Biggest Investing Story Of The Day? October 20, 2023

Locator: 45777ECONOMY.
Locator: 45777RETAIL. 

Updates 

October 22, 2023: The WSJ.

October 21, 2023: not so much talk about a recession right now. JPow has lots of room to maneuver.

October 21, 2023: just out of curiosity, if one was living paycheck to paycheck, if one was worried about the economy, if one was worried about saving money for retirement, what part of your life would you give up first to save cash? Everybody will answer differently.

For me, I would argue that going out to eat would be number one on my list, and if not number one on the lists of other folks, it would certainly be among the top ten "things" to give up. 

[Moving to a state with no state income tax might be the best way to save money, but that's not a reasonable option for many / most.]

US retail sales in September, 2023, came in 4x what was forecast.

Quick! What sector inside "retail sales" led the pack? Answer: restaurants and bars. Is anyone paying attention? Households still have a lot of money.

From CNBC:

 “The U.S. consumer cannot stop spending,” said David Russell, global head of market strategy at TradeStation.

“All three retail sales reports for Q3 were above estimates, which puts us on track for a strong GDP number later this month. It also gives the Fed zero reason to loosen policy, which keeps the 10-year Treasury yield pushing toward 5%.”

Sales gains were broad-based on the month, with the biggest increase coming at miscellaneous store retailers, which saw an increase of 3%.

Online sales rose 1.1% while motor vehicle parts and dealers saw a 1% increase and food services and drinking places grew by 0.9%, good for a yearly increase of 9.2%, which led all categories.

There were only a few categories that showed a decline; electronics and appliances stores as well as clothing retailers both saw decreases of 0.8% on the month.

Original Post

Time to answer the question. Yesterday I posted this:

Link here.

Will be posted later. Connects a lot of dots.

See if you can think what that story will be.

Hints:

• Fortune 500 company;
• earnings;
• record results;
• meme: it's for old, rich people
• fact: millennial and Gen Z customers fastest growing demographics

******************************
The Answer: American Express

I think this was the most important retail / financial story yesterday. It connects a lot of dots.

The biggest dot to connect: just where is all that money coming from that allows Americans to keep spending. Remember: in September, American-retail-spending came in four times what was forecast.

Imagine if the headline had been: Apple's profits come in four times expectations.

And yet the fact that Americans spend four times what was forecast seemed to get very, very little media play.

So, from where is all that money coming?

Here are the dots to connect:

They're living at home, rent-free, mortgage-free:

Another dot to connect: how much money is being saved by working from home, not buying gasoline, or even a car in some cases?

Enough of that. I'm sure you can think of a lot more examples. 

Oh, one more example: the millennials have no health care expenses. Their health insurance premiums are being paid for by their employer and because they are in great health (young age and not pregnant) they don't have any deductibles or co-pays about which to be concerned. 

Think how much more discretionary / disposable income you would have if you had:
no mortgage

• no mortgage or rent expenses
• no swimming pool expenses
• no internet, Hulu, Netflix, HBO expenses
• no car (gasoline, maintenance even if paid for; monthly payments)
• no health care premiums or out-of-pocket health care expenses
• no college payments for child (children)
• no diapers, no formula for new babies

Now back to American Express.

Link here (same as above). From the very, very well-respected Barron's:

From the article:

Consumers keep shopping and traveling and that translated to American Express announcing its sixth consecutive quarter of record revenue.

Revenue at American Express climbed 13% from the year-ago quarter to $15.4 billion.

Profit topped expectations -- by 12% -- growing 30% to $2.45 billion, amounting to earnings of $3.30 a share, another record for American Express. Analysts had been projecting that Amex would earn $2.95 a share. [Think what AAPL would do if profits topped expectations by 12%.]

Total card member spending climbed 7% to $420 billion on a currency-adjusted basis. In the U.S., card spending climbed 9% year over year, while the company’s international segment saw a 15% increase in spending after adjusting for currency. [Of course a lot of that has to do with inflated prices.]

American Express noted that households and businesses have not lost their propensity to spend on going out with travel and entertainment expenditures climbing 13%, helped in large part by restaurant spending.

And then look at this:

The company also was optimistic about its continued ability to court younger clients. Millennial and Gen Z customers are American Express’s fastest growing demographic, with spending up 18% year over year and the group accounting for 60% of new accounts.

Why are millennials and Gen Zers using the most expensive, most prestigious credit card available? Because they can. These are folks with high paying tech jobs with no car payments, no mortgages, no health care costs.

And that's why retail sales came in four times greater than expected. 

If it weren't for Sophia, I wouldn't need a car. As it is, I'm spending $25 / month on gasoline for a car that has been paid off since 2017.