SHI 12.4.24 – DOGE

SHI 11.27.24 – Financialization
November 27, 2024
SHI 01.01.25 – Don’t Call Me Chicken!
January 1, 2025

What a cute pup!   But we’re not talking cryptocurrency today, no matter how cute.   No, today we’re talking about the brand new U.S. “Department of Government Efficiency,” led by Elon Musk and Vivek Ramaswamy.

 

Trump has been busy since he won the 2024 presidential election.   His second term may not begin until January 20th, but he’s making moves.  Our president-elect has anointed quite a few folks for important, high-level government and cabinet positions.   It probably comes as no surprise to you that his choices have triggered a wide divergence of opinions.  The ‘right‘, the ‘left‘, and everyone in between have plenty to say about Trump’s choices.   Everyone seems to have a strong opinion.  

And then we have the DOGE led by Musk and Rama.  Here, in theory, we leave politics behind and dive right into the economic cauldron that is the 2025 US operating budget.  Running at close to $7 trillion in spending with only a bit over $5 trillion in tax collections, Musk and Rama — let’s deem them M&R — plan to take a machete to the spending figures.  In keeping with the current era hyperbole, they’re figuring to whack $2 trillion off that $7 trillion budget.   

 

DOGE:   What will they do? 

 

 

Senate confirmation is required for the majority of Trump’s appointments.   But not so for DOGE, as this will be a “presidential advisory commission” only.  Essentially, Musk and Rama will be advising the new administration, focusing on ‘streamlining government efficiency’ and trimming, ostensibly, $2 trillion off the annual budget.  The pair has opined this can be accomplished by reducing waste, eliminating federal agencies entirely, and reducing the number of federal employees by as much as 75%. 

It may surprise you to learn this is a similar playbook to what Musk did at Twitter after taking it private a couple years ago.    When Musk bought Twitter, the company employed close to 8,000 people.   By April of 2023, that number was reduced to about 1,500.   He eliminated more than 80% of the workforce.  

Can he run that same play in Trump’s new administration? 

 

Welcome to this week’s Steak House Index update.

 

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/


Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting?

Expanding … according the ‘advanced’ reading just released by the BEA, Q3, 2024 GDP grew — in ‘current-dollar‘ terms — at the annual rate of 4.7%.

The ‘real’ growth rate — the number most often touted in the mainstream media — was 2.8%.   In current dollar terms, US annual economic output rose to $29.35 trillion.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2023.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 70% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

 

The objective of this blog is singular.

 

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.


Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.


 

The Blog:

 

Personally, I seriously doubt E&R can do the same to the US budget that Elon did at his companies — in particular, Twitter.   But I have no doubt the duo aspire to make substantial changes and cuts in the annual budget, which, at present, is approaching $7 trillion.   

But regardless of what actually happens in the next year or two, one thing we know for certain, at least thru an economic lens, is Business As Usual in Washington DC is over.   It ended with the election.  Again, as this is an economic blog, I will mostly steer clear of the political arena, with only a few personal observations below.

As 2025 rapidly approaches, it seems to me that post-pandemic public discourse has exploded globally as social media sources have become ‘everything everywhere all at once’.  The world is collectively drinking from an information fire hose.  Simultaneously.   As a result, across the spectrum everyone seems to have an “important” opinion they are very  anxious to share.   Regardless of whether or not anyone else wants to hear it.

In past centuries, for hundreds of years actually, communication was word of mouth only.   Information spread exceptionally slowly, if at all.   In 16th century England, if a young person wandered too far from their small home village into and thru the forest, becoming lost, they would likely never return home.  Why?   There we no maps.   No telephones.   No one to ask for directions.  Nothing.   And no one in the new village they stumbled upon knew how to return.  

Time passed and things changed.  As they always do.  Fast forward to recent history:  The telegraph, then radio, Hollywood, TV, the internet and finally, social media, have essentially eliminated all information latency for most citizens in the developed world.  This is neither a “good” or “bad” thing, depending on your personal perspective, but it is a ‘real’ thing.  The instantaneous and ubiquitous interconnectivity of the human psyche today is beyond denial.  Truth and lies, both, now transverse the planet without any lag time, making information and misinformation real-time for us all.

