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McDonald's Goes Benedict Arnold

Once a great American company, McDonald’s has become a traitor

July 18, 2024


In this issue of the Peel:

  • 💰️ It wasn’t just BofA seeing declines in consumer spending…

  • 🤖 Big Tech stocks committed an act of terror against U.S. investors…

  • 🍔Once a great American company, McDonald’s has become a traitor.

Market Snapshot

Banana Bits

Macro Monkey Says

RIP The American Consumer

It was fun while it lasted.

Few forces in the world are as strong as American materialism. So, watching our consumer spending trends falter is like watching our last Presidential debate—another sign we’re in a lot of trouble.

Let’s get into it.

The Numbers

On Monday, we talked about consumer spending trends via the Bank of America consumer checkpoint. But today, our focus is on retail sales.

On Tuesday, the Census Bureau released the latest Advance Monthly Sales report for Retail & Food Services, a.k.a. the Retail Sales report.

Unfortunately, here we see similar trends as revealed in BofA’s analysis:

Total retail sales registered a slight decline in June, clocking in at $704.3bn vs the $704.5bn in May, a 0.0% monthly change.

Annually, retail sales grew 2.3%. But this report does not adjust for inflation, only seasonality. So, real retail sales actually fell 0.7% when adjusted for June’s 3.0% CPI.

For the April-June quarter, retail sales grew 2.5% from Q2’23, another real decline in spending.

Auto sales contributed about as much as Bill Buckner did for the Red Sox in Game 6 of the 1986 World Series, falling 2.3% for the month and 2.7% annually. Total vehicle units sold declined even further at -4.9%.

Demand for autos has been repressed since Fed Chair JPow nuked the economy with rate hikes, but it came in particularly awful last month.

However, nonstore retailers, a.k.a. e-commerce, a.k.a. Amazon, still grew healthily, increasing 8.9% compared to last year.

We’re still getting fat and drunk, too, as food service and drinking places saw sales rise 4.4% annually and 0.3% for the month, both showing slight real growth as well.

Lastly, gas stations saw the greatest decline in sales for the year, falling 3.0% against June 2023, primarily reflecting the 2.5% annual decline in consumer gas prices.

Once again, we can see that spending on non-restaurant discretionary items is slipping. Minimal real growth in these line items and the dramatic decline in vehicle sales indicate strongly that consumers are getting more careful with their cash.

While not a good sign, this may speak to the diverging U.S. economy. Wealthier Americans and high-income earners are doing fine, as always, but the struggle on the lower end of the spectrum is real… as I’m sure most of us know all too well.

The Takeaway?

A weakening labor market and accompanying declines in wage growth are officially feeding into slower consumer spending.

This is about as clear a sign of a pending economic slowdown as JPow could ask for.

However, given that Powell has spilled the beans recently and basically pinky-promised to cut rates in September, markets are already starting to price that in.

Mortgage rates are declining while housing inventory grows in both the listing of existing homes and the completion of new construction.

A non-frozen housing market would be great for spending as a lot of spending is linked to homeownership. Higher housing turnover tends to drive higher spending on autos, furniture, appliances, and other high-ticket items.

Moreover, maybe if Americans started to feel a little more charitable and would just donate a little bit more to the economy, then maybe we wouldn’t be in this position.

Run up those credit cards. It’s your duty as an American. Time to make materialism great again.

What's Ripe

VF Corp (VFC) 75.06%

  • Every teenage boy’s favorite brand for Fortnite skins and vape wraps is getting a new owner. VF Corp is selling its Supreme subsidiary for $1.5bn.

  • It’s a Randy Moss deal, meaning that the acquirer, EssilorLuxottica, is paying it all in “straight cash, homie.” The deal is expected to close at the end of 2024.

  • EssilorLuxottica, the world’s largest eyewear firm, is a strange acquirer. But, apparently, Supreme’s DTC business model fits better with them than VF Corp.

Johnson & Johnson (JNJ) 27.37%

  • Famous for offering the sh*ttitest of all C-19 vaccines, an impressively sad feat, Johnson & Johnson still managed to rob enough people for a strong Q2.

  • The world’s largest pharmaceutical firm by revenue delivered a 4.06% beat on earnings and $22.45bn in sales, a 0.43% beat.

