SHI 4.29.20 – What’s Wrong with This Picture?

SHI 4.22.20 – Bailouts
April 22, 2020
SHI 5.6.20 – The Data Has Spoken
May 6, 2020

“Take a look.  I think you’ll quickly see the problem.”

No, not the picture above …. the one below:

Correct.  The first estimate of 2020 Q1 GDP ‘growth’ is … well, not growth.  It’s the opposite of growth.   Un-growth?

No; of course there’s no such word.  The correct word would be ‘shrinkage’ or ‘contraction.’  Because that’s what happened.   Per the Bureau of Economic Analysis, the US Gross Domestic Product shrunk at an annual rate of 4.8% during Q1.   In ‘nominal’ dollar terms, this equates to a reduction in GDP of $191.2 billion for the quarter.  Amazingly enough, just about 2-weeks of business closures — I’m speaking about the last 2-weeks in March — had this impact.  Of course, the business closures spanned the globe (perhaps, by that time, except for portions of China) damaging the economies of almost every country on the planet.  But you already know this.  I simply find it amazing that just 2-weeks of closures in a 13-week quarter could cause this much damage.  If this is the destruction from only 2-weeks, imagine what might happen after a full quarter — a full 13-weeks of closures — if our leaders decide businesses must remain shuttered from April thru the end of June?  I dread the thought. 

We need to open our economy back up.   And we need to do it very, very soon. 

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 has shrunk sizable during ‘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.  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.


Heartless.  I suspect a reader or two may feel I’m absolutely heartless.  How can I possibly possibly suggest our leaders re-open our economy now?  Am I suggesting they have miscalculated by their choice to shut down the US economy as completely as they did, for as long as they have, when the alternative may have been far greater human tragedy and death than we’ve already experienced?  How can I be so cruel? 

Sure.  I get it.  I understand.  In fact, let me share a sobering viewpoint from a Bloomberg editorial I read earlier today:  “Recorded deaths in the US are near 60,000.  Imagine 9/11’s death toll 20 times over, repeating on a loop, every day or two. About 7,000 Americans died in 19 years of war in Afghanistan and Iraq. The coronavirus killed more last week.” 

This is absolutely horrible.   But I am not heartless.  Like you, I am humbled and staggered by the toll this virus has taken from us all.   I feel it too. 

But I also feel for the those experiencing economic damage, starting with the unemployed.   The comment below was taken from a Department of LaborNews Release‘ on April 23rd: 


“The advance number for seasonally adjusted insured unemployment during the week ending April 11 was 15,976,000, an increase of 4,064,000 from the previous week’s revised level.  This marks the highest level of seasonally adjusted insured unemployment in the history of the seasonally adjusted series.”


And the worst is yet to come for those in the labor market.  Equally devastated are business owners, of all shapes and sizes.  From the ‘mom-and-pop’ restaurant operators … all the way to the LA Lakers, businesses have been crushed.  But again, you know this.  I only mention the Lakers because I found it immensely entertaining, and equally disturbing, that they both qualified for, and obtained, a $4.6 million PPP loan.   ‘Entertaining’ because I have never considered the LA Lakers — with a market value exceeding $4 billion — to be a “small business.”   I suspect you’ll agree with me on this point.  And ‘disturbing’ because both their CFO and a commercial bank (I don’t know which one, but I’m sure we’ll find out) both agreed that it was a good idea to apply for the loan.   Yes, make no mistake, the Lakers are in a bad spot, with all games cancelled, but really … a ‘small business’ loan?  This was a good choice, Mr. Buss?  

I want to go on record to say that The Steakhouse Index has not applied for a PPP loan or any government assistance whatsoever!    None.  Zip.  And it never will!  On the other hand, this blog has never generated any income, so I guess I really have no reason to even think about applying for a ‘hardship’ or ‘economic damage’ loan to replace lost income.  🙂

Earlier this month, California Governor Newsom, outlined a “framework” for reopening the California economy.  He told us re-opening dates would be determined by the ability to do six things:

  1. expand testing to identify and isolate patients,
  2. maintain vigilance to protect seniors and high risk people,
  3. be able to meet future surges in hospitals with a “myriad of protective gear,”
  4. continue to collaborate with academia on therapies and treatments,
  5. redraw regulations to ensure continued physical distancing at private businesses and schools, and,
  6. develop new enforcement mechanisms to allow the state to pull back and reinstate stay-at-home orders.

Testing is #1, eh?   Well, this is concerning.  Testing levels remain dismal.   Right now, as I write this blog, the US has completed 5.59 million COVID-19 tests.   This includes those here in California totaling almost 578,000 (as of the 27th).   In a country with 330 million people, and a state with almost 40 million, these are pathetic numbers.   Less than 2% have been tested both in CA and in the US?   If testing level is the metric to reopen, at this rate, we’ll be lucky to open our economy by Christmas. 

