SHI 7.15.20 – America is # 1

“Make America Number 1” is a super PAC that supported the Trump presidential run in 2016 … and since that time, Trumps rally-cry has been “Make America Great Again!”

Well, we’re number 1 all right.  

Even Sweden, the poster-child for scorn over their handling of the pandemic, has seen a significant decline in coronavirus cases.    According the the NY Times, the US is now the only “high-income” country in the world where the virus is spreading rapidly.   Yep, we’re number 1.   But probably not in the metric Trump was hoping for.   No, for factual reasons unknown to me, CV-19 cases are thru the roof in certain geographies around the United States.   There are plenty of opinions to explain the surge, but I have yet to read any concrete fact.   Sure, it could be that Americans, in the aggregate, are unwilling to wear face masks.  My opinion is everyone should wear a face covering when in public and “distancing” is not possible.  I believe our collective failure to wear face coverings has contributed to the spike in cases.  Again, I’ll repeat, this is my opinion.  Certainly our leadership has done a dismal job of convincing the public, or demanding the public, wear face coverings.  But is the US #1 in failing to wear face coverings, too?  Are we the worst in the world?   Is that why 48 countries in Europe and Canada have flat-lined CV-19 cases while our new case load numbers head up toward the heavens?   Are the citizens of European wearing face coverings … causing their new daily case counts to fall to the floor? 

As of today, we are 110 days from the next presidential election.   Unless Kanye West can surge and overtake Biden for the Democratic nomination, it looks like we should expect a Trump – Biden contest.   Which is likely, since Kanye appears to have ‘suspended’ his presidential bid earlier today.   Darn.   I thought he might win!   🙂

So, who’s gonna win?  Who will be the next US President?

Of course, no one knows — myself included.   And when Americans played the “pick a winner” game in the polls 4 years ago, most were quite surprised by the outcome.   But I think the question is important to debate, so with appropriate trepidation, let’s step into the game. 

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?

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.

The BLOG:

Face coverings.  Masks.  What an interesting topic in today’s Covid-19 world.  I’ve expressed my opinion above.  And when I’m in public, in areas where I will come in close proximity to other people, I always wear a face covering.   I feel it is my duty as a caring, compassionate citizen.  My choice demonstrates that I care about the health of those around me.   I feel everyone should do the same.  Once again, I’m expressing my opinion.  I’m sure you have yours.

I’ll step over the earlier “face mask” debates from Q1 of this year.  And I’ll sidestep the “face-mask culture” in the far East, which has always fascinated me.   Let’s talk about Europe.  Their new daily coronavirus cases are generally very low and trending downward.    Here’s the actual data since the beginning of July:

You probably noticed the UK number.   I can only explain the negative average with this fact:  On 7/3, the United Kingdom reported they had a negative 29,726 new coronavirus cases.  Negative.  Don’t ask … I have no idea.  But if we remove this one-day count, their average daily new case count was about 652.   

At the same time, the average daily new case count here in the US has been 56,068 since July 1st.   We are far and away #1.  

Here is my data source for the numbers above:  https://www.ecdc.europa.eu/en/publications-data/download-todays-data-geographic-distribution-covid-19-cases-worldwide

Big picture, it looks like European countries are generally averaging 500-ish daily cases since the first of July.   And the US has averaged 50,000-ish.   That’s about 100X Europe.  Sure, the US is much larger at about 330 million citizens.  But Germany has over 83 million, Spain almost 47 million, and France about 67 million.   So it’s not simply a population thing.   Is it a mask thing?  Are citizens of these countries wearing face coverings whenever they go out in public?  

In Spain, the answer is predominantly yes.   When asked, 84% of Spanish respondents said they always wore a mask outside in the preceding week.  Always.  Italy was a very close 2nd at 83% … Germany came in 3rd with 63% always wearing a mask in the prior week … and France responded with 53%.    But in Sweden, Finland and Denmark between 83 and 88% of respondents said they never wore a face covering.  Never.  Take a look at all the responses:

Here is what www.statistica.com commented on the data:  “As of June 28, 2020, large differences between European countries were found in terms of wearing a face mask outside to protect the individual and others from the coronavirus (COVID-19), owing mainly to the differing legislation in the countries concerning masks. According to the results, over 84 percent of Spanish respondents always wore a face mask outside in the preceding week, while a high share of respondents in the Nordic countries had not worn a face mask at all.” 

Puzzled?   Yeah, so am I.  There appears to be no correlation between case load and face coverings.  I would have expected a much higher correlation/causation relationship.   This data aside, I still believe face coverings play an important role in slowing the spread of the disease, but the European experience suggests something else is at play.  What?  I have no idea.  Time will tell.  Here’s the data if you wish to peruse it yourself.

https://www.statista.com/statistics/1114375/wearing-a-face-mask-outside-in-european-countries/

So who will win the November presidential election?  Baron’s magazine interviewed Dan Clifton, the head of the research unit at Strategas Research Partners.  Strategas makes their prediction using an economic lens, with 100 years of data in the calculation.  Dan’s comment:

• In the past 100 years, no president who had a recession two years before their reelection has ever gotten re-elected, and no president who avoided recession has ever lost. Trump’s chances of winning are much less today than they were in January or February. The second big metric is the Gallup approval rating. If you have a 46% approval rating, you generally get 48% of the vote. The last Gallup reading was 39%. The only two presidents who were that low this late were Jimmy Carter and George Herbert Walker Bush. Both went on to lose reelection. The polling reflects that.

Of course, the polls in 2016 were wrong.  Baron’s magazine pointed out this fact, and Dan replied:

• Exactly. At Strategas, we really try to match up financial market indicators with political data. The first metric is, we watch the S&P 500 90 days (before) the election. So the clock starts Aug. 3.  We’ve gone back 100 years on this. If stocks are higher in that 90-day period, the incumbent party has won 87% of the time. If they’re lower, the opposition has won. In August, you’re probably going to know Biden’s choice for vice president, the conventions start, and we’re through the second-quarter earnings season. The S&P has predicted every presidential election winner since 1984, and 87% of the winners since 1928. It’s not a perfect indicator: In 2016, the S&P 500 was down a little bit around 2% going into the election, a sign that Clinton was a little more vulnerable than the consensus anticipated.

Interesting.  Apparently, we need to watch the S&P 500, beginning in August.   If it is UP on election day, Trump will win.  If it is DOWN, Biden will win.   Dan tells us this data can forecast with 87% accuracy and has done so over the past 100 years. 

Maybe.   But this is a very different year … and a very different election.  Like the face-mask data, it’s hard to make a meaningful prediction given the rather unusual events of 2020.   Sure, we entered a recession in Q2.  But we may be out of the recession, economy expanding, by Q3 (might).  And while 100 years of data paints a meaningful picture, the US also hasn’t experienced a pandemic in about 100 years.   This is a huge wildcard which, in my opinion, renders forecasts highly questionable.

I feel I’ve been no help today.   I have not settled the face mask debate.  And I cannot forecast, with any degree of certainty, who will win in November.   Sorry.   Well, maybe this will help:  I can forecast, with 100% accuracy, that Kanye will not be the next President.   Run with that one. 

But I ask that you do me a favor, regardless.   Until we have a vaccine, please wear a face covering when you’re out in public in crowded spaces.  The data may not definitively confirm that face coverings can prevent the transmission of Covid-19, but, hey, wearing one can’t hurt.  There’s no downside to wearing a face covering except, of course, that (1) face masks can be uncomfortable and (2) you may look like a bank robber.  So wear one.  But if you’re at the bank, do not say stick ’em up.   

Thanks.  🙂

• Terry Liebman