Wall Street Oracle warns unseen bubble is about to burst with swathe of companies at risk: 'Enormous impact'
The 'Oracle of Wall Street' who predicted the 2008 housing crash says nobody is talking about a gigantic financial bubble that is about to burst.
Last week, investors clenched their teeth over the potential risks of plowing into AI stocks, sending markets into dizzying wobbles just a month after record-setting highs.
But famed financial analyst Meredith Whitney told the Daily Mail she's watching a different pressure point: the 42.7 million Americans with student debt, or a group she calls 'avocado toast-ers.'
Whitney described the group as younger millennials and older Gen Zers. They're the bunch who love treating themselves to an expensive salad and a mid-day latte.
She argued when DC froze federal student loan payments during COVID - freeing up an estimated $400 billion for borrowers over nearly five years - it created a spending mirage.
Companies forecast growth as those consumers kept spending, while the government paused their $200-plus monthly loan responsibilities.
Whitney said companies catering to those young adults - from Urban Outfitters and Abercrombie to DoorDash, Uber Eats, Netflix, and buzzy restaurant chains Cava, Sweetgreen and Chipotle - expected this group would keep spending as it did in 2021 and 2022.
Now that student loan payments have come due again, their forecasts are shattering.
Meredith Whitney (pictured), the 'Oracle of Wall Street', told the Daily Mail there's an under-analyzed problem in the consumer economy: student loan repayments
Whitney warns that several companies - including Sweetgreen (pictured), Abercrombie and Uber Eats - have catered too much to student-debt holders
'People don't talk about the $400 billion of student-loan forbearance that lasted over four years,' she said.
'If you're not paying for your debt, you've got $200 or more each month to spend. That was found money for avocado toast-ers.'
The group carries 52 percent of all student debt - the second-largest source of consumer debt after mortgages - with a price tag of around $850 billion.
To understand the economic scale, Whitney compared it to stimulus checks.
Roughly 165 million Americans received $812 billion in direct COVID payments, including checks ranging from $600 to $3,400.
The cash, sent during both the Trump and Biden administrations, was meant to lift an economy facing mass layoffs and businesses suddenly going remote.
Economists warned that the direct-to-consumer cash could boost inflation, and industry analysts have previously blamed the checks for the years-long struggle to cool consumer prices, including inflation rising above nine percent in 2022.
But the inflationary impact of the student loan pauses has gone large unquestioned.
Whitney classifies avocado toast-ers as younger Millennials and older Gen Zers - a cohort that holds about $850 billion in student loans, and loves an expensive salad or brunch
Avocado toast-ers represent just a quarter of the number of Americans who got a stimulus check, but they carried a $400 billion bill for their time on campus.
And while Americans spent stimulus cash within two years, the loan pause lasted twice as long.
'The inflationary impact was enormous,' Whitney said. 'And businesses fell for the mirage in the desert that this cohort was a stronger spending group than they turned out to be.'
For the first time, she said, companies are admitting their 2022 models may not be sustainable.
'Restaurant companies have been high flyers for years,' Whitney said. 'But for the very first time, those restaurants are talking about weakness in their consumers.'
Companies that failed to anticipate that these borrowers would eventually have less cash to spend are struggling to meet their once-lofty valuations.
Since January, Chipotle's stock price is down nearly 27 percent, Cava has lost 61 percent and Sweetgreen has shed about 82 percent.
Whitney's biggest concern isn't that avocado toast-ers won't be able to spend - but that corporate America built an entire forecasting machine on money that was never sustainable.
'Because nobody was talking about it,' she said, 'so many restaurants and retailers convinced themselves of a false truth.'