Perhaps, therefore, it was inevitable that the divergence between what was traditionally defined as the “left” and the “right” political viewpoints, at least as they were understood in America in the 20th century, would move further and further apart.  The birth of ‘Identity Politics’ clearly amplified individual beliefs.   Everyone, every group, so it seemed, had their own platform and an audience.  But our fragmented society could not find common ground.   Divisions — to my eye at least — are so far apart, in fact, that reconciling the beliefs at one end of the spectrum with the other proved difficult.

Did I say difficult?   I should have said impossible. 

Perhaps that’s why I find this particular fork in the road so fascinating.   Economically, the US has been chugging along, much like the ‘Little Engine Who Could’, up the proverbial hill.  Growth, much like social media information, seems ubiquitous: GDP, US sovereign debt, consumer debt, The DJIA, the S&P500, America’s aggregate net worth, have never been higher. The prices for goods and services have never been higher, either.  Housing costs are thru the roof, literally.  However you measure it, inflation has pushed general price levels to previously unforeseen heights.   And as I’ve said in many prior blogs, this is unlikely to change in coming decades.   Well, that’s not completely accurate:   It will change.   Consumer prices are likely to continue their rise, albeit at a slower rate.   But they will not fall.

So welcome to modern America my fellow Americans, where ‘business as usual’ has left the building.   

Trump will take office against this backdrop.  One where one side of the political spectrum bemoans a veritable mountain of bureaucracy, administrators, regulation, runaway DEI and virtue signaling, the seeming obsession with personal pronouns, porous borders facilitating a flood of undocumented immigrants and illegal drugs, and finally ballooning national deficits and debt, suggesting that without a significant course correction America is headed for the trash heap.   The other end of the political spectrum, of course, disagrees on most topics and issues.   They insist inequities abound, in wealth, opportunity, access, lifestyle choices and race, and these inequities demand that the budding trends and “improvements” in American society that began after the dot-com meltdown,the Great Recessions, and the pandemic are simply a good start.  Much more, they contend, is needed.  We have a long way to go, they would opine, until the inequities abate.

 

Who is right?   Wrong?   You decide.

 

We will get back to that debate, but for the moment, permit me a brief tangent on my “porous borders” comment above.  In the past few years, there has probably been no greater debate or focus across America than the one on this topic.  Fact and data has been hard to find within the maelstrom of disagreement.   Until now, I believe.  Earlier today, the New York Times (NYT) published this article:

https://www.nytimes.com/2024/12/11/briefing/us-immigration-surge.html?smid=nytcore-ios-share&referringSource=articleShare

If you are unable to open this piece for some reason, I’ll make a few high level comments.   First, the headline:

 

Recent Immigration Surge Has Been Largest in US History

 

Wow.   The  largest  in US history.   That’s an amazing statement.    And then the sub-heading:

“Under President Biden, more than two million immigrants per year have entered, government data shows.”   This graphic, I believe, really tells the whole story:

 

 

The graphic shows the raw number of annual immigrants far exceeded all previous booms.   And this graphic contextualizes the huge increase, too, showing the annual migration between 2020 and 2023 equaled 0.6% of total population, as opposed to the peak immigration during the 1850s of 0.5% of the population.  

The NYT article also states “The numbers in the Times analysis include both legal and illegal immigration. About 60 percent of immigrants who have entered the country since 2021 have done so without legal authorization, according to a Goldman Sachs report based on government data.”

My point here is this:   There is no shortage of comments or opinions in politics and media about immigration, illegal immigration, undocumented immigration, asylum seekers, and any other individual or group hoping to get into the United States.   Some people are clearly in favor; others, very much in opposition.  Again, you decide. 

I am of the opinion that many of that 8 million have been quite beneficial to the American labor force.  

