I skipped writing a column last week because I was getting a tan in Jamaica. Tan. Burn. Whatever. Just don’t touch my shoulders, please.
The people of the island are welcoming, gracious, and happy to talk about the things they see and know.
According to the island’s tourism director, Jamaica is projecting about 2.45 to 2.5 million visitors with a total visitor spend of $2.9 billion for 2022. That would be twice as many visitors and a 50% jump in revenue from last year. 2022 projections are still behind pre-COVID-19 numbers, but the levels are getting meaningfully higher every month. And 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 U.S. was “almost all, mon.” I paid using an American credit card. I tipped staff in U.S. dollars. I bought products from the boutique in U.S. currency. Jamaica is a playground for fun-loving Americans—including those spending remaining stimulus payments and those who typically have discretionary income without such payments.
The improved numbers in Jamaica make sense given that in recent months Americans have spent about $114 of their $2.7 trillion of “excess” savings. (I’ve referenced the term excess savings previously. It’s the amount of household savings that is expected relative to the size of the economy and savings trends.) Additionally, U.S. wage income remains healthy.
Any time I’ve traveled since the start of the pandemic, I’ve made it a habit to ask locals about what they’ve seen—have there been more or fewer visitors? Are they spending more? What are they buying? Where are they going? I used to do a version of that before the pandemic almost automatically. I called it a “channel check.” I’d go out to eat and notice the seat turnover and whether people were paying extra to get appetizers and dessert. I’d ask delivery people about their volume. When shopping, I’d take a visual poll of the number of people with armfuls of filled bags versus those who appeared to be simply making token purchases.
Unfortunately, I don’t think I’d have any luck convincing the Internal Revenue Service that this was a work trip. Nonetheless, it was a blissful week of S’s—sun, sand, and sizing up the American economy. I’ve stated that I believe the U.S. is currently in recession, despite it not “feeling” that way due to great employment numbers. When the growth of gross domestic product (GDP) is released for the second quarter of 2022, it will likely show that the U.S. experienced two consecutive quarters of negative GDP growth. That’s a common, albeit imprecise, definition of a recession. The American vibe in Jamaica makes it feel as if this recession will ultimately be less painful than the shock of 2020 or the 2008 Great Financial Crisis. That bodes well for a stock market decline closer to 30% rather than 50%. The recent peak-to-trough decline of about 25% for the S&P 500 means that most of the damage has likely been done.
The people of Jamaica told us that in recent months, the pace of American visitors was increasing even as it was getting warmer in the states. I don’t play golf or drink much, but the Jamaicans told me people who didn’t make prior reservations couldn’t get on the course. A popular roadside bar had been attracting so many American tourists that it recently sold for $8 million. I checked the place out. I’m not saying they overpaid, but the shack-like restaurant’s business must have been exceptional.
For this spending to directly help the U.S. economy, you’d want it to occur in the states and not elsewhere. However, it’s indicative of the appetite of the U.S. consumer. They have piles of savings, higher wages, and a strong desire to spend that money. The Federal Reserve is trying hard to slow the economy to control inflation. They have much work to do, given the current propensity to spend.
What Did I Miss When I Was Gone?
When I left the States, Americans were concerned that the world was falling apart. I got back, and it’s worse. According to the American Association of Individual Investors (AAII) sentiment survey, the number of those bullish on the stock market once again dropped below 20%.
That’s about half as many bulls as usual.
When I was gone, the number of bulls shrank, and more people became bearish. There is now a 33.4 percentage point gap between the reading. This is in the second percentile of all readings since the survey began in 1987. The level of bearishness is extreme on this metric and validated by a number of other sentiment-measuring tools.
As a contrarian, I am happy about this. It suggests that the bottom for the stock market is likely approaching. As a realist, I still have concerns. We can be close to the bottom and still get beat up in the stock market for the next few months as we approach mid-term elections. That often happens in election years, and you should respect historical stock market cycles, mon.
Allen Harris is the owner of Berkshire Money Management in Dalton, MA, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations 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 AHarris@BerkshireMM.com.
