Holidays matter.
It’s one of the first things that you learn in the loan business. As there are specific processes, missing a holiday can back up a loan approval 3-4 days. You learn the hard way to check your calendar before making a funding commitment.
(Oh, and don’t promise to fund on a Friday. Somehow, Murphy visits the wire room at odd hours on Friday to screw up your wires to client’s banks)
Holidays also matter, as they allow us to know what is coming. We know the Fourth of July will need hamburgers, charcoal, beer and soda. Easter will need Lillie flowers. Christmas will need toys.
Toys need shipping. Many come from China, which is a 2-3 week or more trip to get it to your local store. Manufacturers also have to make them. That includes ordering the raw materials to make Johnny’s plastic playhouse for the back yard.
It’s one big pipeline, that allows us to watch it and see where there are blockages or slowdowns.
2022 is going to keep everyone busy. Raw materials made from crude oil products have jumped a lot in price. Shipping is backlogged in China and in the North Sea. Stuff is still being sorted out. We still have supply issues.
That Time of the Year
Somewhere in Target’s headquarters there a person sitting at their desk tearing their hair out. How many plastic backyard play sets should we order for Christmas? We have to get our China partners the orders in July, so they can be made, boxed and shipped from China (arriving in August).
That person also knows there are competing items. Items at other chain stores will be advertised. Our factory-partner sells to all the major chain stores. Where will competitors price it at…$200? 300? $400?
Target’s marketing department says to keep the price as low as possible. Johnny’s parents are spending twice as much on energy per month, 30-60% more on food, and their pay has only gone up 5%.
Every night, this buyer sweats more and more. What can we afford to sell it at, and what will the consumer have left in funds to buy with in the Fall? Boss says the orders must be in China’s hands by June 30th.
The orders for China have to go out soon. Xmas 2022 will be a make-or-break career time for wholesale product buyers.
Rates Are Going Higher, But Sales Are Not
Today, the Federal Reserve had a meeting where they decided to raise interest rates for overnight lending 0.75%…and plan on having this interest rate near 3.3% by Christmas. They are desperate to slow down the economy…so desperate that they leaked the news of 0.75% to a reporter during their “news blackout” window. They can’t control oil. They can’t control food prices, but they do control credit.
Everything you buy is on credit, even if it is only for a few milliseconds. The Fed touches everything. 3.3% will create a lot of problems. It will stop purchases of housing and car sales more (and also other big ticket items).
In past blog posts, we noted that the economy would slow down a lot if they raise interest rate a little. Combine that with a war in Ukraine, and oil and food price shock and delivery disruptions. Combined, it’s been one big 3-ton anchor tied to the “GDP” rowboat. That boat’s not going anywhere. Technically, we are already in a recession.
Would you order more than normal plastic playhouses today? I sure wouldn’t.
If you follow our reasoning, wholesale buyers are going to send China fewer orders. Every single month is likely to see less, up to and through Christmas.
There will be a lot of stress at manufacturers, retailers, bankers and others. Stress makes buyers more conservative. If they expected last month to be down and it was, they are inclined to think this month will be too. Same for the next month, and the month after that.
Wages and the CPI are lagging data series. Then tend to go up at the end of a business cycle. By the time they begin to I fall, we are in the middle of the recession already.
Guidance For One Hell Of A Year
Keep lean and liquid,
…Listen for competitors in trouble, and
…Buy inventory from those who can’t go on.
And “if you feel like you are walking through one hell of a year….keep walking”
(Winston Churchill, paraphrased)
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