I’ve talked extensively in prior blogs about labor shortages — particularly at the “lower” end of the job spectrum.  Did immigration help solve this problem?  Clearly, yes.   Would a mass deportation of these folks under the Trump administration create a new labor problem?   Yes, I believe it would.   I’m not suggesting here that I agree with undocumented immigration here, folks; I’m merely suggesting the outcome has been beneficial to the US economy and GDP growth over the past few years.  Further, this labor bump helped reduce labor and wage inflation, thereby tempering CPI inflation.   I’m simply making meaningful economic observations. 

But regardless of your belief on the topic itself, the data in this article makes the fact clear:   During the Biden administration, the borders were porous.  These are the facts.

Read the entire article if you can.   This is the first time I’ve found what I believe to be reliable data on this topic. 

 

Let’s get back to our previous discussion: 

 

But regardless of your personal persuasion, whether you like it or not, change is a-commin’ to Washington DC.   ‘Business as usual’ is over on January 19th.   Generally, of course, and more specifically, as this is an economic blog, economically.  Come 1/20/25, there’s a new sheriff in town.  No, not Trump.   We’re talking Elon.   Elon has arrived, folks.  

Once the department of DOGE was announced, I decided it was time to read the Walter Isaacson biography on Elon Musk, titled, appropriately, “Elon Musk.”  To understand the future, I decided, I needed to better — and factually — understand Musk’s past.  

The book is fantastic, by the way.    Love him or hate him as a human, I believe no one can deny his genius or accomplishments.   Isaacson pulls no punches in the book — in no way is the book a white-wash, publicity piece.    No, Isaacson makes it quite clear that Musk struggles every day with human connection and relationships.   His choices and often bizarre behavior often created dumpster fires for those around him.  He is clearly a difficult guy, filled with personal demons and inconsistencies.  

But it’s impossible to deny what he’s accomplished in the past 20 years.    His achievements are clearly extraordinary, a fact that is reflected by his immense wealth —reputed today to exceed $300 billion.   By any measure, he is the richest person on the planet.   Number 1 out of 8 billion.   

In every one of his many companies, after near failure, Musk succeeded using a common game-plan:   Question everything.   Accept no conventional wisdom on it’s face.   Deconstruct traditional, generally-accepted engineering models and rebuild them from the ground up using cheaper and fewer parts.   If you have to, break “it” first … and then add back parts that will make the thing work. 

 

“Musk had wrought one of the greatest shifts in corporate culture ever. Twitter had gone from being among the most nurturing workplaces, replete with free artisanal meals and yoga studios and paid rest days and concern for “psychological safety,” to the other extreme. He did it not only for cost reasons. He preferred a scrappy, hard-driven environment where rabid warriors felt psychological danger rather than comfort. Sometimes that meant he broke things, and it looked like it was possible he would do so with Twitter.”

— ‘Elon Musk’ by Walter Isaacson

 

Elon broke things.   Hmmm … Is that ‘good’ for America?    Might Musk fire 80% of federal employees?    I doubt it.  

The vast majority of the Twitter staff Musk fired were software engineers and programmers.  Essentially, this group was one “bucket” of employees.    The US government has 15 executive departments.   A few are absolutely essential, like Treasury, but others, I guess, could we whacked.   For example, do we really need a ‘Department of Housing and Urban Development?’     Known as HUD, this department’s primary objectives seem antiquated to me.   I suspect you could find plenty of people who disagree, but do we really need a US department focused on enforcing the ‘Fair Housing Act’ from 1968?   Perhaps.  But the question is worth asking.

HUD oversees FHA lending, but that could easily be combined with the folks over at FNMA and Freddie Mac.     HUD 2024 budget:  $73.3 billion.

How about the Department of Commerce?   Is this a must have?   According to Google, among other things, they “set standards to foster innovation.”   OK.  Sure.   Interestingly, the ‘National Oceanic and Atmosphere Administration’ (NOAA) comes under Commerce.   Keep it?   You decide.   Commerce 2024 budget:  $16.3 billion.

Here’s a big one:   The Department of Agriculture (USDA) founded in 1862, when America was mostly an agrarian society.  Today,  the USDA employees about 100,000 people and has a 2024 budget of $213.2 billion.  I struggle to imagine what 100,000 people would do over there.  

