The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Restaurant Industry Downturn Points To Coming Recession

In 2015, we wrote in our Wellington Letter about how the restaurant industry, and other businesses with high employees-to-sales ratios, will have major profit and pricing pressures over the longer-term due to Obamacare. In addition, raising the minimum wage to $15 per hour, as well as increases in regulatory burdens, will all contribute to growing profitability pressures.

We’ve been telling our readers since September 14th 2015 that “In the US, the worst parts of Obamacare are kicking in. Companies will reduce hours to make many employees “part time.” Others will reduce their workforce to become “exempt”…The billionaire who owns a number of upscale restaurant chains, Tilman Fertitta, said everyone in the industry is now reorganizing in order to cut employees because of the high minimum wage law.”

Wall Street analysts are just now finally starting to come around to this problem and have issued some dire warnings about the coming restaurant industry slowdown and its historical significance:

Here is an excerpt from an interesting article from Bloomberg about Stifel Financial’s recent research and downgrades of the restaurant industry:

“During much of the recovery from the financial crisis, restaurant spending has been a retail highlight as other areas, like department stores, have struggled. According to Stifel Financial Corp. analyst Paul Westra, however, recent surveys point to the start of a serious decline.

According to his research, industry peers are slowing down across all sub-industries. This doesn’t just bode ill for restaurants, but could point to trouble across the economy as a whole.

A downturn in dining could be implying a U.S. recession as soon as early 2017, restaurants have historically led the market lower during the three to six month period prior to the start of the prior three U.S. recessions,” Westra adds.”

The restaurant industry is so important because it gives insight into the health of the US consumer as well as changes in consumer spending patterns. Many victims of Washington policies will be small businesses, who already tend to have the deck stacked against them.

It’s easy for the media to write the story now that the facts have become obvious. But it can only be helpful for investors when they are forewarned and they can act before the damage is done. And that is our specialty at Dohmen Capital Research and in our WELLINGTON LETTER. As the professional hockey player Wayne Gretzke said, “I skate not where the pug is, but where it is going to be.” And that is what successful investors do in the markets.

Read the full article here: http://www.bloomberg.com/news/articles/2016-07-26/analyst-warns-of-a-restaurant-downturn-and-sees-harbinger-of-a-u-s-recession