Investing

[1984Echoes]

Energy may especially be ROI driven...

But a lot of manufacturing can exist only with Capex so the driver is not ROI but either must-purchase to sustain (modernization) or must-purchase if looking to expand operations (there could be ROI in there or delays based on interest rate environment but... they're looking long-term growth of revenues and don't look to alternative investments outside of their manufacturing expertise...).

[Screwball]

10 hours ago, ewsieg said:

I usually side with you Screwball, but the numbers don't work here.  Paying an extra 55 million in Interest is a great thing, not only for FedEx, but for UPS as well, especially if UPS was more responsible with debt.

FedEx will lay off workers in order make up for it and they'll make sure to lay off enough that the severance packages incur large additional costs which they will write off, while shrinking their costs for next year and demanding more out of their existing staff.  UPS will state that this is an advantage that FedEx has over them now, so while they don't even need to, they will follow suit and due the same.  Their service will be worse next year, but their profits will be up.  It's clearly a win/win for everyone involved.

You lost me here.  FDX has 22 billion in debt according to their filing.  A one percent rise in interest rates on that 22 billion is an increase of 222 million that goes directly to the bottom line.

I don't see how that is good.

[Screwball]

11 hours ago, 1984Echoes said:

Obviously they are raising rates to fight off inflation... and they were probably too slow to start on that due to the huge uncertainty coming out of the pandemic.

I don't know if we'll get a soft landing... can we avoid a recession while the Fed is trying to kill off inflation? That's the $64,000 question right now. They've jumped interest rates a few times already and will again this month... and yet Employment/ Inflation/ and consumer demand are still going strong.

The rest of the world has slowed down enough that maybe the supply chain issues fix themselves (I believe they already have for the most part) but Russia's war on Ukraine is also F'ing everything up because that is causing worldwide food shortages/ fertilizer shortages/ energy shortages etc... all inflationary and counter-acting what the Fed is trying to do.

But I think the U.S. will be sharply less impacted than anywhere else in the world... except maybe China also won't be affected too badly... they have a lot of insulation against these factors...

So maybe we will get a somewhat soft landing with only a few markets impacted (housing, stock markets, food prices) whilst others aren't impacted all that much. We'll see... This is a really unique environment for us so... we'll see. But also... whatever impact we do get with these rising interest rates... I believe will only be temporary. We still have too many growth factors counter-acting inflation/ rising rates that says we're not going to get much recession, even if we do get some... and interest rates (Fed Rate) should stabilize around the 4% mark... I believe that was the Fed's target...

Plan accordingly I guess...

I don't see the growth, and the Fed's GDPNow would agree.

[gehringer_2]

1 hour ago, Screwball said:

You lost me here.  FDX has 22 billion in debt according to their filing.  A one percent rise in interest rates on that 22 billion is an increase of 222 million that goes directly to the bottom line.

I don't see how that is good.

depends what they were doing with it and what the terms are. If they borrowed another $250M to buy a 777 on a low interest 10yr corp bond and it generates 400million in income, then debt was good. If business falls off and it sits parked, then debt is bad but the cost is still fixed in the face of increasing rates. If they went to market short term and the 777 sits parked while their interest costs rise with each Fed meeting, then debt was very, very bad!

Without knowing the duration of their debt portfolio and what income it bought them, I don't know how much their debt/income ratio is changing given some move in current interest rates.

If you have slogged through FedEx's financial reporting and say they are up shit's creek, I'm happy to believe you ( I don't own any ) but the devil is in the details, not the generalities touched on in these short postings.

Ford mortgaged themselves to the eyeballs a few years ago and made it work to save the company. Debt is a tool, it can be useful, it can be misused. Sure it's true that there is always some point that is too much debt, but like everything else, it's going to depend.

Edited September 18, 2022 by gehringer_2

[1984Echoes]

They are going to use fixed rate loans for their Cap-Ex purchases not variable rate loans so...

Screwball is not correct... a 1% rise in interest rates will NOT drop $222 mill extra interest expense/ loss to the bottom line.

HOWEVER... And to your point G2... FedEx is a terrible recessionary company. They are a cyclical company directly affected by recessions, which means THAT is how they are affected by interest rates. Fed increases their rate by ALOT (doesn't have to be in one shot, can be over a longer period, a year for example, but a steady increase in rates that... ) creates a business/ economy slowdown. Economy goes into a recession = less shipping = huge drop in FedEx revenues = a bunch off 777's are now parked = NOW they are up shit's creek if they are over-leveraged.

