CAPITAL IDEAS: Sun, sand and assessment of the US economy


Photo courtesy of Flickr.

I skipped writing a column last week because I was sunbathing in Jamaica. Sunbathe. Burn. No matter. Please don’t touch my shoulders.

The people of the island are welcoming, friendly and happy to talk about what they see and know.

According to the island’s director of tourism, Jamaica expects around 2.45 to 2.5 million visitors with total spending of $2.9 billion for 2022. That would be twice as many visitors and an increase of 50 % of revenue over last year. Projections for 2022 are still below pre-COVID-19 numbers, but levels are increasing significantly each month. And the levels don’t lie.

While on vacation, I met other couples from as far away as Italy, Norway and Belgium. However, the Jamaicans assured me that the percentage of visitors from the United States was “almost all, my”. I paid with an American credit card. I tipped the staff in US dollars. I purchased products from the store in US currency. Jamaica is a playground for fun-loving Americans, including those spending leftover stimulus payments and those who generally have discretionary income without those payments.

Jamaica’s improving numbers make sense given that in recent months Americans have spent about $114 of their $2.7 trillion in “surplus” savings. (I have already referred to the term excess savings. It refers to the amount of household savings expected relative to the size of the economy and trends in savings.) Moreover, US wage incomes remain healthy.

Whenever I have traveled since the start of the pandemic, I have taken to asking locals what they saw: were there more or fewer visitors? Are they spending more? What are they buying ? Where are they going? I used to do a pre-pandemic version of it almost automatically. I called it a “channel check”. I would go out to eat and notice the turnover of seats and if people were paying extra for appetizers and desserts. I would ask the delivery people what their volume is. While shopping, I would do a visual poll of how many people had armfuls of bags full versus those who seemed to just be making token purchases.

Unfortunately, I don’t think I would have any luck convincing the Internal Revenue Service that it was a work trip. Nevertheless, it was a happy week of S – sun, sand and assessment of the US economy. I stated that I believe the United States is currently in a recession, although it does not “feel” that way due to the high employment numbers. When gross domestic product (GDP) growth is released for the second quarter of 2022, it will likely show that the United States has had two consecutive quarters of negative GDP growth. This is a common, if imprecise, definition of a recession. The American mood in Jamaica gives the impression that this recession will ultimately be less painful than the shock of 2020 or the great financial crisis of 2008. This bodes well for a stock market decline closer to 30% rather than 50%. The recent decline of around 25% in the S&P 500 from peak to peak means most of the damage has likely been done.

Jamaicans have told us that in recent months the pace of American visitors has been increasing even as it gets warmer in the states. I don’t play golf and don’t drink much, but I was told by Jamaicans that people who didn’t pre-book couldn’t access the course. A popular roadside bar had attracted so many American tourists that it recently sold for $8 million. I checked out the place. I’m not saying they overpaid, but the business of the shack-like restaurant must have been outstanding.

For this spending to directly help the US economy, you would want it to happen in the states and not elsewhere. However, it is indicative of the appetite of the American consumer. They have heaps of savings, higher salaries, and a strong desire to spend that money. The Federal Reserve tries to slow down the economy to control inflation. They have a lot of work to do, given the current propensity to spend.

What did I miss when I was gone?

When I left the United States, Americans feared the world would collapse. I came back and it’s worse. According to the American Association of Individual Investors (AAII) Confidence Survey, the number of those bullish in the stock market has once again fallen below 20%.

Chart courtesy of the American Association of Individual Investors.

That’s about half as many bulls as usual.

Chart courtesy of the American Association of Individual Investors.

When I was gone, the number of bulls decreased and more people became bearish. There is now a 33.4 percentage point gap between the readings. It is in the second percentile of all readings since the survey began in 1987. The level of decline is extreme on this metric and validated by a number of other sentiment measurement tools.

As a contrarian, I welcome it. This suggests that the bottom of the stock market is likely approaching. As a realist, I still have concerns. We may be near bottom and still be beaten in the stock market over the next few months as the midterm elections approach. This often happens during election years, and you have to respect historical stock market cycles, man.

Allen Harris is the owner of Berkshire Money Management in Dalton, MA, managing over $700 million in investments. Unless specifically identified as original research or data collection, some or all of the data cited is attributable to third-party sources. Unless otherwise stated, any mention of specific securities or investments is for illustrative purposes only. The adviser’s clients may or may not hold the securities in question in their portfolios. The Advisor makes no representation that any of the securities discussed have been or will be profitable. Full disclosures: https://berkshiremm.com/capital-ideas-disclosures/ Direct inquiries to Allen at [email protected]


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