Monday, June 14, 2010

Back to the Pub Power

I've received a few emails recently about the Pub Power equity buy signal, so here's the update. As I've said all along, the Pub Power equity signal is a catchy, data-mined, equity buy signal (with a decent explanation) that was first detailed / created by EconomPic back in September '09.

More specifically:

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.
The thought was that the relative strength (i.e. demand) of restaurants relative to cooking at home shows the following characteristics:
  • Consumer confidence
  • Exuberance
  • Spending power
  • Wealth
On the other hand, when times are tough, individuals are more likely to eat at home, causing year over year sales at pubs to decline relative to grocery stores. At the time the signal pointed to a further run in the Dow (up ~4% since September) and then turned negative in January (down ~5% since that time), which shows that in addition to catchy, it has recently been lucky.

But, what is the signal is telling us now?

Nothing much. The U.S. equity markets are right around fair value, but seem to indicate continued choppiness over the next 12 months. Sounds about right to me...

Scatter Plot


Source: Census