But it's the drop in revenues, not an increase in interest rates (not directly anyways) that impacts their EBITDA/ bottom line.

[1984Echoes]

1 hour ago, Screwball said:

I don't see the growth, and the Fed's GDPNow would agree.

Well, like I said...

I'm not looking at the overall rate, which includes multiple factors (and that chart shows GDP growth running mostly at 1.5% until this last week..? Or is that weekly "projections"; not Actual GDP Rate?)

Anyways, like I said... We may hit a temp recession. A slowdown based on what the Fed has been doing...

But the underlying factors in the US Economy will make that a short-term scenario and not a deep recession that lasts years.

The demand is still there. Supply issues will be fixed. (IMO). There are other growth/ investment/ US Government investment in infrastructure/ etc... That are going to kick the economy back into gear. Now, this is just my opinion and I'm not a financial expert... But I am going to guess that come next spring - April-ish, when construction picks up again  significantly because of the warmer weather - that if we are in a recession... it ends quickly as the US Economy takes off again.

But that's just me... my guess.

The immediate outlook, per your chart... could be a recession coming up the next 6 months or 2 quarters...

[Screwball]

1 hour ago, gehringer_2 said:

depends what they were doing with it and what the terms are. If they borrowed another $250M to buy a 777 on a low interest 10yr corp bond and it generates 400million in income, then debt was good. If business falls off and it sits parked, then debt is bad but the cost is still fixed in the face of increasing rates. If they went to market short term and the 777 sits parked while their interest costs rise with each Fed meeting, then debt was very, very bad!

Without knowing the duration of their debt portfolio and what income it bought them, I don't know how much their debt/income ratio is changing given some move in current interest rates.

If you have slogged through FedEx's financial reporting and say they are up shit's creek, I'm happy to believe you ( I don't own any ) but the devil is in the details, not the generalities touched on in these short postings.

Ford mortgaged themselves to the eyeballs a few years ago and made it work to save the company. Debt is a tool, it can be useful, it can be misused. Sure it's true that there is always some point that is too much debt, but like everything else, it's going to depend.

They have been trying to reduce their debt since may (see below).  This latest report stated they were "Reduced its forecast for capital expenditure for the year by $500 million to $6.3 billion."  Wonder why?

I don't know where the 777 stuff came from, but that sure as hell ain't what they are doing, so nice try.

FedEx to Reduce Debt by 11 Percent Following Completion of Strategic Public Offerings - from May

FedEx shares sink after company cites weakening global demand - the capex info

Edited September 18, 2022 by Screwball
Spelling

[Screwball]

51 minutes ago, 1984Echoes said:

Well, like I said...

I'm not looking at the overall rate, which includes multiple factors (and that chart shows GDP growth running mostly at 1.5% until this last week..? Or is that weekly "projections"; not Actual GDP Rate?)

Anyways, like I said... We may hit a temp recession. A slowdown based on what the Fed has been doing...

But the underlying factors in the US Economy will make that a short-term scenario and not a deep recession that lasts years.

The demand is still there. Supply issues will be fixed. (IMO). There are other growth/ investment/ US Government investment in infrastructure/ etc... That are going to kick the economy back into gear. Now, this is just my opinion and I'm not a financial expert... But I am going to guess that come next spring - April-ish, when construction picks up again  significantly because of the warmer weather - that if we are in a recession... it ends quickly as the US Economy takes off again.

But that's just me... my guess.

The immediate outlook, per your chart... could be a recession coming up the next 6 months or 2 quarters...

 

 

In Latest Sentiment Poll, Buying Conditions Are the Worst in Decades

[1984Echoes]

That's still short term. That's right now. That says nothing about what that sentiment will be in 6 months.

[gehringer_2]

hard to make out 2022 on that chart but here is the UM survey link

http://www.sca.isr.umich.edu/

Preliminary Results for September 2022

	Sep	Aug	Sep	M-M	Y-Y
	2022	2022	2021	Change	Change
Index of Consumer Sentiment	59.5	58.2	72.8	+2.2%	-18.3%
Current Economic Conditions	58.9	58.6	80.1	+0.5%	-26.5%
Index of Consumer Expectations	59.9	58.0	68.1	+3.3%	-12.0%

[gehringer_2]

1 hour ago, Screwball said:

I don't know where the 777 stuff came from

don't be thick SB, what do you think Fedex borrows money to buy? They operate over 600 aircraft, including 52 triple 7s. Not sure the mix of leases to purchase but they do purchase plenty of them.

