are constantly advertised in big billboards on the side of the road. Meaning that whether you own a car or not, you’re aware of how prices are changing. Fuel is also a largely inelastic cost - however prices change, you’re going to drive to work and drop the kids at school. So when prices are high, consumers can’t stop consuming, meaning they really feel the price change. In 2022, the national average for a gallon of fuel in the US ticked over $5 a gallon, a record high. That fell to $3.446 in 2023 and is currently at $3.096 according to AAA.

Those two factors - the stock market and gas prices - are obvious drivers of consumer sentiment. Eggs are less obvious. The author makes the case that of all food items, shoppers are more familiar with the price of eggs rather than other items in the supermarket. And egg prices are falling. According to the US Bureau of Labor Statistics a dozen grade-A eggs cost $4.25 in December 2022. By December 2023, they were down to $2.51. Whether or not you agree with eggs being the most well-known supermarket item (we would think milk and bread top that list), the fact is they are not alone is getting cheaper (or at least slowing their price increases).

So things are getting better and vibes are improving. But there is a risk they could turn. Consumers are feeling the pinch of higher interest rates which could impact their spending and when it comes to egg prices in particular, bird flu re-emerged in the US in late 2023. Economists shouldn’t be counting any of their chickens just yet.

Jamie Dimon’s $4 Trillion Machine

Jamie Dimon, the CEO of the world’s largest investment bank, took over the reigns of JP Morgan in January 2006. Since then, the share price is up more than 350%, the bank’s assets have topped $4 trillion and the company is worth $500 billion. In the annals of JP Morgan’s history, Jamie Dimon’s name may sit alone below the eponymous John Pierpont Morgan himself. 

Jamie Dimon was always seen as a future leader. Working as Sandy Weill’s right hand, he was instrumental in building Citigroup into a financial services giant. He then moved to run Bank One, which was acquired by JP Morgan in 2004 largely, it has been said, to secure Dimon as the next CEO of the bank. In 2006, Dimon took over as CEO.

The size of JP Morgan, $154 billion in revenue over the past year, allows it to do things other banks can only dream of. In 2022 alone it spent $14 billion on improving its technology (that is more than the total revenue its investment banking rival Goldman Sachs makes in a quarter). It allows them to buy luxury travel agencies, foodie websites and a college financial aid company that turned into a $175 million scam. 

But at its core, JP Morgan has been a consistent, well-run perhaps even boring bank surrounded by peers that have at different times been run poorly and tried to do too much. And that has started at the stop with Jamie Dimon. 

This article is a fascinating look at JP Morgan under the reign of Jamie Dimon. A man who has built a career in large financial services institutions. And a man who some speculate has much grander ambitions. Who may one day want to take his talents to lead a much larger financial institution - the US Government. 

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