We take a visual approach to explain what’s happening with the US debt ceiling, LVMH and gold.
Read this article to understand:
- The long-running saga to avoid the US defaulting on its debt
- How LVMH become the world’s most valuable luxury brand
- Why gold has been one of the best performing assets this year
Suspension of debt belief?
The US debt ceiling is the limit on the amount of money the US government can borrow to pay for services such as social security, Medicare and defence. Currently, it sits at $31.4 trillion (£25 trillion), a threshold the US hit back in January.
The debt ceiling has been raised, extended, or revised 78 separate times since 1960
For over a month, there has been almost non-stop speculation about what might happen if the Democrats and Republicans failed to reach an agreement to lift the ceiling before the deadline on June 5 – namely, a US government default that would send shockwaves through financial markets and the global economy. That was, of course, until the bill comfortably made it through Congress and was signed into law by President Joe Biden on June 3.
In some ways, noise around the debt ceiling is the economic equivalent of the boy who cried wolf, which makes it all the more curious why it attracts such fevered attention. According to the US Department of the Treasury, the debt ceiling has been raised, extended, or revised 78 separate times since 1960 – 49 times under Republican presidents and 29 times under Democratic presidents.1
The US has still not defaulted on its debt.
Figure 1: US debt versus debt ceiling, 2001-2023 (US$ trillion)
Source: Aviva Investors, Fiscal Data. Data as of May 31, 20232
LVMH: The new fashion behemoth?
Over the past year, French tycoon Bernard Arnault has vied with the likes of Elon Musk and Jeff Bezos for the status of the world’s richest person. According to the Bloomberg Billionaire Index, in early June of this year, Arnault’s total net worth was over $190 billion.3 This is mainly because of his shareholdings in French company Louis Vuitton Moet Hennessy (LVMH), in which Arnault is CEO and chairman.
LVMH has seen significant growth in recent years. On April 24, its market cap surpassed $500 billion, making it the first European company to reach that milestone. Briefly, it ranked in the biggest ten companies in the world, among tech giants like Apple and Google.
Last year saw LVMH achieve record revenues of €79.2 billion. Figure 2 shows how revenues from its fashion and leather goods unit Louis Vuitton compared to other luxury brand names. So far in 2023, LVMH seems to be on the same upwards trajectory. It recorded revenue of €21 billion in the first quarter, up 17 per cent on the same period in 2022.4
Figure 2: Revenues of the ten most valuable luxury brands in the world, 2022 (US$ billion)
Source: Aviva Investors, Kantar, 20225
Given the persistence of high inflation and the cost-of-living crisis, LVMH’s success might seem counterintuitive. But the rise of the affluent middle classes, particularly in countries like India and China, continues to be a boon for high-end luxury brands. The reopening of China after tight COVID-19 restrictions had a positive impact in the first quarter, wimricharth with LVMH’s Asian revenues up 14 per cent.
Gold: Tried and tested during times of trouble
Despite not producing any income, gold remains one of the most sought-after commodities globally.
Gold remains one of the most sought-after commodities globally
The shiny yellow metal has always been a go-to asset for investors during times of uncertainty, with its price typically less correlated to other asset classes. In that sense, gold can be seen as the ultimate diversifier, which is why it can play an important role in multi-asset portfolios.
Its resilience was demonstrated again during the recent turmoil in the banking sector, with the gold spot price reaching an all-time high of over £2,000 per ounce in early May (Figure 3).
As of June 1, gold was up 8.5 per cent year to date, with a weaker US dollar likely a contributory factor. These periods tend to coincide with increased demand, as more gold can be purchased when the dollar is cheaper.
Figure 3: Gold price (£ per ounce)
Source: Aviva Investors, Eikon. Data as of June 1, 2023