Today’s a good day to remember that consumer spending accounts for roughly two-thirds of the American economy.
First, inflation: Tuesday’s CPI showed consumer prices rose 0.4% in October, sure. And the news sparked fresh speculation that the Federal Reserve will raise rates at its next meeting on December 9.
Leaving aside the fact that the Fed is impotent in the face of a $2 trillion deficit encouraged by a dysfunctional Congress, inflation hits households differently.
Americans with appreciating assets and rising incomes continue spending, while households struggling with everyday expenses have less to spare.
The K-shaped economy, to use a popular financial media buzzword, is firmly entrenched. Travel and tourism, for instance, remain strong across the board. For those on the downward slope of the K-curve, it’s a luxury worth spending on.
For those with more money to spend, it’s par for the course. Add in strong business demand for travel and conferences, and it’s been a good year for the hospitality industry, particularly hotels:
Now peek behind the curtain at the circus surrounding Nvidia (NVDA) CEO Jensen Huang. He resigned last night to spare his company the expense of an investigation into his extramarital affairs and suspicion that he colluded with a Chinese spy.
Investors question what a leadership change might mean for Nvidia’s $164.5 billion in financial commitments.
Huang has also enlisted Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR in a proposed $500 billion AI financing initiative. Add in the hyperscalers’ soaring capital budgets, shrinking free cash flow and increasingly complicated financing arrangements, and investors have enough drama to fill a season of “Succession”.
While that drama plays out, Americans are still traveling. Affluent households are booking luxury vacations at a record pace. Mid-tier consumers are still making room for occasional getaways, and corporate conferences provide steady demand.
Hotel occupancy has approached pre-pandemic levels, while operators in destinations such as Las Vegas and Miami can command premium rates during major events.
Luxury brands also collect substantial revenue from restaurants, resorts and conferences.
Today’s Pro trade offers a solid alternative to the AI circus.
Asset-light hotel operators such as Marriott and Hilton collect recurring franchise and management fees from properties largely financed by others. They can benefit from higher room rates and growing travel demand without committing hundreds of billions to infrastructure.
The investment thesis is straightforward: favor companies with affluent customers, pricing power, expanding fee income and growing free cash flow, provided their share prices leave room for a reasonable return.
~ Addison
P.S. You may be far more exposed to tech than you realize, even if you’ve never bought a single tech stock. Right now, 4 out of every 10 dollars in the stock market sit in just 10 companies. That’s a bigger share than at the very peak of the dot-com bubble.
If you own an index fund, a 401(k) or almost any retirement account, your money is riding on a handful of tech behemoths. And starting November 16, those giants are headed for a collision with Washington.
Most investors won’t see it coming until it’s too late.
That’s why Strategic Fortunes chief strategist Ian King, Money & Markets chief investment strategist Adam O’Dell and I have teamed up in a new service called The Alliance.
We’ve built a 12-position Final Reckoning Portfolio designed for whatever happens next as this market shift takes place. You’ll also receive weekly portfolio updates, alerts and new investment ideas from all three of us. Click here to get the full details.
P.P.S.: Grey Swan Live! returns this afternoon with Zoltan Istvan.
We’ll review Zoltan’s February analysis on the backlash against AI development – which was on full display during last week’s midterm elections.
We’ll also cover what comes next in AI – including where the next round of AI winners are.
See you this afternoon at 2 p.m. ET for the latest in the AI trade.
