Some people used to read tea leaves to predict the future. Not many people really brew tea that way in this country, so we must make do with sifting the coffee grounds:
Starbucks is a leading indicator for our broader economy.
It's not a coincidence that Starbucks reached its peak at the precise height of the housing boom - the inflation-adjusted price of housing in the United States topped out in 2006, Starbucks' last year of living high on the bean.
Plot Starbucks' stock price against the Dow Jones industrial average and you see that over the last four years, Starbucks has anticipated the market at nearly every turn. Starbucks' stock started heading north in 2005, five months before the rest of the market started climbing. Starbucks began its decline in late 2006, just as the outlines of the recession were emerging on the horizon. And Starbucks' stock dropped through the floor nine months before the Lehman Bros. Holdings Inc. crash sent the rest the market tumbling.
If you think about what Starbucks sells, it makes sense. By its own admission, Starbucks isn't really in the coffee business - it sells affordable luxury, lifestyle, and a "third place" where people can gather that isn't the home or office. When consumers get spooked, this is the first kind of spending to go. People still need caffeine in a recession; they don't need a "third place."
I've never quite gotten that "third place" thing, unless the Starbucks was in a bookstore, but I've probably succumbed to that "affordable luxur" nonsense