What These Food Stocks Are
Telling Me About the Future

Michael discusses food and how it relates to the economy and the stock market.

reporting from Florence, Italy

Something different for my readers today…

I’m going to talk about food. But don’t worry; in the end, I’ll relate it back to the economy and the stock market, as I eventually do with all my stories.

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Okay, so I’m eating out every night here in Florence. And when I look around, I see few people with a bottle of wine at their table. Wine, in Italy— isn’t it cheap here?

Yes, generally, good wine is less expensive in Italy than in America. But times are also difficult, very difficult, in Europe.

It’s common to see a family of four people at a decent Italian restaurant having salads and sharing (yes, sharing) a bottle of water and a pizza. And in Rome, fast food restaurants are becoming more and more common.

Europeans are suffering, economically. Unemployment is sky-high in most countries. Wages are low. Austerity measures have hit the pockets of citizens. For a young couple to get married and move out of their parents’ home is not common. What is common is getting married and living with the parents or in-laws.

And that got me thinking about back home, in America.

McDonald’s Corporation (NYSE/MCD) last week reported a whopping profit of $1.41 billion in the second quarter of 2011—well above analyst expectations.

And McDonald’s stock price chart, it looks like a straight line up since the beginning of 2009. (Stock market advice: I’d buy the stock; but, at 18.4 times earnings, it’s too rich for me. The easy money has been made on this stock.)

Now let’s look at Morton’s Restaurant Group, Inc. (NYSE/MRT), the world’s largest operator of company-owned upscale steakhouses (no, none in Italy). Morton’s has been posting some great earnings as of late. But the stock is in the dumps. In 2007, the stock went for $20.00. Today, it trades at $7.64.

What’s going on?

The stock market is a forecaster of future events. And right now the stock market is telling us that the future for consumer dining dollars will go to cheap, fast-food companies like McDonald’s, not fine-dining restaurants like Morton’s. In a nutshell, consumers will be cutting back on spending.

The price action of the dining stocks is in line with my belief that we will experience difficult economic times ahead in America. The way people live in Europe, their lack of income and their decaying standard of life could travel to America  quicker than most consumers care to think.

About 44 million Americans are using some form of food stamps. It’s downright scary. And when you have the stock market giving companies like McDonald’s a major vote of confidence in the form of a booming stock price, we need to take a step back and look at what it forecasts for our future.

When I walk around the streets of Italy, be it Rome, Florence or Venice, and see how the well-educated, middle-class people struggle, as sad as it sounds, I see America’s future. And it’s not pretty.

What He Said:

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market. I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will push down corporate profits.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. The year 2008 ended up being one of the worst years for the stock market since the 1930s.