Well, according to the U.S. Department of Agriculture site:

 

“We provide leadership on food, agriculture, natural resources, rural development, nutrition, and related issues based on public policy, the best available science, and effective management.

We have a vision to provide economic opportunity through innovation, helping rural America to thrive; to promote agriculture production that better nourishes Americans while also helping feed others throughout the world; and to preserve our Nation’s natural resources through conservation, restored forests, improved watersheds, and healthy private working lands.”

 

What do you think?   Keep Agriculture?   Trim it?   Whack it?    What will Elon do? 

Needless to say, today these questions are more rhetorical.  But this approach might be suggestive of how Elon and his buddies will make decisions as they bring each group, one by one, up on the chopping block. 

But regardless of the outcome, as the “past” is often a meaningful barometer of the future, the M&R machete process is sure to be turbulent with Elon in charge.   Consider these final comments by Walter Isaacson toward the end of his ‘Elon Musk’ biography:

 

Page 558:   Zoë Schiffer, Casey Newton, and Alex Heath at The Verge and New York Magazine had produced some well-reported, hair-raising insider stories about the turmoil at Twitter.  They showed how Musk had broken “the company culture that built Twitter into one of the world’s most influential social networks.”  But they also noted that the dire predictions many of their colleagues had made did not come to pass. “In some ways, Musk was vindicated,” they wrote. “Twitter was less stable now, but the platform survived and mostly functioned even with the majority of employees gone. He had promised to right-size a bloated company, and now it operated on minimal head count.” It was not always a pretty sight. Musk’s method, as it had been since the Falcon 1 rocket, was to iterate fast, take risks, be brutal, accept some flameouts, then try again. “We were changing the engines while the plane was spiraling out of control,” he says of Twitter. “It’s a miracle we survived.”

 

Hmmm … a miracle they survived.   Wow.  And finally, this: 

 

Page 558 Do the audaciousness and hubris that drive him to attempt epic feats excuse his bad behavior, his callousness, his recklessness?  The times he’s an asshole?  The answer is no, of course not.  One can admire a person’s good traits and decry the bad ones.  But it’s also important to understand how the strands are woven together, sometimes tightly.  It can be hard to remove the dark ones without unraveling the whole cloth.  As Shakespeare teaches us, all heroes have flaws, some tragic, some conquered, and those we cast as villains can be complex. Even the best people, he wrote, are “molded out of faults.”

 

Thru this lens — thank you Mr. Isaacson — we can watch the unfolding drama.   Business as usual is over.  The future is unwritten.  But  I have no doubt  DOGE will attempt to follow a very similar, if not precisely the same, basic game-plan Musk used at Twitter, Tesla, SpaceX and Starlink.   This is an absolutely fascinating time to be siting in the audience, popcorn in hand, watching the show.   And I have no doubt it’s going to be quite a show.  

To the steakhouses?

 

 

Unlike the current state of Washington DC, it is definitely “business as usual” at the steak houses this week.    Or, more accurately, “’tis the season” so to speak.   The holiday season is here and the steak houses are filling up once again.   Check out NYC:   This week’s SHI is up to 59!   Almost every 4-spot reservation slot for this Saturday next is booked.    In fact, the OC, Chicago, and Philly also join the SHI 50+ club.    As you’ll see below, this week reveals a significant increase in the SHI10

 

 

Even San Francisco is “in the black” this week.   It will be interesting to watch their SHI in 2025, and see if it proves a barometer for San Francisco’s budding economic recovery.    You’ll recall San Francisco is the location one of the 12 ‘federal reserve district’ banks.   Thus, the area has a great deal of economic focus from the FED.   Their most recent comments on the San Francisco district from just one week ago:

Economic activity was stable. Employment levels were generally unchanged, and wages and prices increased slightly. Retail sales and activity in services sectors changed little. Activity in manufacturing, residential real estate, and financial services increased somewhat, while conditions in commercial real estate were stable.”

The FED meets next week and at blog-time we’ll know if they lowered rates again.  The market expects a 1/4% cut.    Be sure to tune in.

Happy Holidays.

<{:}>    Terry Liebman

 

 

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