Editor's note: Don't be fooled by doom-and-gloom headlines...
With credit-card debt recently hitting $1 trillion for the first time, many prominent media outlets have been discussing what this means for the future of the economy. But Briton Hill – analyst for our corporate affiliate Chaikin Analytics – believes the mainstream financial media is using this story to make the market seem scarier than it is.
That's why Briton stresses it's crucial for investors to understand why this mounting credit-card debt is actually a positive signal for the direction of the markets.
In today's Masters Series, originally from the August 23 issue of the Chaikin PowerFeed daily e-letter, Briton explains why credit-card debt recently surpassed record levels... details how the media is using this debt to scare investors out of the market... and reveals how this looming debt could have a positive impact on the economy...
Why Record Credit-Card Debt Is a Good Thing
The latest numbers are in...
U.S. credit-card debt just hit $1 trillion for the first time.
Yes, I said "trillion" with a "T." That's a lot of high-interest debt.
And of course, the mainstream media is painting a grim picture...
Many news outlets are focused on how this record-setting level of credit-card debt combines with higher interest rates. They believe it could lead to an uptick in delinquencies.
That development wouldn't be good for the U.S. economy.
But as I'll show you today, the reality isn't as bad as it seems. We're not seeing widespread consumer distress. And ultimately, the record level of credit-card debt is a good thing...
It's true that credit-card debt has soared over the past couple of years. And as I said, it just breached $1 trillion at the end of last month. Take a look...
The record amount of credit-card debt is partially due to the COVID-19 pandemic.
And no, I'm not referring to people needing to pay for things with credit cards because of their poor economic choices during that period of low interest rates and easy money. Instead, I'm talking about the "cashless" boom...
You see, many folks feared that cash could transmit COVID-19.
As a result, many businesses went entirely cashless during the pandemic. For example, quick-service restaurants Chick-fil-A, Shake Shack, Sweetgreen, and Noodles & Company stopped accepting cash in at least some of their locations in 2020.
Most companies went back to accepting cash after the worst days of the pandemic. But it doesn't change the fact that consumer behavior shifted in a big way...
More people than ever are now using cashless forms of payment. And ultimately, this trend goes far beyond COVID-19...
Nearly half of all U.S. credit-card users opened at least one new account in 2022. And a good chunk of those folks come from the tech-friendly millennial and Generation Z crowds...
Millennials alone have $2.5 trillion in spending power. And according to a March study from industry expert ESW, they're projected to lead all e-commerce spending in 2023.
Here's the thing...
Record credit-card debt is a sign of resilience in younger consumers.
Simply put, it means these younger generations are spending money.
And credit-card companies aren't reckless when they offer credit limits. Most companies check your credit report. And they'll also verify your income level to determine your limit.
So it's safe to say that this spending doesn't mean the economy is crippled – not even close.
Record levels of credit-card debt will likely lead to a higher number of delinquencies. That's just a fact of life as more folks use credit cards.
But as long as the delinquency rate doesn't soar, things will be OK. And according to Federal Reserve data, only about 3% of credit-card holders are currently more than 30 days late...
You can see that we're still a long way from the peak of more than 6.5% in 2009.
So for now, rising credit-card debt isn't a major concern. Instead, we should look at it as a good thing...
American consumers are doing just fine. They're simply using "convenient" cashless payment methods – especially online.
Folks, remember this point...
The mainstream media is paid per click. And the scariest-sounding articles often get the most hype.
But in reality, we're in a bull market. The U.S. economy has proven its resilience.
Don't fall victim to the fear.
Good investing,
Briton Hill
Editor's note: Rising credit-card debt isn't the only "scary" headline in the news right now. Credit-ratings agency Moody's recently put six major banks on review for potential downgrades – making many investors concerned about another wave of bank failures.
That's why Chaikin Analytics founder Marc Chaikin just hosted an online presentation to reveal what he believes is coming next for U.S. banks and the market. Plus, he shared a unique strategy that you can use to capitalize on this ongoing volatility. Get the full details here...