Save Your Money

<October 15, 2025>

Born in 1910, my grandfather lived through the Great Depression—an experience that left a deep and lasting impression on him, as it did on many in his generation. He was a hard worker and a relentless saver. Whenever I greeted him with, “What do you say, Gramps?” his response was always the same: “Save your money!” It was great advice, and I listened. By sixteen, I had my first part-time job, and by eighteen, I bought my first CD with a 7% coupon. Those were the days!

Many years later, after the 2008–2009 bear market, I spoke with a couple who had lost a significant portion of their savings in the stock market. Their reflection surprised me. In hindsight, instead of saving, they wished they had spent their money. Looking back, they thought about all the things and experiences they could have enjoyed if only they’d used their savings before stock prices crashed. For them, saving ended in regret.

Fast forward to today, and few equity investors are expressing similar doubts. The current market cycle has been remarkable—both in its duration and magnitude. In nominal terms and relative to GDP, equity prices and valuations are at all-time highs. Investors who have allocated their savings into the stock market have been rewarded with enormous paper gains.

As stock prices have risen, so has the net worth of many Americans. Household net worth has grown from $56 trillion at the beginning of the cycle in 2009 to $167 trillion as of June 30, 2025. In our view, rising asset prices and net worth have played a vital role in driving and sustaining the current economic cycle. In fact, the economy has become so dependent on household net worth that it’s becoming difficult to distinguish between the two!

As asset prices have soared, wealthier consumers are playing an increasingly influential role in the economy.  According to The Wall Street Journal article “The U.S. Economy Depends More Than Ever on Rich People,” the top 10% of earners now account for nearly half of all consumer spending. Companies are responding by increasingly targeting higher-income households, who are more willing to spend their inflated net worth. As the wealthy represent a growing share of economic demand, they are also becoming the price setters for a wider range of goods and services. Consequently, as asset prices rise, so does the risk of asset inflation spilling over into consumer prices.

Anecdotal signs of this trend are widespread. Have you tried buying a new car lately? Or looked for a home in a desirable school district? Recently, while searching for a reasonably priced hotel room for a weekend trip, I found myself asking, “Who can afford this?” Those with inflated brokerage accounts, of course. And businesses shouldn’t be blamed. They’re facing rising costs too and are responding rationally by being less promotional, prioritizing premium offerings, and preserving margins through pricing rather than volume.

We believe asset inflation spilling over into consumer prices is one reason inflation has been stickier than expected. While price pressures have moderated from their 2022 highs, inflation is still running near 3% and has remained above the Fed’s target for over four years.

From our bottom-up perspective, most companies we follow continue to maintain pricing power. Meanwhile, the Fed has shifted its focus from inflation to a weakening labor market, even with stocks at all-time highs and with inflation expected to remain above the Fed’s target. In our opinion, the current macro backdrop remains inflationary, with monetary-induced asset inflation continuing to fuel higher prices and deepen the affordability crisis.     

With inflationary trends intact and household net worth soaring, for the first time in my life, I’m beginning to question my grandfather’s sound advice. Assuming asset prices continue to rise, at what point does the slow leak in household wealth into the economy become a flood?  And if that flood comes, how will $167 trillion in net worth compete—orderly or not—for the limited goods and services in a $31 trillion economy? And what would such a flood of wealth do to prices—and to an inflation rate already running hot? Maybe spending some accumulated wealth before others spend theirs isn’t such a bad idea.

In our April 2021 blog post, “Buy Things,” we noted that although the Federal Reserve believed inflation was transitory, many of the businesses we follow were implementing large price increases. We saw this as an opportune time to buy goods before prices rose. As it turned out, inflation wasn’t transitory, and many of the items purchased in 2021 are significantly more expensive today. We believe the current environment is similar. While price increases aren’t as widespread or severe, we are again seeing price increases in the pipeline—with many tariff-related increases expected to hit in 2026.

In addition to front-running future price increases, spending can also serve as a hedge against inflated equity valuations. If we are indeed in another stock market bubble—as we believe—then swapping overvalued stocks for valuable goods and services seems logical. Should the bubble burst, your remaining equity allocation may still suffer meaningful losses, but at least you’ll have tangible things or lasting memories to show for it. Think of it this way: right now, it only takes 125 shares of NVIDIA to pay for a new roof. If the AI mania crashes tomorrow and the stock loses half its value—or more—you’ll still have a new roof over your head!

Lastly, it appears the current approach to managing the U.S. fiscal deficits and massive debt load is to “run the economy hot.” In effect, this strategy attempts to boost tax revenue faster than interest expense and debt growth. The Federal Reserve is expected to do its part by lowering interest rates and prioritizing growth over fighting inflation. Meanwhile, government spending is likely to remain elevated. With both fiscal and monetary policy running hot, spending some wealth now—before demand-driven inflation kicks in—could prove timely.

My grandfather’s advice to “save your money” made sense throughout his life and most of mine. But today, with inflation lingering, asset prices soaring, and policy pushing the economy to run hot, the choice between saving and spending has become more complicated. Saving is still important, but it may also be worth asking when spending makes sense—whether to get ahead of wealth-driven demand and price hikes, or to avoid being caught holding overvalued stocks. In some cases, spending your money, or monetizing inflated financial assets, may actually be the more sensible option. 

And one last thing: I just realized my wife occasionally reads these posts! To be clear, spending instead of saving isn’t the right choice for everyone. 😊

Eric Cinnamond

eric@palmvalleycapital.com

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Definitions:

GDP: Gross Domestic Product (GDP) includes consumer spending, government spending, net exports, and total investments. It functions as a comprehensive scorecard of a country’s economic activity.

Wilshire 5000: The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all American stocks actively traded in the United States.

Market cap to GDP: Market Cap to GDP (also called the Buffett Indicator) is a valuation metric used to assess whether a country’s stock market is overvalued, undervalued, or fairly valued relative to the size of its economy.

Household net worth to GDP: Household Net Worth to GDP is another macroeconomic ratio used to assess the relative wealth of households compared to the size of the economy. Like Market Cap to GDP, it can offer insight into economic cycles, bubbles, or imbalances—but from a consumer wealth perspective rather than corporate valuation.

Household net worth: The household net worth is the value of total assets minus the total value of outstanding liabilities, which are current obligations of a household arising from past transactions or events.

SPY: The SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund (ETF) that aims to track the performance of the S&P 500 Index, which is a benchmark index representing 500 of the largest publicly traded companies in the United States.

QQQ: The Invesco QQQ Trust (QQQ) is a popular exchange-traded fund (ETF) that tracks the NASDAQ-100 Index. This index includes 100 of the largest non-financial companies listed on the NASDAQ Stock Market, with a heavy emphasis on technology and growth-oriented firms.

NVDA: NVIDIA Corporation (Ticker: NVDA) is a leading American technology company best known for designing graphics processing units (GPUs) and AI hardware/software. It's one of the most influential companies in the world, especially in fields like gaming, data centers, AI, and autonomous vehicles.