Edited September 18, 2022 by gehringer_2

[Screwball]

35 minutes ago, gehringer_2 said:

don't be thick SB, what do you think Fedex borrows money to buy? They operate over 600 aircraft, including 52 triple 7s. Not sure the mix of leases to purchase but they do purchase plenty of them.

I wasn't aware the 777 was about airplanes.  Maybe you should be more clear instead of code.

This isn't difficult, and I'm tired of arguing about this.  One more time from a different source;

Interest Expense - from Investopedia

 

Quote

 

What Is an Interest Expense?

An interest expense is the cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. It represents interest payable on any borrowings—bonds, loans, convertible debt or lines of credit. It is essentially calculated as the interest rate times the outstanding principal amount of the debt. Interest expense on the income statement represents interest accrued during the period covered by the financial statements, and not the amount of interest paid over that period. While interest expense is tax-deductible for companies, in an individual's case, it depends on their jurisdiction and also on the loan's purpose.

How Interest Expenses Work

Interest expense often appears as a line item on a company’s balance sheet, since there are usually differences in timing between interest accrued and interest paid. If interest has been accrued but has not yet been paid, it would appear in the “current liabilities” section of the balance sheet. Conversely, if interest has been paid in advance, it would appear in the “current assets” section as a prepaid item.

The amount of interest expense for companies that have debt depends on the broad level of interest rates in the economy. Interest expense will be on the higher side during periods of rampant inflation since most companies will have incurred debt that carries a higher interest rate. On the other hand, during periods of muted inflation, interest expense will be on the lower side.

The amount of interest expense has a direct bearing on profitability, especially for companies with a huge debt load. Heavily indebted companies may have a hard time serving their debt loads during economic downturns. At such times, investors and analysts pay particularly close attention to solvency ratios such as debt to equity and interest coverage.

Interest Coverage Ratio

The interest coverage ratio is defined as the ratio of a company’s operating income (or EBIT—earnings before interest or taxes) to its interest expense. The ratio measures a company’s ability to meet the interest expense on its debt with its operating income. A higher ratio indicates that a company has a better capacity to cover its interest expense.

For example, a company with $100 million in debt at 8% interest has $8 million in annual interest expense. If annual EBIT is $80 million, then its interest coverage ratio is 10, which shows that the company can comfortably meet its obligations to pay interest. Conversely, if EBIT falls below $24 million, the interest coverage ratio of less than 3 signals that the company may have a hard time staying solvent as an interest coverage of less than 3 times is often seen as a "red flag."

 

 

[Screwball]

1 hour ago, gehringer_2 said:

hard to make out 2022 on that chart but here is the UM survey link

http://www.sca.isr.umich.edu/

Preliminary Results for September 2022

	Sep	Aug	Sep	M-M	Y-Y
	2022	2022	2021	Change	Change
Index of Consumer Sentiment	59.5	58.2	72.8	+2.2%	-18.3%
Current Economic Conditions	58.9	58.6	80.1	+0.5%	-26.5%
Index of Consumer Expectations	59.9	58.0	68.1	+3.3%	-12.0%

I don't know what this is suppose to prove. I just linked to the exact same survey.

[1984Echoes]

21 minutes ago, Screwball said:

I wasn't aware the 777 was about airplanes.  Maybe you should be more clear instead of code.

This isn't difficult, and I'm tired of arguing about this.  One more time from a different source;

Interest Expense - from Investopedia

 

 

 

This says exactly what I said.

[1984Echoes]

But before I go further...

One thing:

I don't want to disagree with you in one particular issue... because I DO agree with you that interest rates DO affect the economy, and companies...

Just not in the way that you are representing...

[gehringer_2]

1 hour ago, 1984Echoes said:

But before I go further...

One thing:

I don't want to disagree with you in one particular issue... because I DO agree with you that interest rates DO affect the economy, and companies...

Just not in the way that you are representing...

there are going to be companies out who have secured long term low interest debt that are going to be able to clean up and then there will be their competitors who will see their funding costs go up and will have to scramble. People had plenty of warning to figure rates would be heading up eventually. Their bets will pay off according.

[Tiger337]

On 9/15/2022 at 8:59 PM, Screwball said:

Don't read the baseball stuff, but I haven't read anything from Tiger Lee.  He usually posts here.  Hope all is well.

I  am fine.  I am just insanely busy at work and not posting as much, even not a lot baseball posts.  Like many people, my investments are not fine, but I tell myself that I am right back where I was in Spring, 2021 and I wasn't unhappy about my investments then.  I did pull some money out of the market and bought some short term treasuries.  I might do some more of that very soon before it completely goes  to shit.  Of course, if I do that, the market is going to surge!  