Below is one of the better, current California COVID-19 data sources I’ve found.   Up at the top left is a “pull-down” menu.  Take a look (right click, open in a new window):

I find it interesting that both age and ethnicity are part of the data and debate.  Searching for ‘positive cases’ in the pull-down we see the number is just over 46,500.  (Note:  This page refreshes often … so this data changes slightly.  It might be different when you access it.)   We see just about every age group is generally susceptible to the virus — perhaps with the exception of those lucky enough to be 17 and under.  Only 3% of all known cases have shown in this age group.   And we seen that almost half — 49% to be precise — of Californians infected with the virus to date are between 18 and 49.  Now, please select “deaths” in the pull-down menu.  Not a single death for youngsters 17 and under.  Not one.   And how about in that under 49 group with about 1/2 the cases in CA?   7% of all deaths are in this age group.   If I have the math correct, that equates to 132 poor, unfortunate folks under 49 years of age.  The vast, vast majority of the 1,887 California deaths are in the 65+ age group — 78% of all deaths are here. 

Clearly, folks under 49 years of age catch the virus.  But they are unlikely to die from it.  They should be far more worried about heart disease and cancer.  Or road accidents:

Let’s do a bit more math.   Folks 18 – 49 years in age have had 49% of the 46,500 “positive cases’ but only 7% of the 1,887 deaths.    So this age group has experienced almost 23,000 cases … and 132 deaths.   That calculates to about a 0.57% mortality rate.  And this calculation uses only the known positive cases.   Antigen test results now suggests there may have been tens of thousands or more positive, but unknown and asymptomatic, cases here and across the world. 

Within the Bureau of Economic Analysis release from earlier today was this unusual comment:


“The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations,and consumers canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”


Makes sense.   And below, from the FED in a press release just minutes old:


“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses.  Weaker demand and significantly lower oil prices are holding down consumer price inflation.  The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.  In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”


Right.  You’ll notice both comment on reduced demand.   ‘Demand destruction’ is a real thing.   Left unchecked, the next ‘outbreak’ we face may be one of global deflation.  Unemployment and wage cuts reduce demand for products and services.  This is serious … and grows more serious as time passes.  The state and federal stimulus and benefits may help glue the economic system together, preventing a complete unraveling, but loans and unemployment compensation don’t replace customers or revenue.   If a business has no customers, it has no revenue.  Without revenue, it cannot pay an employee.   Our economic system is not designed for the levels of unemployment we face, or the resulting deflation, should our economy remain closed. The longer the closure, the greater the damage. 

Sorry, Governor Newsom, but we can’t use “testing” to decide when California re-opens.  We must find another approach.  The fate of the 5th largest economy in the world, and it’s 20 million hard-working citizens, may rest on your decision. But I shouldn’t just complain, right?  I should offer workable solutions!   So here we go …

Governor Newsom, if you’re listening, the following is my suggested solution.  And remember, Guv, I am a highly-successful, well-paid blogger with millions of followers!   (Sorry, all, fake news.   I am paid nothing.  And I have 8 followers.  No one actually cares about my opinion.)  Regardless, here are my 6 steps to fully open the California economy:

  1. On Friday, May 8th, we fully open the California economy for everyone 62 and younger.  (Said another way, if you qualify for Social Security you must remain at home.  Until a medical solution to treat the virus is found.   More on this below.)  Get to work, California!
  2. Of course, let’s require everyone to wear face coverings in public places where people congregate like grocery stores, shops, shopping centers, malls, theaters, etc., and require all restaurant patrons to hand-wash before sitting down for a restaurant meals.   But see #3 below.
  3. Age checks must become mandatory before a patron has unfettered entry to certain types businesses.   To enter a restaurant without restriction, you must be 49 or younger.  The same for a movie theater, a sporting event, a Broadway play, etc., or wherever “social distancing” cannot be effective observed.   We already have “age-restricted” housing developments, why not age restricted venues?  To keep everyone healthy?   Makes perfect sense. 
  4. Folks from 50 to 62 years of age have restricted entry and access to some of these businesses.  Or specific businesses.  For example, movie theaters will be segregated.  Those over 50 years old will have a separate entrance to certain theaters within a multiplex, and only folks 50+ will be permitted in those particular theaters.  Sporting events can certainly do this:  Let’s keep those “oldersters” in their own area within the stadium.  The same with restaurants.  We’ll have those catering to the 50+ crowd … and those catering to the 49 and below crowd.   Or, perhaps, large restaurants with multiple entrances can have a “designated” area — adequately distanced from those younger folks — where they can enjoy a fine meal. 
  5. All offices, stores, malls and businesses where face coverings can be effectively worn are open game.  All ages are welcome — with face coverings.   And open all the schools.  Kids 17 and under are perfectly safe. 
  6. OK…what do we do about Californians 63 and older?   They must shelter in place.  They must stay home.  However, “home,” in this case is Hawaii.  In fact, I suggest California purchase the island of Oahu from Hawaii and fly this group over on all those empty airplanes just sitting, unused, at the airports.  Of course, this requires all Oahu citizens leave the island.  Then we can quickly move all California residents 63 and older into the hotel rooms on Waikiki beach, when they can “shelter in place” in comfort, ordering room service for breakfast, lunch and dinner.   Frankly, this will cost the state far less than the economic damage from another month or two of closure. 

Of course, I’m just kidding in #6.  Or am I?   Yes, I am.  I far prefer the beaches in Wailea.  I’m a kidder … just like President Trump when he suggested sub-dermal injections of disinfectants might be an effective virus cure. 

Seriously, though, I think this Hawaii idea has legs.  It could be the a “win-win” we’re all looking for!   🙂

– Terry Liebman


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