SHI 7.1.20 – Gone Fishing

6.24.20 – Positive Pecuniary Externalities
June 24, 2020
SHI 7.8.20 – The Best Bad Idea?
July 8, 2020

It appears CHOP won’t host the next ‘summer of love’ festival, two-thirds of the world’s governments have teed up almost $11 trillion in fiscal stimulus, the FED is considering ‘yield curve caps’ or targets, and Governor Newsom just closed California restaurants once again.  Damn.  I might as well go fishing. 

” Catch You Next Week!


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:

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?

Before COVID-19, the world’s annual GDP was about $85 trillion today.  No longer.  It will shrink thanks to ‘The Great Lockdown.’   I did not coin this phrase — the IMF did.  The same folks who track global GDP.   Until recently, annual US GDP exceeded $21.7 trillion.  Again, no longer.   But what has not changed is the fact that together, the U.S., the EU and China still generate about 70% of the global economic output.

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 related items of economic importance.

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.


Governor Newsom pounded another steak thru the heart of restaurant industry earlier today, pun intended, so I don’t think you will see the SHI grid anytime soon.   Sorry. 

In the minutes from June 9-10, the FED chair offered these comments. 

“I want to acknowledge the tragic events that have again put a spotlight on the pain of racial injustice in this country. The Federal Reserve serves the entire nation. We operate in, and are part of, many of the communities across the country where Americans are grappling with and expressing themselves on issues of racial equality.

I speak for my colleagues throughout the Federal Reserve System when I say that there is no place at the Federal Reserve for racism, and there should be no place for it in our society. Everyone deserves the opportunity to participate fully in our society and in our economy.

These foundational principles guide us in all we do, from monetary policy to our focus on diversity and inclusion in our workplace, and to our work regulating and supervising banks to ensure fair access to credit around the country. We will take this opportunity to renew our steadfast commitment to these principles, making sure that we are playing our part.

We understand that the work of the Federal Reserve touches communities, families, and businesses across the country. Everything we do is in service to our public mission. We are committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible.”

I think that’s a first.  That the FED should comment on racism shows how deep this issue runs.  

Then, it was were back to business-as-usual, commenting, “… simulations suggested that the Committee would have to maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn.”

For many years.   Not one, two or a few.  But many.  Wow.  It looks like rates are likely to be close to zero for the foreseeable future.  “Yield caps or targets (YCT)” may be used to achieve this goal.  Twice the words ‘balance sheet’ were mentioned:

  • “A few participants questioned the desirability of large-scale asset purchases following the current purchases to support market functioning, noting that they likely would lead to a further considerable expansion of the Federal Reserve’s balance sheet or have potentially adverse implications for financial stability.”
  • “… participants raised a number of concerns related to the implementation of YCT policies, including how to maintain control of the size and composition of the Federal Reserve’s balance sheet, particularly as the time to exit from such policies nears….”

The bottom line:   The FED will likely significantly increase the size of the current balance sheet, ostensibly to help cap interest rates … but I think there is another reason:  Market support.   The IMF believes 2020 fiscal deficits in advanced economies will expand to 16.5% of (prior) GDP … someone has to buy all this debt!  The FED will be ready.  I’m guessing, but we could end 2020 with a FED balance sheet exceeding $10 trillion!  Staggering. 

Finally, it’s worth mentioning that the Seattle social experiment, known as CHOP, is coming to an end after two more teenagers were shot earlier this week.  This was the 4th shooting within CHOP in the past 10 days.  Apparently the Mayor had enough, as we see from this headline:

Police dispersed protesters in Seattle’s Capitol Hill Occupation Protest (CHOP) area and arrested at least 31 people on Wednesday after an emergency order by Mayor Jenny Durkan.

And we all thought 2020 would be exciting for one reason only:  The presidential election.  Hah!

– Terry Liebman




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