Household Savings Rate: U.S. vs. Australia

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The savings rate in Australia is much higher than the U.S. rate. In the U.S., the Personal Saving Rate stood at just 6.0% as of October, 2016. This rate is the same as the household savings rate in Australia.

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U.S. Personal Saving Rate:

Source: Federal Reserve of St.Louis

In the 60s and 70s, the savings rate hovered over 10%. However since then Americans have been saving less and less each year as the country turned into a consumption-driven economy.

Australian Households’ Savings Rate:

Source: A dash of data: Spotlight on Australian households, OECD Insights, OECD

The Australian Households’ Savings Rate was 15.8% in Q1, 2016. The average rate is 16.2%. This is one of the highest among OECD nations. During the global financial crisis of 2008-09, the savings rate rose sharply to 19% according to the OECD.

So Australian households save nearly three times more than American households. This is indeed surprising since Australians have a much stronger safety net than Americans and hence they can afford to spend more than save. But cultural factors and decades of relentless marketing to consume material goods has forced us to spend for the present than save for the future. It is imperative that the US savings rate continues to rise and reach and stay above 10% like in the past. However currently most people have no incentive to save due to little or no interest earned on bank deposits.

 

GDP Per Capita: Emerging vs. Developed Markets

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Emerging markets such Brazil, China, India, Russia,etc. have had overall strong economic growth in the past few decades.However despite the tremendous increase in the standard of living in these and other emerging countries, the GDP per Capita is still far lower than those of developed countries.

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Source: Emerging-Market Equity 2017 Outlook, Franklin Templeton Investments

The GDP per capita of the BRICs are less than $10,000 which is far lower than that of the US or Germany for instance. Hence emerging countries have still a long way to go to catch-up with the developed world. When they reach that point, they would no longer be emerging markets. Mark Mobius of Franklin Templeton predicts strong economic growth over the long-term for emerging markets.

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Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)

Disclosure: No Positions

Knowledge is Power: Canadian Charts, American Tragedy ?, New Dividend Strategy Edition

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Amusement Park, Blackpool, UK

U.S. Firms Dominate The Global Weapons Industry

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The global arms trade is a multi-billion dollar industry. According to Stockholm International Peace Research Institute (SIPRI), the sales of weapons and military services by the world’s largest 100 arms-producing and military services companies (“SIPRI Top 100”)  totaled $370.70 billion in 2015.

Of the SIPRI Top 100, more than half of arms sales worldwide come from American companies:

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Source: SIPRI

The Top 10 companies in the SIPRI 100 are shown in the graphic below:

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Top-100-Arms-Producing-Companies-Year 2002-2015

Source: Daily Infographics

The U.S. firms shown in the above chart are:

  • Lockheed Martin Corporation (LMT)
  • Boeing Co (BA)
  • Raytheon Company (RTN)
  • Northrop Grumman Corporation (NOC)
  • General Dynamics Corporation (GD)
  • United Technologies Corporation (UTX)
  • Level 3 Communications, Inc (LVLT)

The European firms shown above are listed below with their tickers on the US OTC market:

Italy-based Leonardo Finmeccanica SpA trades on the Milan Exchange under the ticker LDO.

Download: The Complete List of SIPRI Top 100 Companies from 2002-2015 (in Excel format)

Disclosure: No Positions

Why Invest in Stocks of Auto Parts Suppliers

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One of the sectors that investor can consider investing in is the auto parts sector. Parts suppliers supply all the parts needed in building an automobile. In addition, many also supply the multitude of bells and whistles that go into a car. For example, the latest car models have wifi connectivity for internet access and a cool dashboard. Firms that produce the produce these items offer strong growth potential. In fact, one of my long-held view is that to profit from the continued growth in automative industry, investors must invest in parts suppliers instead of the auto makers. During the California gold rush of the 19th century, people that sold the picks and shovels to the gold mines became wealthy than the miners. This is because very few miners that dug a hole actually found gold. A similar logic can be applied to the auto components makers.

I have written on this topic a few times before. A recent article in the journal noted that auto parts suppliers are a better bet to gain from the growth of electric vehicles. From the article:

The biggest winners of the postrecession car boom haven’t been car companies but their suppliers. This is one feature of the automotive landscape the emergence of electric vehicles seems unlikely to disrupt. Suppliers with the right technology are worth their big stock-market premium.

Cars have absorbed more and more gadgets over the past decade, both to woo consumers and improve engine efficiency for regulators. But they haven’t become more expensive. This alchemy has been made possible by a symbiotic relationship between car makers and big suppliers. Car makers have bought more and more components from the biggest suppliers—the likes of Delphi Automotive, Continental and Valeo—in exchange for continual price cuts.

This dynamic has worked out best for suppliers, whose shares have outperformed those of car companies by almost a half over the past five years. The value of the content per vehicle provided by the top four listed suppliers has risen by over 4% annually for the last three years, despite continual price cuts, calculates brokerage Evercore ISI. That has made for strong top-line growth as car manufacturers have benefited from several years of solid sales.

In terms of total returns over five years, suppliers beat car makers by a wide margin:

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The forward P/E ratio for suppliers is also much higher than car makers as investors are putting a premium on suppliers’ growth prospects:

Source: Auto Suppliers May Be the Real Winners as Cars Electrify, WSJ, Dec 21, 2016

Four reasons why auto parts suppliers offer good investment opportunities are:

  1. The price of a new car continues to go up every year. Much of the new cost is for the additional gadgets built in the car. The average price of a new car sold in July, 2016 was over $34,000.
  2. Similar to beer and liquor companies, auto parts makers flourish during good times and bad. During economic expansions, consumers feel confident. So they sell their beat-up cars and buy more new and expensive cars. During recessions, consumers tend to hold onto their vehicles for longer time. In order to maintain their cars, they buy more parts as wear and tear takes a toll on their cars.
  3. Parts suppliers continue to evolve and adapt to changing market needs. They have invested heavily in building new technology products like smart dashboards, GPS, wifi link-enabled devices, addition of built-in internet apps, sensor technology, self-driving capability, etc.
  4. Unlike the big auto-makers parts suppliers do not have any legacy issues like health care costs of retirees, pensions. etc.

Some of the foreign auto parts suppliers to consider include: Autoliv Inc (ALV), Continental AG (CTTAY), Magna International Inc (MGA) and Valeo SA (VLEEY).

US-based auto parts makers include: include Johnson Controls, Inc.(JCI), Genuine Parts Company (GPC), AutoZone, Inc.(AZO),  Lear Corp (LEA), Visteon Corp (VC), etc.

The full list of auto parts suppliers trading on the NYSE and NASDAQ can be found here and here.

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Disclosure: Long CTTAY and MGA