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Introducing the 'Empty Restaurant Indicator'

By Jeff Clark
Tuesday, October 2, 2012

If you want to get a good indication of the health of the economy, just look at your local restaurants.  
 
Packed restaurants are a sure sign of a bustling, vibrant economy. It's hard to be bearish when you can't get a table on a Wednesday evening.
 
Empty restaurants – like those with more staff than guests – show the opposite condition.
 
All summer long, the restaurants in my neighborhood have been jam-packed. We'd often have to wait an hour or more just to get a table for four at my local sushi restaurant on a Thursday night. And if you didn't make reservations for a Friday or Saturday night, forget about it. You were going to be eating at home that evening.
 
After what I saw this past weekend, though, I can say things have suddenly changed... 
 
On Friday night, my family joined two others to form a party of 12. We walked into a nearby Greek restaurant and fully expected to wait an hour or more to get served. We expected they'd have to break up our group into separate tables. We figured some of us would get stuck at the table nearest the men's bathroom.
 
We were seated right away, together, at multiple tables pushed together in the middle of the restaurant.
 
"Where is everybody?" I asked Mario, the proprietor.
 
He explained business has been slow for the past two weeks...
 
"It was busy all summer," Mario said, "Maybe too busy. Then it just dropped off. At first, we welcomed the break. We were working so hard, it was nice for it to be less busy. But now I'm hoping it picks up again." 
 
After my son's late-afternoon baseball game on Saturday, we joined a bunch of teammates and families at a Mexican restaurant near Silicon Valley. There were more than 25 people in our party. But despite it being just after 7 p.m. on a Saturday night, we were seated, fed, and on our way home by 8:30.
 
Then on Sunday, my family elected to have brunch at one of the nicer restaurants in the area. It was just the four of us, but I thought I'd call ahead and see how bad the wait time was.  
 
"Come right on over," said the voice on the other end of the line. "We'll be able to seat you right away." 
 
At noon on a Sunday, the place was almost empty. Just two other families, dressed in their Sunday best, dined alongside us while 20 or so tables sat vacant.
 
Gina, the hostess, told me the same story Mario had two nights before. "It was so busy," she said. "Then it just stopped. I've never seen anything like it." 
 
I, however, have seen this before... And I remember the day vividly...
 
On September 30, 2007, I officially retired from the money-management business. A few days later, a bunch of my trader friends helped me celebrate my retirement by playing golf, drinking scotch, smoking cigars, and heading to the best steakhouse in the area for dinner.
 
Sixteen of us staggered into the restaurant and noisily bellied up to the bar. We didn't worry too much about the ruckus we were making bothering anyone else in the steakhouse. There really wasn't anybody else there.
 
"Where is everybody?" I asked the bartender.
 
"It's the weirdest thing," he said. "We were so busy all summer long. Then it just stopped all of a sudden." 
 
After hearing this, my friend Mark turned and looked at me. He clinked his glass of scotch with mine and said, "Wouldn't it be great if you retired at the absolute peak of the stock market?" 
 
That was October 3, 2007.
 
The S&P 500 peaked one week later at 1,565.
 
Maybe there's something to this "Empty Restaurant Indicator." We'll probably know for sure within the next couple weeks.
 
Best regards and good trading, 
 
Jeff Clark




Further Reading:

"If you've been watching the business networks or reading the financial press lately, you've been exposed to the three most popular reasons to buy stocks right now," Jeff says. "But they're the wrong reasons." See how you're being fooled here: Investors Are Buying Stocks for All the Wrong Reasons.
 
In addition to the "Empty Restaurant Indicator," Jeff uses several others to gauge where the market's headed next. He frequently checks in with the Volatility Index, Bollinger Bands, the MACD indicator, bullish percent indexes, and the Mother Indicator.

In The Daily Crux
Market Notes
Gold uptrend takes a break... prices are flat over the past two weeks after jumping 15% in three months.
 
LDK Solar plunges to a new all-time low... shares are down 74% since the start of 2012.
 
"Boring" telecom giants Verizon and AT&T are up almost 25% over the past six months, including dividends.
 
Visa breaks out to a fresh all-time high... shares have nearly doubled since the start of last year.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1444.49 +0.3% +27.7%
Oil (USO) 34.25 +0.4% +12.3%
Gold (GLD) 172.30 +0.2% +9.0%
Silver (SLV) 33.65 +0.5% +16.4%
U.S. Dollar 79.82 -0.1% +2.5%
Euro 1.29 +0.4% -3.7%
Volatility (^VIX) 16.32 +3.8% -62.0%
Gold Stocks (^HUI) 517.57 +0.7% -1.6%
10-Year Yield 1.63 -0.6% -15.1%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 144.35 +0.3% +30.3%
S. Korea (EWY) 59.65 +0.9% +29.1%
Singapore (EWS) 13.47 +0.5% +27.7%
S. Africa (EZA) 66.70 -0.1% +22.0%
Taiwan (EWT) 13.48 +0.8% +19.1%
China (FXI) 34.94 +1.0% +16.4%
Canada (EWC) 28.70 +0.7% +15.1%
Lat.America (ILF) 42.96 +0.9% +14.0%
Russia (TRF) 15.49 +1.0% +5.8%
India (IFN) 23.40 +0.7% +2.0%
Israel (ISL) 12.84 -0.4% -0.6%
Japan (EWJ) 9.14 -0.3% -1.3%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 15.75 +0.0% +58.3%
Media (PBS) 16.58 +0.1% +42.1%
Consumer Svcs (IYC) 86.62 +0.1% +37.0%
Financials (IYF) 58.54 +0.4% +35.0%
Retail (PMR) 25.36 +0.5% +34.5%
Biotech (PBE) 24.25 +0.4% +32.4%
Health Care (IYH) 84.99 +0.5% +32.4%
Big Tech (QQQQ) 68.47 -0.2% +31.8%
Real Estate (IYR) 63.92 -0.7% +31.0%
Industrials (IYJ) 70.72 +0.2% +30.8%
Water (PHO) 19.48 -0.1% +30.8%
Insurance (PIC) 17.01 +0.7% +30.3%
Telecom (IYZ) 25.41 -0.5% +28.2%
Software (PSJ) 27.57 -0.6% +26.7%
Defense (PPA) 20.02 +0.7% +24.4%
Basic Mat (IYM) 68.02 +0.5% +23.1%
Transportation (IYT) 87.06 0.0% +17.1%
Semis (PSI) 13.84 -1.8% +15.4%
Utilities (XLU) 36.22 -0.5% +11.1%
Nanotech (PXN) 6.31 +1.1% +9.0%
Oil Service (OIH) 40.34 +0.3% +0.0%
Big Pharma (PPH) 41.19 +0.5% +0.0%
Alt. Energy (PBW) 4.14 -0.5% -20.8%

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