Proprietary Data Insights
Financial Pros Top Airline Searches This Month
Relax, Don’t Do It When You Wanna
Credit cards, man. They’re bad news.
Unless you pay your balance in full every month and rack up points for travel or something, stay away. Pay cash.
In the slew of earnings reports we got from big banks last week, credit card spending was the good news. For them.
Welcome To The New Old Normal
In their respective Q1s, Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC) reported 23%, 29%, 33%, and 25% increases in consumer credit card spending.
At all four banks, debtors have started to make slower payments. In other words, they’re carrying balances, however, for the most part, charge offs have yet to appear worrisome.
According to the Fed, overall consumer credit increased 11.3% in February. Revolving credit, which includes credit cards, drove that number, popping 20.7% annually.
For context, revolving credit decreased 11.2% on an annual basis in 2020. That’s because there were fewer opportunities to spend, but also we were all busy bragging about taking our good pandemic money habits into the new normal that doesn’t appear to be materializing.
Does this good news make bank stocks a buy?
Not necessarily, as we discuss just down the page, using an investment mantra to live by.
A Seemingly Attractive Investment You Absolutely Should Not Make
At a glance, airline stocks look somewhat appealing.
Outside of fuel costs, there’s a slightly bullish narrative developing, revolving around demand.
As we noted earlier this month in The Juice:
The International Air Transport Association (IATA) expects global travel to reach 103% of its 2019 total by 2024. In 2021, we hit 47%. IATA anticipates improvement to 83% and 94% in 2022 and 2023, respectively.
And TSA checkpoint data continues to creep closer to 2019 levels.
American Airlines Going All High-End On Us?
The Points Guy recently reported (we love The Points Guy for travel fodder) that American Airlines (AAL) placed an order for a slew of Boeing 787 Dreamliners with the following “ultra-premium configuration”:
The Fort Worth-based carrier is planning to outfit its new 787-9 Dreamliners with 51 business-class pods, 32 premium economy recliners, 18 extra-legroom coach seats and 143 standard economy ones, according to a leaked flight-training document that was viewed by TPG.
Over the weekend, some media tit-for-tat emerged around this news.
While interesting to follow, let us try to make at least a little sense of it for you.
A story in ZDNet gave the news this spin:
The author of the piece boiled it down to a play on inequality.
In a society of haves and have nots – with some struggling to make ends meet and others rolling in stock market and cryptocurrency dough – target the haves and they can generate meaningful revenue for you.
And it’s the haves who will spring for the 83 high-end and 18 extra-legroom seats on American’s new planes.
Sounds like a viable theory, if not part of a long-term investment case.
Not So Fast
In response, another travel blog we love – One Mile At A Time – shot down the ZDNet take, calling it “a rambling article” that “makes so many bizarre points,” but zero sense.
According to One Mile At A Time, like all airlines, American configures its planes on the basis of demand on different routes. Some call for more high-end configurations. Others don’t, noting that American isn’t retrofitting its existing fleet.
As usual, the truth probably resides somewhere in the moderate middle.
If they fill the seats, American will presumably generate more revenue from a business class customer than someone flying coach. However, they’re probably not thinking much about our unequal society when making their aircraft orders and detailing these planes.
It’s not like they’re channeling Renee Zellweger’s classic line from Jerry Maguire…
First class, that’s what’s wrong.
The Investment Case (Or Lack Thereof)
As with banks, airlines run in an incredibly uncertain environment.
The confluence of factors driving pessimism in the economy could throw a wrench in any upside we might expect in bank and airline stocks. Especially airlines.
Another COVID variant worse than Omicron. The airline sector takes a hit.
A chaotic summer of flight delays, cancellations and other disruptions – which more than a few people are predicting – could also spell trouble.
And we still have no firm idea where energy prices will go, given the ongoing situation in Ukraine.
Why bother investing in it when so many relatively more certain options exist?
The Thing That Makes No Sense About Many Investors
It’s one thing to be a contrarian investor or look for opportunities where others only see trouble.
It’s entirely another to confuse opportunity seeking with looking for trouble.
It’s a fine line. The best investors know how to straddle it.
Keep a small segment of your portfolio – like 5% or 10% – in relatively speculative, less certain investments.
Otherwise, go with what you know. With the trends and patterns history, thankfully, throws in our faces.
Go for stability and certainty. Make this one of your investing mantras.
The Bottom Line: If you’re a long-term investor of modest means, put most of your money in areas of the market where you can have some level of reliable certainty.
Might sound boring, but it starts with investing in the broad market. ETFs such as the Invesco QQQ Trust (QQQ) or the SPDR S&P 500 ETF Trust (SPY), which track the Nasdaq 100 and S&P 500 indices, respectively.
From there, regularly buy individual stocks using the theme we love here at The Juice.
Invest in companies less vulnerable to uncertainty. Companies that’ll not only be around, but will thrive through tumult and come out stronger when the dust settles.
As in, buy Nike (NKE) not Peloton (PTON). Apple (AAPL) and Starbucks (SBUX) not AMC (AMC) or GameStop (GME).
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