By Gayl Mileszko
Super Sizes
Morgan Spurlock of Parkersburg, West Virginia was the 34 year-old guy who ate all his meals at McDonald’s for 30 days back in 2004. To help understand the rise of obesity in the U.S. and demonstrate the effects of fast food, he produced a movie starring himself consuming 5,000 calories a day, mostly super-sized meals, while intentionally exercising only as little as the average American. He never produced his actual food log, but claimed to gain 25 pounds while damaging his liver and becoming depressed. He also became very rich. “Super Size Me” was just one of the dozens of his film and TV productions but it made him $22 million and earned him an Oscar nomination. Thirteen years later, he attributed much of what he suffered to alcohol abuse. Regrettably, two months ago, he died of complications from cancer. At the time of his 30-day contest, the price of a Big Mac was $2.47.
Half-Sized
Kevin “Big Mac” Maginnis of Nashville, 57, ate only off the menu at McDonald’s three times a day for 100 days last year. He had no in-between meals and drank only water, but cut each portion of food in half and only ate when he was truly hungry. Even though he did not exercise at all, this strategy produced a 58-pound weight loss and lowered his triglycerides by 205 points. His wife joined him 35 into his “Half Size” trial, and they documented their progress for viewers on TikTok. The average cost of a Big Mac in Tennessee in March of 2023 was $4.11.
The Big Mac Index
The iconic sandwich that debuted in 1967 has actually become a type of economic indicator. The St. Louis Fed produces graphs that plot the price of a Big Mac versus the Consumer Produce Index; they show that the cost of a Big Mac has in fact significantly exceeded the CPI since 2012. Back in 1986, when the sandwich sold for $1.60, the Economist magazine created the Big Mac Index; this gauge is still used as an informal way of measuring the purchasing power parity between different countries and currencies. McDonald’s eliminated super sizing six weeks after the debut of the Spurlock documentary. But super high pricing prevails across the menu. In 2024 the price of two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun has risen to $5.29 while the sandwich size has shrunk dramatically. As a result, hungry fast food consumers have taken to boycott their local golden arches.
Hamburglary
Mickey D’s has patted itself on the back for years over their ability to raise menu prices without harming sales. Approximately 93% of locations worldwide are franchised and these independent owners set their own prices; in 2023 they increased by an average of 10% without significant push back. Price increases matter a lot to Don Gorske, 70, of Fond Du Lac, Wisconsin, who holds the Guinness World Record for the most Big Macs eaten — at over 34,000 and counting. Less competitive eaters were said to be tolerating the higher menu costs at their local drive-thru’s – that is until a July 2023 Tweet outraged loyal customers of the transnational company with $191 billion of market cap. A photo of the receipt for an $18 Big Mac meal and an $18.29 ten-piece Mc Nugget at the I-95 rest stop in Darien, Connecticut, spread through social media like wildfire. Consumers suddenly noticed that there were no items on the dollar menu anymore. The 84 year-old company known for value was suddenly pegged as unaffordable. First quarter sales came in weaker than expected, and the target customer, one making $45,000 or less, was lost. Management responded by rolling out a $5 value meal to try and regain traffic share but America’s dominant fast food player missed earnings estimates for the second quarter in a row. The company’s stock, available at $1.08 per share in 1980, currently trades at $266.44, off its high of $300.53 in January of this year. At this writing, its 5.20% senior unsecured bonds rated BBB+ due in 2034 are trading at $102.439.
Prices Up but Spending Up Too
The two principal measures of prices paid by consumers for goods and services are the Consumer Price Index (CPI), which is produced by the Bureau of Labor Statistics, and the Personal Consumption Expenditures (PCE) price index, prepared by the Bureau of Economic Analysis. They are structured, and so tend to behave, differently. In June, the CPI dropped 0.1% from May, the first drop in four years, slowing this annual rate of inflation gauge to 3%. The PCE index increased by 0.1% and brought this annual inflation index increase to 2.5%. Almost counter to logic, the pace of personal spending increased again in June by +0.3% alongside inflation; it has increased month over month since April of 2023. Many economic indicators point to a slowdown in our economy, but the U.S. consumer remains astonishingly resilient. This is despite rising levels of consumer debt. Total household debt hit a record high of $17.6 trillion as of March 31, and Experian reports that the average debt an America owes is $104,215. Philadelphia Fed data show that credit card delinquency rates in the first quarter of 2024 rose to the highest level since 2012; the proportion of card balances that were more than 60 days past due at the end of March climbed above 2.5%, more than double the lows seen during the pandemic.
