"This time is different" are reputed to be the most dangerous four words for investors. Yet, the past three years have certainly made an argument for their usage.
One of the many remarkable patterns that I see currently is the attempt for the Fed to slow down the economy while consumers have strong balance sheets. In the past, the Fed has attempted to slow things down (e.g. 1999 and 2007) when spending and speculating have been running hot with a consumer whose balance sheet was weakened with debt. By "tightening," the Fed has been able to slow the economy dramatically due to the drop in asset values, the loss of cyclical jobs and a drop in consumer demand. But this time looks different.
For example, in reviewing AutoNation's (AN) financials, I have been amazed to see how AN has fared. In the midst of this tightening, the volume of cars sold has dropped by roughly 20%, but the price increases have offset this loss. These price increases have occurred even as AN is selling cars with missing chips. Even more, these price increases are based on financing with rising interest rates. At this point in a "tightening" cycle, AN would be marking down cars to clear them from the lot as consumers would step back. It appears that no amount of pressure is reducing this demand.
From where I sit, the "this time is different" dynamic is rooted in delayed gratification. People who have suppressed shopping and traveling desires for three years are simply responding differently. During the pandemic, it appears that people not only missed hanging out with friends and family, but they also missed the joys of new stuff, of new vistas and of new experiences. If that is so, the Fed is fighting a demand drive with more psychological force than previously experienced. In fact, the closest analogy may be the euphoria of post-war spending.
