• Cruise lines and travel stocks fall sharply on recession fears. 
  • Atalanta Fed's GDPNow shows the US already in a technical recession.
  • Inflation hitting discretionary and leisure spending.

Splurge stocks, as we like to call them, took a sharp leg lower this week as the Fed finally decided it better run after the mess created by its free-money-for-all printing press. Make no mistake, this is solely the mess created by the major central banks. Now all of a sudden, they are shocked that inflation is not transitory. It would have been but for massive money printing. Pent-up demand has seen splurge stocks (think travel, leisure, luxury items) recover from pandemic lows as consumers look to spend some pandemic savings on experiences and memories to banish the lockdown ones!

This as well as Fed free money was behind the recovery in CCL and other splurge stocks from the pandemic lows. CCL stock moved from $7.90 to nearly $32. Too fast, too furious.

CCL stock news: Abandon ship

We cannot rule out Chapter 11 here, to put it quite bluntly. Revlon has shown us how quickly it can happen. Cruise lines have taken on massive piles of debt to try and see out the pandemic. Now that this debt is going to cost a lot more with interest rates rising sharply, many might not make it. For cruise lines and others, you have the double hit from falling consumer demand. This summer is likely to be the last splurge before consumers tighten purse strings for the harsh winter. Inflation will see to that.

We can go through a host of nice charts and tables to illustrate it for you, but by now we think it is reasonably obvious. Consumers have already altered behaviors. Savings are being drained, credit cards are being relied on once again. Consumers spend based on the perception of wealth as much as reality. With falling asset prices, real and perceived wealth is falling. Luxury travel will suffer in 2023. 

We then add a third headwind into the equation, soaring energy prices. Cruise ships use rather a lot of expensive fuel to ferry those passengers around. They will have likely hedged some of this summer's fuel costs, but hedging 2023 is unlikely to have been achieved at lower prices. Margins will be hit, and prices will need to be raised to maintain them, which further hurts demand. It is a vicious circle. No wonder CCL stock has fallen 31% in the past week! 

CCL stock forecast: Stormy seas ahead

L stock has retraced back to the pandemic lows in March 2020. However, in March 2020, CCL had $8 billion in debt. Now it has nearly $20 billion. In March 2020 oil prices were at $60. Now they are at $120. I cannot put it any more simply. Chapter 11 is in the cards. At least if it does manage to survive the next year and we get out of recession by 2024, we might have some great deals for summer 2024 cruise holidays. Caribbean cruise anyone? Let's try and look on the bright side.

CCI daily chart

 


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