Off The Grid, COVID Crisis Edition

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Off The Grid, COVID Crisis Edition

Back in 2009, as the Great Recession’s scope was just coming into focus, we developed an analytical toolbox we called “Off the Grid Indicators”. As is the case now, US equities were on a tear after their March lows. This move accurately forecast the V-bottom in corporate earnings, just as the current +50% advance off 2020’s March lows is doing today.

But there was a sense in 2009, as in 2020, that all was not right with the world; our “Off The Grid” metrics sought to quantify that sentiment. They were not meant to wave clients off owning stocks. Instead, they gave some real-world measurements of less-considered but still real macroeconomic problems that anyone could follow in almost real-time.

Here are 5 “Off the Grid” indicators we think are especially relevant today:

#1: US Google search volumes for “food stamps” (2004 – Present):

Why this matters: as of March 2020, 15% of US households were enrolled in the Supplemental Nutrition Assistance Program, commonly called food stamps, so this is an important part of America’s social safety net. That spike you see on the right side of the graph is April 2020, and search volumes here are 33% higher than the prior peak in October 2013. Expect to see food stamp participation increase and once the USDA data is available (it is several months late) it will be in the press quite often. This is what happened in the Great Recession.

#2: US Google search volumes for “buy a gun” (2004 to Present):

Why this matters: peak interest for this query in March 2020 was 78% higher than the December 2012 spike you see in the middle of the chart. FBI background check data, which correlates to actual firearm sales, have averaged 3.6 million from May – July 2020. That is 24% higher than the December 2012 volume for background checks and almost 5x the monthly levels common in the early 2000s.

#3: US Google search volumes for “gold coin” and “silver coin” (2004 – Present):

Why this matters: searches for precious metals coinage usually peak with popular concerns about future inflation. Even though gold prices recently broke out to a new high, search volumes are 24%/34% lower than their 2011 peaks. That means we aren’t at “peak inflation worries” just yet, and for readers long gold or silver the data here does suggest further upside.

#4: US Gasoline Demand, as reported by the US Energy Information Agency (September 2019 to Present):

Why this matters: the overwhelming majority of American motor vehicles are still powered by internal combustion engines, so gasoline demand is a good proxy for general economic activity. The last dot on the blue line above is the week ending August 14th. It shows a 10.7% decline from last year’s comparable week. Also visible in the chart is the relatively slow trajectory of US economic growth over the last 6 weeks after the quick snapback from May through early July and the noticeable gap to 2019 (the tan line).

#5: Large Pickup Truck Sales In the US (year over year percentage change, January 2008 – June 2020):

Why this matters: large pickups (Ford F-150s, Chevy Silverados, GMC Sierras, etc.) are commonly purchased by US small businesses in a wide range of industries, so sales of such vehicles is a reasonable proxy for their overall confidence in the domestic economy. Given national shutdowns (both dealer and factory) in Q2, it is surprising to see sales only down 21.8% versus last year. We expect these will improve in Q3 and Q4, which means sales should not reach the negative +40% comparisons we saw in the Great Recession.

Summing up (1): by some measures (food stamp and gun queries) the impact of the COVID Crisis has been more pronounced than during the Great Recession, and by others (precious metal coins interest and pickup sales) it has not. Gasoline demand shows it will be a while before the US economy returns to its 2019 form and recent trends are sluggish.

Summing up (2): back in 2009 we saw many market commentators make the mistake of ferreting out a seemingly telling nugget like one of our “Off the Grid” metrics and blowing it out into a negative case for stocks. Trust us when we say this is not productive. After living with this data for +10 years, we continue to track it primarily because we know it creates real investor concerns. Record high demand for food stamps and guns is not exactly a calming tale, for example. But sometimes (as now), the best course as an investor is to examine worrisome data the same way you might consider personal anxieties: acknowledge they are there, accept them, and move along.

Ancillary sources:

FBI Background Check data (NICS): https://www.fbi.gov/file-repository/nics_firearm_checks_-_month_year.pdf/view

US SNAP Participation: https://fns-prod.azureedge.net/sites/default/files/resource-files/34SNAPmonthly-7b.pdf