”Eat your betting money, but don’t bet your eating money.”— Anonymous gambler’s adage
“Normally when we are discussing problems with banks, it’s after a credit cycle. We haven’t even started the credit cycle,” says Former Federal Reserve Bank of Dallas President Robert Kaplan on Bloomberg Surveillance. “We’ve got the credit issues yet to come…” and later, “We’re in the second or third inning of this issue.”
The conventional understanding among experts is that the Fed will raise rates another 25 “bips” again today at 2pm EST. The market expects today’s committee decision to be the last interest-rate increase for a while.
Call it a “Hawkish pause.’’ All quiet in the stadium of our savings.
Amid continued softness in the banking sector, more tightening at bat today. Credit creation is harder and harder to justify. If we are to expect Kaplan’s “credit issues” in later innings…
The last cheers and jeers of an era of Mouse-click money fizzling as fixed income traders— institutional and individual— flee to quality. Meaning bigger and bigger banks.
“Another hike you’ve got to be kidding Americans,” a comment reads on YouTube. The sports analogy remains apt.
Regional bank stocks continue to take the heat as regional bank fears persist. PacWest plummeted 28%. Western Alliance ended Tuesday down 15%. Zions, Comerica and Key, all fell between 9-12%.
While the similarities to the ‘08 crisis are there, the constant specter of inflation reminds us that this is a crisis of the employed.
The increasingly difficult cost of living continues to be the Fed’s primary demon to fight.
And yet, the consumer shows remarkably little sign of rollover.
We can look at discretionary spending as a way in. Cruise companies like Royal Caribbean and Norwegian Cruise Line are scheduled to report earnings this week.
Carnival’s earnings— which we have a position in and track regularly on The Essential Portfolio— indicate the cruise line industry’s January-through-March travel season was hot. I know my son, Henry, and his girlfriend’s family went to Cabo San Lucas on a whim in January. Carnival is the party one.
Robinhood reports with incision: “Carnival said it achieved record quarterly booking volumes during a ‘phenomenal’ season, with sales at 95% of 2019 levels. Still, its bottom line was sunk by a nearly $700M loss. While cruise demand has rebounded as Americans splurge on experiences, higher costs (think: fuel) could weigh down profits.”
“From what I’m seeing,” adds our Investment Director Zach Scheidt, “spending on travel and leisure is still strong. Another indication of this is strong casino stocks—LVS / WYNN / MGM—which benefit from similar consumer spending patterns. Affluent consumers still have cash to spend. Carnival and competitors should still have pricing power (higher ticket prices) to help them offset higher expenses. Still a bullish area IMO.”
Henry was also at a casino in Meridian, Mississippi just last month. Is this younger generation part of the problem?
A sign of confidence? Maybe. Arrogance? Less so.
A hopeful ignorance. Bingo.
The distortion between post-Pandemic splurge spending and real, important savings plays is evident when we look at how consumer credit has been expanding in relation to savings.
Credit expanded while savings plummeted after the re-opening of the economy. People are traveling, going to restaurants, buying clothes, luxury pocketbooks, cars etc. mostly on credit and loans…
Meanwhile the Fed continues its hawkish tear.
Credit expanded while savings plummeted even as the economy reopened. People are traveling, going to restaurants, buying clothes, luxury pocketbooks, cars etc. mostly on credit and loans.
A corollary drop in discretionary spending:
The plunge in discretionary spending has not seen this amplitude since the Great Depression, when the Roaring 20s came to a spectacular close and the days of golden licentious days of Fitzgerald gave way to gray solemn Steinbeck.
Meanwhile, Chairman Powell continues to hone his best impression of the inflation slayer, Paul Volcker.
So it goes,
Founder, The Wiggin Sessions
P.S. The above charts were ripped from the Wealth365 live webinar we did on April 17th. If you missed it you can view it here.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.