SHI 3.25.20 – Opened Up and Raring to go by Easter

No.  That’s not a picture of Trump.  You know who that is, right? 

In last week’s BLOG, I said:  “I believe America will be open for business, once again, by mid-April.   Fingers crossed.”   A few days ago, probably after reading my BLOG, President Trump made a similar comment:  “I’d love to have the country opened up and just raring to go by Easter.”  

To be frank, I think we were both overly optimistic.

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?

According to the IMF (the ‘International Monetary Fund’), the world’s annual GDP is about $85 trillion today.  According to the most recent estimate, US ‘current dollar’ GDP now exceeds $21.7 trillion.  In Q4 of 2019, first estimates suggest nominal GDP grew by 3.6%, following a 3.5% annualized growth rate in Q3.  The US still produces about 25% of global GDP.    Other than China — in a distant ‘second place’ at around $13 trillion — the GDP of no other country is close.   In fact, the GDP output of the 28 countries of the ‘European Union’ has fallen behind, collectively now almost $2 trillion less that US GDP.   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:

Sorry folks, most restaurants remain closed today, so today’s BLOG will contain only my ramblings and musings … and no SHI charts.   Sorry to disappoint.  ?

I run about 20 miles a week.  Usually around 5 am, 3-days a week, you can find me plodding along public roads, as I log in about 6-7 miles.  It’s cathartic for me.  I enjoy it.  But as I left the house Monday morning, starting my run, a new fear popped into my mind:  Will I be arrested?   A few days earlier, Governor Newsom issued a “Stay at Home!” order … and here I was ignoring the order!  Soaring across the pavement, gliding like a gazelle, here I was, overtly flaunting brand-new California law!   What a scofflaw I am!

OK, truth be told, I was neither soaring nor gliding.  And later in the day, I discovered I wasn’t flaunting either.  But for a moment there, I was a worried I might get picked up and thrown into the kink for … running!?!?    By myself!?!?  No, apparently we are all permitted to exercise outdoors, maintaining the requisite “social distance.”  ?

But that’s the problem with fear.  Once it takes hold, it spreads quickly.  Everywhere.  Fear is ubiquitous today.   Here in the US and the world at large.  We hear it in the words of our leaders, we see it in the financial markets, and each of us feels it personally.  For good reason.  These are scary times. 

I suspect you’ve seen the White House ‘CORONAVIRUS GUIDELINES’?   If not, here you go:

https://www.whitehouse.gov/wp-content/uploads/2020/03/03.16.20_coronavirus-guidance_8.5x11_315PM.pdf

The White House goal:  Slow the spread, so to speak.   Will America be “mission accomplished” by April 12?   Probably not.  Maybe, but probably not.  Certainly not in New York.  And probably not in New Orleans where new CV19 cases are rising at a “frightening clip,” similar to trajectories in Italy or Spain.

Italy has been crushed by CV19.   There might be some good news in Italy – and I stress might, because it’s just too soon to tell.  But this graph, courtesy of CNBC suggests their daily new cases may have peaked.  Maybe. 

And new daily cases in Germany appear to be falling … while, unfortunately, new daily cases in Spain grow faster.  Here’s my source for European data:

https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases

The picture here in the US is also highly variable.   Today, March 25^th, the CDC reports California has 2,511 reported cases.  Today’s CA ‘Department of Public Health’ data will be out after 2pm today…so check their site later today for validation:

https://www.cdph.ca.gov/Programs/OPA/Pages/New-Release-2020.aspx

Another CV19 site I track suggests about 25% of all active CA cases are in LA county; San Francisco, Santa Clara and San Mateo, and the other San Francisco-centric counties combined, have claimed close to 40% of all active cases.  Here’s a map I’ve borrowed from the CDC:

California, a state with almost 40 million folks, has only 2,511 active cases.   New York, on the other hand, with about 20 million residents, has more than 10X the CA number.   Why?  A doctor friend of my opined “subways.”  Again, it was her opinion only.

Why has CA been somewhat spared from a rapid spread of CV19?   Has the Governor’s “Stay at Home!” order done the job?   Or is “social distancing” the answer?   We don’t know yet.  All we know is different parts of the world, and different US states, are having very different experiences.  Which brings me back, full circle, to President Trump’s hope that the country will be raring to go by Easter. 

The source of CV19 and its first victim, China, has gone back to work.  A bit.   For example, on March 5^th, Starbucks announced 90% of their stores were open again.  On that day, the Chairman of ‘Starbucks China,’ Belinda Wong, commented she had been “stuck in a traffic jam … and couldn’t have been happier.”   Ahhh…traffic jams.  I remember those!  ?

But, no, China is not raring to go.  Their return to work has been more of a hopscotch tapestry … and I suspect we’ll have a similar experience here in the US.   We may be raring to go in specific geographic areas within California by Easter, but others will not.  And I suspect this will be a common experience across America … and the world at large. 

Boeing’s Seattle plants are idle.  On the 23rd, they imposed a 14-day shut-down in this exceptionally hard-hit city.  On that day, the Washing State Department of Health reported 2,469 active cases, with about 1/2 that total in King County.  The press recently reported Boeing believes they will “wake up” their assembly lines in May.   I think this is a good aphorism, “wake up.”  I suspect that before Easter, certain geographies across America will permit specific ‘idle’ industries to “wake up” at different times, to different degrees, and with very precise self-policed restrictions and limitations. 

And when the “return” to relative normalcy begins — whatever that means — I suspect residual fear will slow many of us down.  Is it safe to wander out again?  Is it safe to eat at my favorite restaurant?  Have a drink at my favorite bar?  It may take a while … but this, too, will pass.   After a while.   Who knows:  Perhaps we’ll all be stir-crazy when that day comes. 

Quoting Churchill from his iconic and infamous November 10, 1942 speech at the Mansion House:

“Now this is not the end.  It is not even the beginning of the end.  But it is, perhaps, the end of the beginning.”

Again, let me repeat:  This is a horrible disease and it has extracted a massive price from us all.  Nothing I’ve said in my BLOG should suggest to you I take this threat lightly.   But call me an optimist when I say I think a new chapter will begin soon … I believe we’re getting close to the end of the beginning of this scourge.   My opinion.  I guess President Trump agrees.  He must read my BLOG. 

– Terry Liebman