By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Jonathan D. Cohen recently published a book entitled, “For a Dollar and a Dream: State Lotteries in Modern America.”
In it he stated that one in two American adults buy a lottery ticket at least once a year, one in four buys one at least once a month, and the most avid players buy at a rate that may shock you.
He also stated that “Americans spend more on lottery tickets every year than on cigarettes, coffee, or smartphones and they spend more on lottery tickets annually than on video streaming services, concert tickets, books and movie tickets combined.”
I guess as Elvis sang, “Lady luck please let the dice stay hot, let me shoot a seven with ev’ry shot. Viva Las Vegas.”
The dollar has dealt cold dice on future earnings to multinational corporations. As the charts below show, a strong dollar tends to drive down forward earnings. The repercussions will push international companies to feel the pain along with domestic companies exporting goods.
The Commerce Department reported an inflation adjusted 2.6% growth in Gross Domestic Product (GDP). As a reminder, GDP is composed of personal consumption, business investment, government spending and net exports. The strong dollar has yet to be reflected in the “net exports” part of the equation.
But consumers are robustly spending on services, while spending less on goods. Not a big surprise following the pandemic lockdown economy. A 7% mortgage rate may start to eat into consumer spending, so the positive GDP print may not be sustainable.
The consumer will continue to be an important factor; our willingness to spend will determine where the economy lands.
Recent data shows consumers are shopping, as U.S. credit card debt is back to pre-pandemic levels.
We will watch for any pull-back in spending as mortgage rates hit levels not seen since the early 2000’s. However, because of the government largess, U.S. households are still sitting on a substantial level of savings.
Luck is at the heart of winning the lottery. The lottery outcome is binary. Pick the correct six numbers and you are a winner, pick them wrong and you lose. The folks that buy less frequently are often enticed by a large pot; the current Powerball exceeds $1 billion. Bring in the buyers.
The stock market also entices people as the numbers go higher, but oddly it turns people away when it goes lower. Market disruptions have historically benefited investors in the long run. While returns may not be immediate, the long-term record is enticing. The Fed will continue to raise interest rates as it works to quell inflation. Will that drag the economy down and cause a recession? Maybe.
To note, the market has historically bottomed before the economy. Investing may not be as fun as waiting in line pick your favorite numbers, but the outcome is generally not binary. Stocks may be down, but they still pay dividends and you do not need to visit your local 7-11 to get in on the action.
We look forward to speaking with you soon. As always, we appreciate your support and trust in Spinnaker.
Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. Information may be dated material. Charts notated with source.