Inflation, San Francisco, Yellow Freight and who is Don Meij?
Well, it’s nice having some time off, but back to business.
Inflation - we had some good Good news this week.
Headline Inflation, (Consumer Price Index) – so named because it makes the headlines (kind of like a corduroy pillow) – was 0.2% month over month, holding steady.
Core CPI – this is CPI less fuel and food – was also steady at 0.2%. Year over year, it was down to 4.7% from 4.8%. The Fed likes that. The stock market liked it even more.
Oh, and the annual CPI was 3.2%. Remember, the target is 2% for the Fed. But that’s really the CPE. More on that in two weeks.
So, do they stop raising rates? That would make an excellent office pool contest, just in case you don’t want to be part of the football pool.
There were other issues, too. Summed up:
Fitch is a credit rating agency. Well, they downgraded the United States. Yeah, because they did such a wonderful job rating the mortgages in 2007. Whatever.
I do not put much faith in credit rating agencies; however, the US does need to reduce the debt it has.
Why? It’s running a budget deficit – expenses exceeding income – of $1,600,000,000,000 for the last 10 months.
If your expenses exceeded your income, I think you’d cut back your expenses.
Unless Congress was writing the checks. I digress…
Consumer debt is at record levels, driven by student debt and car loans. Oddly enough, revolving credit dropped ever so slightly.
This is another canary in the coal mine, though. Or a red flag, depending on what metaphor you want to use.
Just in case you are curious as to why a canary would be in a coal mine, read about it here.
Oddly enough, this practice was still being used until 1986.
On to other things…
When the Lights Go Down in the City… and with respect to Journey referencing the City by the Bay…
San Francisco had a bond sale in March. When a municipality sells a bond, they are asking the public for a loan; that’s what a bond is.
This is not unusual; cities, counties, and states do this all the time. But like any loan that is issued for public sale, the issuer (borrower) must disclose the condition of its finances and anything that could impact its tax base to pay the bond back.
For San Francisco:
Vacancy rate for San Francisco office space in the city is 31.6% per CBRE.
National average is 17%. L.A. is 23.2%.
BART, the Bay Area Rapid Transit system, is running at 34% of pre-pandemic levels.
That is stunning. That means a seat for everyone, including the meth guy.
Landlords have requested, and received, reductions in the valuation of their buildings that will decrease property tax revenue to the tune of $200 million over the next 5 years.
That impacts the cash flow available to pay back the bond; that’s why it’s mentioned.
Here’s another fun fact. Another statistic we can get is the cellphone activity in a city. Of the 13 largest cities, New York is at 75% of cell phone activity pre-covid.
L.A. is at 62%
Austin is at 53%
San Francisco is at 32% activity.
Kind of matches BART.
However, tent and fentanyl sales are up.
So do I bring this up to disparage San Francisco? No. The leadership, yes. The city? Nope. I was born in St. Francis Hospital right in the city and lived in the Sunset District until I was 6. It’s a beautiful city.
Just not anymore. Fisherman’s Wharf is a shadow of what it used to be, with Alioto’s permanently closed, and Market St. has virtually no retail stores open.
This is not an economic thing and it’s not a covid thing; this is a management thing, and just like any business, there is good management, and there is management that is really, truly incompetent.
You know it when you see it, and you never give credit to incompetent management.
If San Francisco were a business, it would be ripe for a takeover. Or chapter 11 bankruptcy, just like Yellow Freight.
Speaking of…
Yellow Freight – The Low Price Leader
Unless you ship your product on an LTL basis or you are on the highways a lot and see their trucks, you won’t know what Yellow Freight is.
LTL – Less Than Load or Less than Truckload – an anacronym for a trucking service that will deliver your goods even if it is less than a full trailer load.
Typically delivers goods 150 pounds and higher.
Yellow freight was a 99-year-old LTL delivery service that moved about 50,000 shipments per day. Per day.
It was also known as the low-price leader.
It filed for bankruptcy liquidation this past week, leaving 30,000 workers without jobs. Done. Excellent negotiating tactics on the part of the Teamsters.
The US Government had a 30% stake in the company because of a $700 million loan it gave the company during the pandemic.
Two lessons for you, the business owner:
Don’t be the low-price leader and have your debt exceed the assets you own.
You can be the low-price leader, but if you have large amounts of debt and interest rates are going up, you are going to erase your profit margin pretty quickly.
How about not being the low-price leader and adding some value to your product? There’s an idea.
Your shipping costs just went up. Particularly if you used Yellow Freight.
Time to re-budget your shipping costs.
Who is Don Meij?
First of all, he’s not dead; he’s very much alive.
And you pronounce his surname “may”.
What caught my attention was a Bel-Air home for sale in L.A. for $29.95 million. No, I was not house shopping; I can’t even afford the property tax.
The seller was Don Meij, so I looked him up.
He is the CEO of Domino’s Pizza Enterprises, the master franchise for Domino’s Pizza in Australia, New Zealand, France, and the Netherlands.
With this record of success, he must come from money or received his MBA from Harvard or Stanford, right?
Nope, he started as a pizza delivery guy for two years while in college in Australia. And he never finished his degree.
There is a good 10-minute video of him here. The key takeaways are:
Know your customers; talk with them often.
Do not be an absentee owner.
Take risks and make mistakes; it’s the only way you learn.
You are going to have to adapt, change, and learn to re-learn.
The Wrap Up
The summer is winding down, school has started (whatever happened to the day after Labor Day?), and whether you are a business owner, part of the management team, or a person on the line, it’s the final sprint to make your numbers for 2023. You should also start thinking about 2024. For reals.