  • The firm’s MedTech unit missed estimates for revenue, but blockbuster drugs carried the pharma giant to a win even without an Ozempic-equivalent of its own.

What's Rotten

ASML (ASML) -5.33%

  • Simultaneously, Q2 earnings news out of Europe’s largest (maybe only?) tech company contributed to the massacre of Tech stocks on Wednesday.

  • The semiconductor equipment manufacturer beat on sales and EPS, reporting a 24% jump in bookings on still-exorbitantly-high demand for chips.

  • However, 49% of ASML’s revenue comes from China. If the aforementioned export restrictions are imposed, this company would be one of the worst affected.

Mag 7 (MAGS) -5.16%

  • You’d think the U.S. was becoming Europe the way tech stocks sold off yesterday. We might need a new name for the “Magnificent” 7 after this.

  • The selloff was triggered by both sides of the political aisle. Blomberg reports that the Biden Admin is considering further restricting tech exports to China.

  • Then, former President Trump suggested the U.S. wouldn’t be as keen on defending Taiwan in a hypothetical invasion by China if he wins the election.

  • Prediction markets give Trump a 70% chance of winning and Biden 19%. So, the former (and future?) President’s comments are likely more impactful on markets.

Thought Banana

Treasonous Fast Food

Benedict Arnold was sentenced to be hanged for his treasonous spying on behalf of the British during the Revolutionary War.

I’d argue fast food companies have committed an even more devastating act of aggression on the American people. Arnold may have escaped before carrying out the sentence, but we won’t let McDonald’s and Popeyes get away with it.

What Happened?

Food prices have largely contributed to the overall consumer inflation seen in the post-pandemic period. However, inflation at these “restaurants” has been going on for a lot longer.

Among the 10 fast-food places analyzed by Visual Capitalist below, every single one of them increased prices at a faster rate than the general “food away from home” index.

McDonald’s decided Burger King was way too easy for competition. Instead, they’re looking to compete with The Capital Grille and Ruth’s Chris, increasing the prices of their 10 most commonly ordered menu prices by 100% since 2014.

For reference, the cost of private college tuition in the U.S. has increased by 40.7% since 2014, on average, according to U.S. News.

Popeye’s and Taco Bell are the next great traitors against We, The People, who are looking for cheap meals and destroyed toilets. Prices grew at 86% and 81%, respectively, over the 10-year period.

Chipotle, which I would’ve guessed would be the #1, takes the 4th place spot at 75%.

In total, food away from home has increased 49% since 2014. Only two fast food places analyzed have come in lower than that, being Starbucks and Subway, both up 39%.

The Takeaway?

Getting a cheap meal in the U.S. is like the Secret Service spotting would-be assassins before they start shooting—nearly impossible, according to recent evidence.

As if food deserts weren’t already a problem in the U.S., many Americans may soon find themselves priced out of a damn Big Mac.

McDonald’s has responded to complaints by offering a new $5 meal, but at most locations, the special will only be in place for a single month.

Time to make fast food great again, too, apparently.

The Big Question: How have minimum wage laws and growth in low-wage pay contributed to this issue? Can we ever expect a “race to the bottom” in fast food again?

Banana Brain Teaser

Previous

Of the 300 subjects who participated in an experiment using virtual-reality therapy to reduce their fear of heights, 40 percent experienced sweaty palms, 30 percent experienced vomiting, and 75 percent experienced dizziness. If all of the subjects experienced at least one of these effects and 35 percent of the subjects experienced exactly two of these effects, how many of the subjects experienced only one of these effects?

Answer: 180

Today

A photography dealer ordered 60 Model X cameras to be sold for $250 each, which represents a 20 percent markup over the dealer’s initial cost for each camera. Of the cameras ordered, 6 were never sold and were returned to the manufacturer for a refund of 50 percent of the dealer’s initial cost. What was the dealer’s approximate profit or loss as a percent of the dealer’s initial cost for the 60 cameras?

Send your guesses to [email protected].

❝

Luck is a dividend of sweat. The more you sweat, the luckier you get.

Ray Kroc

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Happy Investing,
David, Vyom, Jasper & Patrick