Bubble Monitor & Commentary 11/4/2022

Nov 3, 2022 | Bubble Monitor, No Bull Economics

Bubble Monitor
Bubble Monitor Chart

The Great Reset is on, brought to us by the onset of economic laws working together with reality. It looks like we are entering into a new era that marks the end of free money & the “Fed put”. A zero-interest rate essentially renders free money, but worse yet are negative interest rates (the equivalent of paying someone to borrow money) which we have seen in Europe. The “Fed put” refers to the unwritten law that our central bank will always intervene to prop up the stock market to protect investors from losing money. Investors have good reason to discount this law currently, and as we can see from this chart, the Fed Funds rate is finally being pushed off its covid floor to 3.08% currently – no matter the consequences.     

Fed Fund Rate Graph
Fed Fund Rate Graph

Investors have been foolishly clinging to the idea that the Fed would “pivot” to rate cuts. If they would simply listen to what the Fed has been saying all along, there would have been no bullish run-up to pop before the most recent rate hike on November 2.  

Notably, the Fed has a nifty model it uses to determine what the proper Fed Fund rate should be based upon some economic variables (refer to model below). In plain sight of everyone, the Fed is currently targeting a Fed Funds rate of between 6.59% to 7.49% by 4Q22 (more than double the current 3.09% rate)!

Actual Fed Fund Rate Graph
Actual Fed Funds Rate & Taylor Rule Prescriptions Graph

What does this mean? More pain for the stock market along with every over-leveraged consumer, company, and government entity. Given the speed and magnitude of these rate hikes, this is a risky play for the Fed. Just like the powers that be took far too much economic risk to institute the covid lockdowns, the Fed should be careful to avoid excessive risk in their efforts to unwind what is already done.  


McDonald’s Flourishes Despite Big Price Increase

The Bloat Problem with Local Government

Money Supply Should Grow In-Line With Economy

Can Chipotle Afford to Pay $15/HR?

Low-Income Customers Prioritizing Wingstop

Follow us on LinkedInTwitterFacebook, and YouTube!

Disclaimer of Liability
Restaurant Research

Email Sign-up

15 Second Posts

What is the Federal Government’s Job?

A couple of weeks ago we conducted a thought experiment in which the government became a nonprofit, and this week we propose another thought experiment in which the government becomes a public corporation. We suggest that this could provide very useful input into the debt ceiling debate.

The Importance of the Balance Sheet in Financial Analysis

While most investors are focused on sales growth & margins, they would be well served to further consider the strength of a company’s balance sheet. We look at BlackRock’s financial condition as an illustrative point.

The Importance of Free Cash Flow in Financial Analysis

Cash represents the lifeblood of all business enterprises which is why it is important to analyze free cash flow which we define as operating cash flow minus capex, dividends, and stock buybacks. We illustrate DoorDash as an example of why cash flow analysis is so important. 

Lessons From Tucker Carlson

There are many theories about why Fox booted Tucker Carlson, but it may be a very simple reason which can instruct everyone involved in the consumer retail segment.

It is Imperative that Climate Change Regs Incorporate Economic Reality

This week we spotlight efforts by international agencies to lower the earth’s temperature by imposing onerous regulations on energy producers. We suggest it will be better to: begin a process of implementing continuous improvements designed to support both economic & climate progress; and use international organizations to share tech & best practices as opposed to providing them with regulatory powers best left to individual nation-states.   

Part 3 – It’s Nice for the US to Save the Climate, But What About the Rest of the World?

In our last 2 posts, we outlined the probability that the UN’s push to lower the world’s temperature by -2 degrees Celsius could drive significant U.S. energy price hikes & shortages. How is this going to help as Asia ramps up the use of coal? Can humans lower the earth’s temperature anyhow?

Part 2: Who is Left to Make Investments in Fossil Fuels & Clean Energy?

There is not a lot of incentive for profit-seeking companies to invest in demonized fossil fuels or in clean energy projects lacking ROI. This points to substantially higher energy prices and supply shortages that will have a profound economic impact.

Part 1: Ramping Energy Demand Clashes with UN’s Environmental Goals

From 2021 to 2050, ExxonMobil forecasts that 85% of the population growth will be driven by developing countries, which in turn, will drive a +15% increase in energy demand.

What if the Federal Government Was Turned into a 501c3 Non-Profit?

Given all the focus on the debt ceiling, we propose a thought experiment in which all 100 federal agencies must compete for charitable donations. If taxpayers get to choose for themselves what to fund, what might we learn? 

Like Sinatra Croons: “So you see it’s all up to you, you can be better than you are.”

The top-paid hourly workers are currently enjoying the fastest wage growth, indicative of the current challenge to recruit & retain a skilled labor force.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company