In Philadelphia, it’s Worth 50 Bucks

Louis Winthorpe III : Fifty bucks? No, no, no. This is a Rouchefoucauld. The thinnest water-resistant watch in the world. Singularly unique, sculptured in design, hand-crafted in Switzerland, and water resistant to three atmospheres. This is “the” sports watch of the ‘80s. $6,955 dollars retail!

Pawnbroker :              You got a receipt?

Louis Winthorpe III : Look, it tells time simultaneously in Monte Carlo, Beverly Hills, London, Paris, Rome, and Gstaad.

Pawnbroker :              In Philadelphia, it’s worth 50 bucks.

Louis Winthorpe III : Just give me the money.

Louis Winthorpe III : [looking in display case] How much for the gun?

This priceless scene is no stranger to QI clients. Having crashed into destitution in mere minutes on the big screen, Dan Aykroyd puts in one of his most smashing performances in Trading Places. Though the movie’s score was the only ‘star’ to receive an Oscar nomination, we venture that Blues and Rock & Roll legend Bo Didley would have walked away with a statue for Best Cameo for his perfect portrayal of a shrewd Philadelphia pawnbroker.

In an “analysis” by GQ Magazine celebrating the 40-year anniversary of the film’s 1980 release, the fictional Rouchefoucauld ‘watch wonder’ would have fetched $28,000, or 3x its 1980 price. Paralleling this math, in pre-pandemic January 2020, a new, bare-bones Rolex Submariner was commanding $8,950, nearly 7x its price in 1980 of $950. Today, per, that same watch runs you $15,852. Yes, inflation in luxury goods since Covid has been extraordinary, even by the wealth-infused standards of the post-Fed Put era conferred upon the haves by Alan Greenspan. The spending that’s emanated from it, punctuated by widening inequality, has largely kept the planet’s economy revolving.

By extension, any threat to high-end spending is economically existential. For that reason, a mainstay on my screen is luxury “staple” LVMH stock, which is down 23% thus far in 2022. That compares to the S&P 500, which is off by 13%, and MSCI ex-USA, which has lost 14% of its value. At the risk of tautology, the fate of the stock of the purveyor of $5,000 Lady Dior bags and $15 million Princess Yachts depends on the stock market. If its tony clientele feels less wealthy, the lifestyle the privileged leads won’t be sufficiently lavish to support an above-market price-to- earnings ratio. For those keeping score, LVMH’s is higher than the S&P 500’s 21, which stands to reason given most of the wealth created remains intact.

There is a limit to how much pain this cohort will absorb before the wheels start to fall off. A spate of insomnia had me in front of my laptop yesterday morning at 3:33 am when Bank of America’s “Word from Main Street” hit with news that sentiment for higher-income earners had crumbled, falling to 28.3% in April from 37.2% in March (yellow line). Over the same period, the spirits of the lower-income group perked up to 30.5% from 28.3% last month (blue line). At the risk of moving on too quickly, note that those stuck in the middle of the income stack (orange line) have seen their mood steadily sour since the last stimulus check was spent last summer.

We know two things – credit card spending has gone haywire. And the lowest income earners have seen their wages rise by twice those who sit at the opposite end of the income strata. As such, per BoA, “Despite the disproportionate impact of inflation on lower-income households, upper-income households are likely experiencing lower real wage growth.”

On the day Robinhood laid off 9% of its workforce, perhaps it can’t hurt to harken the adage, “Innocence is bliss.” Yesterday morning’s release of the Conference Board’s April installment of Consumer Confidence saw households’ perceptions of Jobs (still being) Plentiful hang onto its highs (light blue line). Meanwhile, the confidence in the job market six months out on the part of the employers — one in the same with those high-income earners and commonly referred to as “boss” — fell to the lowest since March 2020.

Bloomberg, ever in the deflecting mode for the current administration’s woes, eked out the following headline: “Consumers Get More Confident in Travel Abroad.” Call it the sin of omission. It is true, the 14.5% planning to travel to a foreign country in April was an improvement from February’s 11% (these queries take place every other month); still, it’s a smack dab average of last December’s and October’s 14% and 15%, respectively. In the aggregate, plans to take anykind of vacation slid to a year low (pink shaded area). Not depicted is those planning to travel within the U.S. which slid to 36.7% from last October’s recent high of 47%.

The “spending on services” narrative is getting a bit thin. Check that – the spending period narrative is looking weakish. To little fanfare amidst the natty gas sabers rattling a nerve-wracked market, revisions to retail sales, released Monday afternoon, were so weak, the Atlanta Fed took its GDP for the first quarter down to 0.4%. As a back check against the NowCast model, which the pandemic has tested, I checked in with Ben Herzon. He too had just taken his forecast for tomorrow morning’s first print. The difference was Herzon’s was an even lower 0.1%, which I suggested was nothing more than a rounding error, or, if you prefer, worth about 50 bucks in Philadelphia.

Posted in Daily Feather.