I smiled as I looked back at my boys beaming with excitement in the backseat of the brand new Model Y we were taking out for a test drive. Although I love my Lexus SUV, we’ve put over 220,000 km on it since Brady was born and I’m tired of stressing about the price of gas. I wasn’t the only one seduced by Musk’s aggressive move to slash prices as I’ve never seen the Tesla store so busy. In contrast, the lululemon store a few stores down was pretty empty, despite it having more racks of items on sale than I’ve ever seen, on top of offering a rare one-time 25% discount.
I haven’t yet taken advantage of either offers as my closet is already filled with lululemon apparel and I want to do more due diligence before buying a new car. But the big takeaway is that demand destruction has not only moved up the income curve to the wealthier haves but it has fully moved up the customer capital curve to the psychological layer as even companies with a cult-like following like Tesla and lululemon are needing to cut prices to stimulate demand and move inventory. When you combine this with Disney’s retrenching of its recent price increases, it is clear that inflation is dissipating and we’re moving out of the calm interlude of the “eye” of the storm.
As we say “bye-bye eye”, it is still not blue skies as we’re now moving towards the eyewall — the thick ring of cloud around the eye — which carries the recessionary winds that have been gaining strength since the Fed started hiking rates in March. We’re starting to get glimpses into the destructive power of this recessionary phase of the hurricane as PC shipments collapsed 29% in Q4 and layoffs are hitting financial firms like Wells Fargo, BlackRock and LendingClub. But we won’t discover the full strength of the recessionary storm until we move into earnings season.