Taking the Hamburger's Temperature

“You were grumpy and aggressive,” said our better half.

“No … I was just confused.”

“You’re not that dumb.”

“Oh, yes I am.”

Yes, we are back in civilization, with all its constraints and discontents. To be more precise, we are in Boca Raton, Florida. Yesterday, my wife Elizabeth needed to get her computer fixed. So, we went to the Apple store in the mall. That led to a number of insights about modern materialism in the United States of America.

First, we decided to have a quick lunch at The Capital Grille. This seemed a fair bet. It’s what Elizabeth refers to as a “real restaurant.” By that she means it has a real chef – or at least a cook – rather than staff who just heat up pre-prepared meals.

“What temperature do you want your burger?” was the question that stumped us.

“Huh? What temperature? I don’t know… about 200 degrees?”

“He’s asking how you want your burger cooked,” Elizabeth quickly interpreted.

“How am I supposed to know that? And why use code words? Why not just ask me in English… or some other language for that matter? Besides, ‘temperature’ is a very specific and very objective measure. It requires a precise answer. Not something vague, like ‘well done’ or ‘juicy.’”

“Oh, you’re being a curmudgeon. Now, stop it.”

 

Thus are we adjusting to life in the heavily-indebted world … where burgers are served at specific temperatures and people do not pay for their lunches with money, but with credit. In fact, the whole economy functions without real money; it has practically disappeared. Now it’s the supply and demand for credit, not money, that determines the level of inflation.

 

Capital-Grille-Logo

The home of the hamburger thermometer

 

Withdrawal Symptoms

“No, this is not an independent restaurant,” the waiter informed us later. “It is owned by the Darden chain.”

Aha! A restaurant chain completely dependent on middle-class credit. Take away the credit (or merely let it shrink) and Darden Restaurants, Inc. – a publicly-traded company – will shrink too. No. More likely it will collapse. Because earnings depend on marginal sales … and when the marginal buyer stops eating the marginal burger at marginal family eateries such as Olive Garden, Red Lobster and The Capital Grille, then the family-dining restaurant industry is going to look a little green.

Even a small decline in marginal sales means a major decline in operating cash flow … on which the companies’ debt service depends. We base this guess largely on our estimation of the US consumer. He’s not hale and hearty. In fact, he looks a little peaked. Bloomberg reports he is now being forced to dip into his retirement accounts just to make ends meet:

 

“The Internal Revenue Service collected $5.7 billion in 2011 from penalties, meaning that Americans took out about $57 billion from retirement funds before they were supposed to. 

The median size of a 401(k) is $24,400 as of March 31, with people older than 55 having $65,300, according to Fidelity Investments. 

Adjusted for inflation, the government collects 37% more money from early-withdrawal penalties than it did in 2003. Meanwhile, the amount of home-equity loans outstanding was $704 billion in 2013, down 38% from the 2007 peak, according to Federal Reserve data.”

 

401kLeaking: 401 Ks

 

Credit Cards and Confidence

Not that we’ve studied Darden in particular. We’re just guessing about the industry in general. US corporations used record-low interest rates to increase debt for various purposes – including expansion (to reach marginal customers) and share buybacks. Corporate debt has been the second most rapidly expanding category, after government debt. Now, US businesses have high debt, supported by high earnings. The problem is earnings can disappear readily. Debt… well… not so fast, and not so easily.

Darden Restaurants is one of thousands of businesses in the US that depend on expanding credit. It needs customers with credit cards… and confidence. So do other businesses depend on customers who are ready, willing and able to increase spending. They can’t spend more wages; real wages are going down. That leaves only credit.

According to former World Bank economist Richard Duncan, the US economy goes into recession every time credit growth falls below a rate of about 2%. As Chris noted yesterday, that’s why the Fed is so desperate to keep this debt machine in gear.

Without it, companies such as Darden Restaurants have to reckon with decisions they will wish they hadn’t made … and debt they will wish they didn’t have.

creditcarddebt_iStockphoto

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • A Surprise Move in Gold
      Traders and Analysts Caught Wrong-Footed Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:   Gold stocks (HUI Index) and gold, daily. As noted in the annotation above, a Wells Fargo gold analyst turned bearish at the worst possible moment...
  • May Away
      May Gone in June... Yes, now that June is here, it is indeed the end of May. Theresa May, to be precise, the henceforth former British Prime Minister. After delivering her unparalleled masterclass in “how to completely botch Brexit”, British cartoonists are giving her a well-deserved send-off, which we are documenting below. But first, in case you don't know anything about Ms. May's heroic “Brexit”-related efforts, here is an explanation of how she tried to finagle the best...
  • US Money Supply Growth and the Production Structure – Signs of an Aging Boom
      Money Supply Growth Continues to Decelerate Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy's production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.   At...
  • Elizabeth Warren’s Plan to Bamboozle American Voters
      A Plan for Everything! The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.   A plea for clemency from Mr. 1/1024th crow. [PT]   Change We Can Believe In.  Feel the...
  • The Ugly End of Globalization
      The Ugly End of Globalization Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.   Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]   After trading sideways for most of the spring, the Dow Jones Industrial...
  • Gold vs. Silver - Precious Metals Supply and Demand
      Is Silver Still Useful as a Monetary Metal? The price of gold jumped a whole twenty bucks last week. We imagine that the marginal gold bug is relieved to be rid of his gold, in this opportunity afforded by the highest price since early April. OK, all kidding aside, the price of silver went up a penny.     The gold-silver ratio keeps hitting new highs recently (this is actually a long-term trend, frequently interrupted by strong rallies of silver against gold). Is silver...
  • Fed Chair Powell’s Plan to Pickle the Economy
      A Loose Relationship The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.   Since early 2018 the DJIA has gone nowhere, albeit in interesting ways... [PT]   While not always apparent, the stock market generally maintains a loose connection to the underlying...
  • Paul Tudor Jones Likes Gold
      Gold is Paul Tudor Jones' Favorite Trade Over the Coming 12-24 Months In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn't work for you, here is a link to the video on...
  • The Italian Job - Precious Metals Supply and Demand
      Lira Comeback? The price of gold jumped 35 bucks last week, and that of silver 48 cents. The dollar is now down to 23 milligrams of gold. Keith is on the road this week, so we will just comment on one thing. If Italy is serious about moving back to the lira, that will make the euro less sound (to say nothing of the lira). That will drive people mostly to the dollar, but also to gold.   Italian deputy prime minister Matteo Salvini (as the leader of the Lega party he is...
  • Bitcoin: What is the Best Day of the Week to Buy?
      Shifting Patterns In the last issue of Seasonal Insights I have discussed Bitcoin’s seasonal pattern in the course of a year. In this issue I will show an analysis of the returns of bitcoin on individual days of the week.   Bitcoin, daily – since bottoming in early December, BTC has advanced quite a bit. It remains an excellent trading sardine. [PT]   It seems to me that Bitcoin is particularly interesting for this type of study: it exhibits spectacular price...
  • Silver Remains a Monetary Metal - Precious Metals Supply and Demand
      Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.   Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!