What Goes Up…
…keeps going up.
The Big News
Well, the fed raised rates – again. This caused the prime rate to hit 6.25%, up from the 3.25% it was at the beginning of the year.
That’s a 92% increase in 7 months in the interest expense of businesses that borrow using the Prime Rate as an index.
That seems like a lot, but let’s put it into perspective.
Prior to this, more recently the Prime Rate peaked in 2018 at 5.5% so we are not that far off from where we were 4 years ago.
Historically:
In 1980, the prime rate peaked at 21.5%.
As expected, this led to a recession in both 1980 and 1981-1982.
Unemployment then peaked at 10.8%.
For what it’s worth, we are not going there.
The Bigger News
The other big news follows from the previous bullet point: Federal Reserve Chairman, Jerome Powell, came out with a statement that “the chances of a soft landing (no recession) are likely to diminish.” Ugh.
This means that the economic landing could be similar to coming into Ontario Airport during Santa Ana wind conditions. They don’t serve any peanuts during the flight and the plane lands with a good, hard thud. There’s a lot of discussion and head wagging and everything turns out OK. But there’s always someone who shrieks.
It’s all developing folks. This week we have:
Jobless claims report
Durable goods orders
Pending home sales
Stay tuned and don’t panic. It’s still the strongest economy in the world.
Bits and Pieces
A 1998 Michael Jordan jersey worn during game 1 of the 1998 NBA Finals just sold at auction. $10.1 million. Now that’s a lucky shirt.
Bad news for Jeff Bezos; he is no longer the world’s second richest person. He drops to #3. #1 is Elon Musk (I’ve always thought that name sounded like an aftershave – “When you want the scent of success, splash on some Elon Musk. Available at Macy’s and other fine stores.”) Who is #2? A fellow by the name of Gautam Adani. He is from India and his net worth climbed $70 billion this year to $147 billion, most of it from gas, power and green energy distribution. It almost seems like he’s competing against himself…
Mortgage rates climbed to 6.29%. That’ll put a crimp on home buying and it is.
Inventory continues to haunt retailers and manufacturers. Scotts Miracle Grow is up to it’s neck in… fertilizer. The retailers have cut their orders, forcing Scotts to hold the inventory. This, of course, ties up cash. No inventory going out, no cash coming in. Or profits. Scotts has cut its earning forecast and consequently its stock is down to $49.95/share. The peak was April 1, 2021 at an even $250 per share. Ouch.
Have you driven a Ford lately? Probably not, because due to supply chain issues, the blue oval Ford logo as well as the nameplates are behind schedule in production.
Ford is holding back 45,000 vehicles while they wait for missing parts, some including the nameplates.
GM is currently holding 100,000 vehicles for want of missing parts.
That’s a lot of tied up cash.
Who was Arnold Fisher?
Mr. Fisher served during the Korean War as a corporal. He later returned home to join the family’s real estate development company.
That’s NOT the story. The story is what he did with his success, impacted by his experience in the Army. He used his wealth to fund a variety of charities tied to military service.
Turned the aircraft carrier USS Intrepid into a museum on the Hudson River in the 70’s.
Raised funds to increase benefits for families of soldiers killed in action.
Started the Center for the Intrepid to improve the treatment of military personnel who had lost limbs.
Established the National Intrepid Center of Excellence in Bethesda, Maryland to treat brain injuries and psychological distress.
Now THAT’S a good use of residual cash flow…
Two quotes from Mr. Fisher stand out:
“We don't want government money. I can build these things in half the time and half the cost and twice the quality as the government.”
“Don't use the word charity with regard to the military. This is duty.”
Veterans have certainly lost a friend. Mr. Fisher died September 11. He was 89.
A key part of business is charity and community service. Every company I have worked at has had that as part of their mission. Make sure your business does too. If it doesn’t, ask your employees what charity they would like to have their company support. Put that into action this week.
Adam
See previous Russell Reports here. To be added to the distribution list, just email me at adam@ss4bllc.com.
