- Over the years, McDonald's has grown to much more than the world's largest fast-food chain.
- Both economic and capitalist peace theories have been established based on McDonald's and its legendary Big Mac sandwich, though the latter has been proven wrong with Russia's invasions of Ukraine.
- I've also put together an economic theory that concerns McDonald's, one that moves back into the spotlight as we await the September consumer confidence numbers Tuesday.
There are some things in life one never forgets. Almost everyone can recall the taste of an icy cold Coca-Cola on a hot summer day, though few can explain the taste beyond “chemicals” and “acid”. Those in agriculture also know the smell of a feedlot and can bring it to mind any time they so choose. While those in the cattle business are fond of saying “it’s the smell of money”, we all know where the lingering odor that coats all really comes from. Then we have McDonald’s Big Mac sandwich. Even if we haven’t been to the Golden Arches in decades, we can still recite the ingredients by rote[i] and put the taste of the legendary burger on our tongue to this day.
But how many know of the economic theories tied to both McDonald’s and the Big Mac sandwich? The first has to do with the value of the Big Mac as an indicator of “what currencies are overvalued compared to the U.S.”[ii]. With the focus this month on the US dollar index and its wide variety of bullish technical indicators[iii], all telling us the green back should continue to strengthen long-term, the author of the Atlantic piece noted, “the Big Mac isn’t just some dumb lump of something resembling meat. It’s an international barometer of economic activity”.
Another theory tied to McDonald’s has to do with capitalist peace, stating, “No two countries that both have a McDonald’s have ever fought a war against each other.” This theory has a problem, most notably Russia’s invasion of its neighbor and sovereign country Ukraine given McDonald’s has opened restaurants in both countries. With the way everyone is fighting these days, I’m sure there are other examples of this theory being broken as well.
I’ve held to my own theory about McDonald’s for a number of years, an idea that was brought to mind Monday evening when I saw my friends at Barchart post the above message on the X-site formerly known as Twitter. Barchart’s X-change (rather than tweet?) showed the daily chart for McDonald’s stock and the solid downtrend that has been in place since July. My theory was based on the idea McDonald’s would show strength when US consumer confidence was low and the economy was struggling as folks still wanted to go out and enjoy comfort food in the form of a burger[iv]. A look at the long-term monthly chart shows that’s what happened during the meltdown from October 2007 through March 2009. During that time McDonald’s held steady to firm while the Dow Jones Industrial Average lost 54% of its value.
That same monthly chart is now showing McD posted a bearish spike reversal during July, confirming the stock had moved into a long-term downtrend. This was followed by a new 4-month low during August as the McD took out the previous mark of $280 from June, which led to the extended break seen so far in September with the stock falling to a low of $267.44. Theoretically, the stock doesn’t enter bearish territory until it falls 20%, putting the threshold at $239.55. The 33% retracement is near the big round number of $200.
With McD now in a long-term downtrend, what does it say about the US economy? Or does my theory have any legs on which to stand? Theoretically, a more bearish view of McDonald’s would suggest the US economy should continue to strengthen. Those that have faith in government numbers will be quick to point to the September consumer confidence number of 103.0, down from the August figure of 108.7 and reportedly a new 4-month low (there’s that reversal pattern again). Granted, this is just one economic indicator out of seemingly hundreds, but the common theme continues to be concern over higher interest rates and ongoing inflation. There is also the political football of a potential US government shutdown being tossed around Washington, D.C.
The other economic indicator I use, US boxed beef prices, is also showing increased concern. Through Monday afternoon, choice beef is down $12.31 for the month while select is off $8.84. While prices are still high, historically, the monthly close-only chart is starting to show signs of a top. If these patterns are followed through to completion, and the long-term trend in boxed beef turns down, my reading would be the US economy could finally be headed for a softer time.
Does that mean it’s time to buy McDonald’s despite all the long-term bearish technical indicators? I’m not there yet. For now, I’ll stick with the idea the US economy is stronger than what most want to give it credit for, albeit with obvious struggles.
[i] “Two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun.”
[ii] From the Atlantic.com, “Big Maconomics: How McDonald’s Explains the World” by Derek Thompson, May 1, 2012
[iii] On September 5 the $DXY hit new 4-month high, one of the major reversal patterns I look for. On September 21 the $DXY completed a Golden Cross as its 50-day moving average crossed above the 200-day moving average. On September 25 the $DXY posted a new 2023 high as it took out the March number of 105.88.
[iv] In this way McDonalds, along with other companies like Wal Mart, Procter and Gamble, etc., could be viewed as Giffen Goods.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