Not Lovin’ It
Household debt is not the only pressing concern for economists. On Friday, the U.S. national debt just surpassed $35 trillion milestone for the first time, up $1 trillion since January, 75% higher since 2017, well over the $17 billion recorded in 2014. The debt now represents 120% of GDP, a level not seen since the end of WWII. Mere interest on the debt is estimated at $870 billion this year, up 32% from last year when it represented 2.4% of GDP, and well above the publicly disclosed level of spending on defense at $822 billion. The Congressional Budget Office estimates that, at the current rate, debt and interest payments will continue to grow over the next 10 years, with federal spending expected to jump 64% to $10 trillion, compared with $6.1 trillion in 2023.
Monetary PlayPlace
Jay Powell and his 10 colleagues on the monetary policy committee meet this week and will clue global markets in on their thinking. Stocks, bonds, and commodities have already assumed a September rate cut of 25 basis points. Anything that comes before that or comes in higher than that will delight not only traders but investors, consumers, and borrowers. The Fed only has three more meetings this year to adjust the federal funds rate, a level that influences credit cards, mortgages, and most lending. Heading into the Wednesday afternoon announcement, the peak yield on the U.S. Treasury curve is the one-month at 5.38%. The 2-year yield is 4.34%, the 10-year stands at 4.10% and the 30-year is at 4.35%. The AAA municipal general obligation benchmark yield generally trails its taxable counterpart. The SIFMA 7-day Index stands at 3.61%, the 2-year yield is 2.85%, the 10-year is at 2.82% and the 30-year is at 3.68%
Happy Meals, Shakes, and Grimaces
The big market focus this week is of course the Federal Open Market Committee meeting, and investors await the happy announcement of the end of quantitative tightening and the start of a series of rate cuts. But there has been a shake-up in tech stocks traders, and second quarter earnings reports are being delivered at a rapid pace. Traders are monitoring action taken by the central banks of England and Japan, economic data including nonfarm payrolls, job openings, construction spending, and pending home sales, the results of six Treasury auctions, and quarterly financing announcements. There is a countdown to the Democratic National Convention and Election Day underway; market participants are bracing for the next surprise and hedging likely outcomes. Other potential market movers include developments in the elections in Venezuela, the meetings being held in Japan and the Philippines by the Secretaries of State and Defense, the start of European Union transfers of interest income from Russian bank accounts to Ukraine, and the escalation of the Israel-Hamas war.
Menu of Offerings
Market conditions such as inverted yield curves, uncertainty over the timing of rate actions, heavy negotiated sale calendars, presidential politics, and the rallies and selloffs in risk markets can prove challenging for municipal underwriters. Year-to-date volume over $269 billion is 38% higher than it was in 2023. Municipal bond mutual funds, money market funds and ETFs find themselves competing for allocations. Institutional and retail buyer demand for tax-exempt paper across maturities and ratings remains strong and some deals are wildly oversubscribed, allowing borrowers to reprice at better levels. Last week, the A3 rated South Carolina Public Service Authority better known as Santee Cooper took $6.2 billion of orders from 90 hungry buyers and actually upsized their offering from $400 million to $1.3 billion; the 2054 term bonds came with a coupon of 5.50% priced to yield 4.23%. In the high yield space, QCF Behavioral Hospitals sold $89.4 million of non-rated bonds priced at par to yield 7.50%. The University of the Ozarks came to market with a $29.4 million non-rated taxable deal priced at par to yield 7.31%. Summit Academy Charter School sold $9.9 million of non-rated taxable bonds due in 2030 with a coupon of 8.00% and yield of 8.25%. Envision Education brought a $22.8 million BB+ rated transaction structured with a 40-year maturity priced at 5.00% to yield 5.01%. And Pine Springs Preparatory Academy had a $6.9 million non-rated sale structured with a single 2059 maturity priced at 7.25% to yield 7.838%
McFlurry of Gold
The 33rd Summer Olympic games are well underway in Paris and the U.S. medal count at this writing totals 27. McDonald’s had a 41-year long history of sponsoring the Olympics but pulled back on its multi-million dollar commitments in 2017 to fund menu changes and technology improvements, and put an end to the barrage of bad press from public health groups. They handed off the baton to other global brands, this year including Coca Cola, Airbnb, Deloitte, Toyota and Visa, among others. As we continue to marvel at the stunning performances and record-setting achievements of athletes from all around the world, we invite you to share your favorite Olympic moments with your HJ Sims representative, and let us discuss how to bring the gold home to your portfolio, your family, your school, your hospital, and your community.