SHI Update 3/8/17: What? Me Worry?

Everyone remembers Alfred E. Neuman from MAD magazine, right?

No?  Well, then you’re not as old as I.   Because every kid I knew – back when I was a kid – read MAD magazine.  🙂

I find his slogan appropriate today because while Alfred didn’t worry about much of anything, we have plenty to worry about.  If Trump’s 4am “wire tap” tweets aren’t keeping you up at night, nor the pending income tax bill, the Obama-care repeal, the ‘soon-to-be’ FED rate increase, then here’s one for you to noodle about:  France, it appears, also seems nearer to electing a “populist” and xenophobic President that could likely make Trump’s somewhat “unusual behavior” look downright tame by comparison.

Here’s the rub:  The “first” (yes, a bit odd) French presidential election takes place on April 23rd.   As the election grows nearer, and as Le Pen’s win probabilities ebb and flow, global financial markets will be impacted.  And probably not in a good way.    I’m not a big fan of “timing” the markets…but I think it’s very likely between now and April 23rd, we will see:

1. The FED raise the funds rate by 1/4 of a percent;

2. The major stock indicies under pressure … possibly in “correction” mode;

3. The 10-year Treasury falling below 2.20%.

Speaking of rubs, steak rubs that is, welcome to this week’s Steak House Index update.

 Remember to view the SHI on its very own URL – https://www.steakhouseindex.com/     The reading experience on the site is much better!

As always, if you need a refresher on the SHI, or its objective and methodology, I suggest you open and read the original BLOG: https://terryliebman.wordpress.com/2016/03/02/move-over-big-mac-index-here-comes-the-steak-house-index/)

Why You Should Care: The US economy and US dollar are the foundation of global economics: our nominal GDP is over $18.8 trillion a year. Is it growing or shrinking? Is it possible to know – before the quarterly GDP releases from the BEA?

The objective of the SHI is simple: To predict the GDP direction ahead of official economic releases. But while the objective is simple, the task is not.

BEA publishes GDP figures the instant they’re available. Unfortunately, it is a trailing index. The data is old news; it’s a lagging indicator.

‘Personal consumption expenditures,’ or PCE, is the single largest component of the GDP. In fact, the majority of all GDP increases (or declines) usually result from (increases or decreases in) consumer spending. Thus, this is clearly an important metric to track.

I intend the SHI is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early. Not when it’s too late.

Taking action: Keep up with this weekly BLOG update. If the SHI index moves appreciably – either showing massive improvement or significant declines – indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.

The BLOG:

Need something else to worry about?   Here you go.

The same forces that drove Brexit and propelled Trump into the White House, are conspiring to push Marine Le Pen, leader of the National Front party, into the French presidency.   Campaigning on a pro-jobs, anti-terrorism, anti-immigrant  platform (sound familiar?) Ms. Le Pen is building very solid support, especially where jobs are scarce:

Like Trump before her, Le Pen’s message is resonating with the unemployed and the disenfranchised.   It’s easy to see, from the two images above, FN popularity is highly correlated with the unemployment rate.

Of course, the pollsters assure us this cannot happen:  Le Pen cannot win.   Yeah.  Right.  We’ve heard that before.   Remember Brexit?

Like Trump, Le Pen grew up wealthy, in a mansion outside Paris.  But she has somehow become the “voice” for the downtrodden, “forgotten” people of France.   Sound familiar?

And while there are many social and human-rights reasons why Le Pen is really bad for France AND the world at large, I’ll stick to finance for now:  If elected, Le Pen claims she plans to abolish the euro and reinstate the French Franc, last used on December 31, 1998, as their official currency.  And the mere threat of this  (I don’t think it will happen – even if she’s actually elected) will roil global financial markets.   Why?  Because if France were to exit the euro, on the back of Brexit, there’s a good chance this could trigger a euro crisis.   Such an event could cause the euro to fail.   Were this to occur, the degree of global financial destabilization cannot be overstated.

In 1992, the French approved the EUs single currency by a very slim margin.  Since then, things are worse:   The share of French people who see Europe “favorably” has dropped from 69% in 2004 to 38% in 2016.  The European Union is less popular in France than in Britain.   And we know what happened in Britain.   The unexpected happened.

Above, I mentioned “the rub” – so here it is again:   You may want to consider trimming your stock positions between now and the French election.   Just a thought.

All right, I’ll bet you’re wondering if any of our pricey eateries use “secret” rubs or seasonings on their steaks, right?   Well, according to Todd Wilbur, Mastros does use “secret seasonings” – and he’s figured out what they are:  “One of the best tools I have found for analyzing seasoning blends – besides the old taste buds – is a video microscope.   With the microscope I was able to clearly see the salt used in an acquired sample of Mastro’s secret steak seasoning was like the stuff used on popcorn, and that there was some flour in there, probably to help the seasoning stick to the meat.  Identifying those ingredients plus a few more made it very easy to assemble a clone of the blend that you can now use on your favorite cuts at home.”  

Unfortunately, we have to buy his book – Top Secret Restaurant Recepies 3 – to get the whole scoop.   It’s on sale for $14.40 – less than a Mastros Ribeye, so maybe worth it?   🙂

How is the SHI looking this week?  Surprisingly, quite strong!   Today’s SHI reading is a positive 43.   Once again, Mastros is fully booked between 5:45 and 9:00 pm.   Here’s a shocker:  So is Ruth’s Chris!  And the third-most popular this week:  The Capital Grill.   This week, it has surpassed Mortons.    Here is today’s SHI image:

Here’s an interesting observation:  A similar thing happened back on March 9th, 2016.   On March 2nd, the SHI reading was negative (-1) … and one week later, jumped to a positive 22.   Looking at the SHI long-trend chart below, we see a significant SHI decline just one week later.   Will next week follow the same trend?   Here’s the SHI long-trend chart:

Here’s the bottom line:  I feel the US economy is performing about as well as it can right now.  There are no domestic signs of distress.  Anywhere.   And the SHI assures us consumer spending is strong.

The FED should raise the funds rate on the 15th.  And I believe they will.   HOWEVER…we cannot ignore political events in France.   Of course, these storm clouds may blow over, with little or no effect.   Keep an eye open … and act accordingly.   Good luck!

• Terry Liebman