I love catchy / data-mined equity buy signals with decent explanations. My personal favorite had been the recently renamed Demi-Ashton buy signal (previously known as the boring Middle-Young or MY ratio... yawn). BUT, may I present the latest and greatest... the "Pub Power" signal.
What is the "Pub Power" signal you ask? It is the relative strength of 'food establishment and drinking places' sales vs. grocery sales (as expressed in year over year terms). The relevance? Well, the data seems to suggest that "Pub Power" = Strength in the Dow, one year forward.
But, any good / catchy buy signal needs an interesting explanation, so here goes (and feel free to pile on in the comments section). The relative strength (i.e. demand) of restaurants relative to cooking at home shows the following characteristics:
- Consumer confidence
- Exuberance
- Spending power
- Wealth
Here's another look at that data through August 2008 data (thus including the August 2009 Dow).
That's a 16 year average return of a 9% annual Dow return since 1993 (as far back as I could get the retail sales data) when the Pub Power > 0 and -1.7% annual Dow return since 1993 when Pub Power < 0.
Source: Census
Jake,
ReplyDeleteThe relative strength (i.e. demand) of restaurants relative to cooking at home shows the following characteristics:
DEBT!
Taking on debt for consumption is the road to ruin. And despite what many say, housing IS a consumption item.
The recovery after the dot.CON bust was not a recovery at all. It only appeared to be a recovery while people were impoverishing themselves with debt.
Debt for productive investment is another story.
That's why they say a bar is ALMOST recession proof. My pub owner friends will tell you that business is down but they are still profitable.
ReplyDeleteangry saver- we're trying to be positive with this post or else it wouldn't be a buy signal!
ReplyDelete