An American encounter

I was in New York, New Jersey and Pennsylvania last week. It has been more than 10 years since I last visited these American states. This short trip gave me a highly subjective and anecdotal feel of the current economic situations inside the US, and how that differs between US and the UK. I also get a glimpse of how US feels about China.


Times Square New York on the left, versus an empty shopping mall in Bethlehem, Pennsylvania (photos taken by J Chu)



Two Billy Joel songs

Two songs from one of my favourite singer-song writers, Billy Joel, reflected how I felt on my short trip: New York State of Mind and Allentown (Allentown is an actual place in Pennsylvania, previously an important steel making town). The lyrics in the first song showed that Billy Joel was very excited to be back to New York. That contrasted with the downbeat lyrics in Allentown: “But the restlessness was handed down, and it’s getting very hard to stay”. I had the same feeling as Billy Joel in my short trip.


New York city was buzzing with people. London is showing some scars from the economic impact of COVID and (despite the Tory party’s rhetoric) Brexit. The hotels were full. Lots of Spanish speaking people, though I wonder whether many were local Americans coming with their kids during summer holidays. Broadway shows were a sell-out. Restaurants were busy, though not busy as a decade or so ago. The slow spot was retail department stores. I was “forced” to visit the Macy in mid-town. It was relatively busy but nothing like before COVID. No wonder why the market kept speculating whether Macy will go bust.


The picture on retail got worst when I reached Pennsylvania. I went to Bethlehem (not the place where Jesus was born) which is close to Allentown. There was a casino in that town, which was previously owned by Sands. Visited frequently by Asians and Chinese tourists, the casino was once the only profitable Sands casino in 2014. It included a hotel and a shopping outlet in the development. But Sands seemed to foresee the downturn in the gaming industry. The complex was sold to Wind Creek Hospitality in 2018. And as expected, many shops in the outlet are now closed. The number of visitors is markedly lower than that in Las Vegas. The absence of Chinese tourists since COVID has not helped.


There was no sign in recession when I was in New York. But I can feel that once I get to Pennsylvania. I can also see why any REITS and property funds linked to US shopping malls could continue to underperform. Consumers will avoid travelling if petrol prices stay high in the US. They will rather stick with online shopping, a habit that consumers have picked up during the COVID shut down.


Lots of brands were supposed to have shops in the Bethlehem shopping mall. Only 6 remains now. (photo taken by J Chu)



Inflation in US

Talking about inflation and high prices, petrol price is also high in the US. I was told that it is cheaper than the West Coast. To fill up my rental car, it cost me around $100 (around $4.50 per gallon). But that is still cheaper than the UK. The cost to fill up my car in the UK has same three digits, but the sign is in £ not $. A pound bill is losing its worth compared to the days when I travelled to US on business from 2005-2008. One pound worth almost $2 then. Back then a cup of Starbucks coffee in the US was half the equivalent price in London. Now a cup of coffee in US has the same equivalent price in London (and I was told that that will be more expensive in the West Coast).


From talking to friends and old colleagues in the US, they have concerns about the oil and gas embargo with Russia. But they don’t feel the impact as much as the Europeans. That is partly because the US has its own oil supply. Whilst the cost of living has gone up, it is nothing as compared to the UK where we are impacted by the weak pound as well. For the living cost to get back to more normal levels, the UK will need a sharper fall in inflation compared to the US. Remember that it is not inflation (rate of change of prices) but the actual living cost that affects consumption and spending. From this perspective, the US seems better positioned to withstand an economic slowdown. This is also the view of John Calverley, our Chief Economist, that whist US may have already entered recession, it will be a mild one.


One old colleague commented that because the US is less reliant on Russian oil, the country can afford to suggest imposing harsher sanctions on Russia. He also felt that the Biden wants the Russian conflict to drag on, as he strongly believes that the economic damage will force Putin to come to the negotiation table. The Europeans are caught between the rock and a hard place.


"Taiwan" being displayed at Times Square! Relax - it is just an Uber Eat advertisement about bubble tea (photo taken by J Chu)



China

The tense US-China relationship is obviously affected by recent visits of Nancy Pelosi’s whirlwind visit to Taiwan (which was followed by some other US Congress members). So imagine my shock when I saw Taiwan in Chinese being displayed in one of the colourful LED displays in Times Square when I arrived. Have the Americans become so explicit about their stance on Taiwan, even if it deviates from the official line? The colour used in the display was green, which was even more intriguing as green is the colour of the current pro-independence governing political party in Taiwan, the Democratic Progressive Party (DPP).


It turned out that it was just an advertisement from Uber Eat, showing that the most favourite takeaway delivery voted by Americans was Taiwanese bubble tea. But imagine that being caught by the patriotic writers from Global Times in China.


Unlike the situation with Ukraine and Russia, the support of Taiwan or anti-China sentiment were less displayed in the places that I visited. May be things are different in the mid-Western states. Nevertheless, I can see the attitude towards Chinese has changed from a decade ago. My Chinese relatives living in New York said the US has become more anti-China especially because of COVID. Personally, I have not experienced a very hostile reception. But compared to a decade ago, there is a stronger populist political culture that looks to blame everybody else (which we have seen in other Western democracies like the UK and Europe).


A decade ago, Fox News channel was not that extreme in its views. But when I saw some of the comments made in the channel now, I cannot help but wonder whether this type of ideology will end up causing more damage to the US economy and businesses. Well, the trip was now supposed to be used to reflect on these issues. So I switched my channel to watch how a band of imaginary heroes created by the Americans called the Avengers battled with a purpose giant alien who wanted to destroy our planet. May be the Americans have always thought they have archenemies, both in the comics and in real life?


James Chu CFA

Head of Investment Solutions

Recent Posts

See All

Our investment monthly for December provides detailed market analysis of equity, bond, commodity, currency, credit and emerging markets. This month, we raised our asset allocation to UK small-cap shar

Our round-up of what to expect in the coming week and the key events of last week. The regular Spotlight feature looks at the European STOXX 600 Food & Beverage sector and some key shares. We discuss