[Screwball]

3 hours ago, Tiger337 said:

I  am fine.  I am just insanely busy at work and not posting as much, even not a lot baseball posts.  Like many people, my investments are not fine, but I tell myself that I am right back where I was in Spring, 2021 and I wasn't unhappy about my investments then.  I did pull some money out of the market and bought some short term treasuries.  I might do some more of that very soon before it completely goes  to shit.  Of course, if I do that, the market is going to surge!  

Good to hear.

The market is a whore.  Quote from an old documentary about the floor traders in Chicago. A must watch for anyone who likes the markets. This dude called the market a whore and nailed it.  It was called "Floored."

[Screwball]

4 hours ago, gehringer_2 said:

there are going to be companies out who have secured long term low interest debt that are going to be able to clean up and then there will be their competitors who will see their funding costs go up and will have to scramble. People had plenty of warning to figure rates would be heading up eventually. Their bets will pay off according.

Fuckin A!  Right straight to Wall Street (the swine fucking bankers).  In the phrase "Interest Expense" I always thought the word "expense" spoke for itself.

But that's just me.

[ewsieg]

14 hours ago, Screwball said:

You lost me here.  FDX has 22 billion in debt according to their filing.  A one percent rise in interest rates on that 22 billion is an increase of 222 million that goes directly to the bottom line.

I don't see how that is good.

The problem isn't that you didn't understand my numbers, but rather you didn't understand my sarcasm.  I work for a Fortune top 50 company.  Even during good years, layoffs are a common end of year thing and IMO, it's to add costs to the bottom line to shrink bonus pay while forcing the remaining folks to do more for less the following year.  

As for interest costs, it doesn't matter how costs are incurred.  More interests, higher wages, higher supply costs, etc, it'll result in mgmt finding a way to try and cut those.   Heck, I see an argument that reduced revenue is the issue.  Increased revenue can help hide a smaller ROI, that is definitely true, but even flatlined revenue will result in a focus as cutting costs.

 

[Screwball]

There is another way to look at this, speaking of borrowing and paying interest on said debt.

Company borrows a bunch of money.  They buy back a bunch of shares (which happens often)which drives the price of their stock up, which makes the CEO, board, corporate executives, and stock holders wealthier.

Then they write off as much of the interest as possible, so it doesn't contribute to the tax burden for the rest of us.

So they get richer, and we suffer by paying more of the taxes.  At the same time Wall Street gets more money from the interest paid, so they win too.

The more debt created, the richer the rich get, while the rest of us get fucked.  What's not to like?

A feature, not a bug.  So debt is good.  It just depends on who you are.

[Screwball]

8 hours ago, ewsieg said:

The problem isn't that you didn't understand my numbers, but rather you didn't understand my sarcasm.  I work for a Fortune top 50 company.  Even during good years, layoffs are a common end of year thing and IMO, it's to add costs to the bottom line to shrink bonus pay while forcing the remaining folks to do more for less the following year.  

As for interest costs, it doesn't matter how costs are incurred.  More interests, higher wages, higher supply costs, etc, it'll result in mgmt finding a way to try and cut those.   Heck, I see an argument that reduced revenue is the issue.  Increased revenue can help hide a smaller ROI, that is definitely true, but even flatlined revenue will result in a focus as cutting costs.

 

Understand.  I did 25 years with 3 fortune 500 companies.  We always wondered how they would game the system (numbers)to screw us out of bonus money, raises, etc.  You are always being squeezed.

Speaking of raises, I have to tell this one.  We had a raise system where we could only get 4 percentages of a raise.  0, 1.7, 3.2, and 4. They told us nobody would get a 4, so it was going to be 0, 1.7, 3.2.  You had to be a real slug to get a 0.

My boss spent about 20 minutes telling me if my "people skills" were a little better I could have gotten the 3.2 instead of 1.7.  He didn't come right out and say it, but that was his speech.  It was a political hot house with backstabbing as the norm - anything to climb the ladder.  I didn't play those games and didn't mince words with those who tried, so I had a bullseye on my back.  After this little speech by my boss (a real dickwad), I said "so your telling me if I didn't piss off people I could have done better (or something like that), and he said "yes, you got it."

I looked at him and said, "well, for a measly 1 1/2 percent I'll continue to be a prick."  That was the end of my yearly review.  I was getting 1.7 like everyone else as it was.  Who do they think they were shitting.

Fuck corporate America and all the corporate worms that inhabit their management.

[oblong]

My wife works for a large local health system.  She's maxed out on the pay scale.  Been there 26 years.  For raises, since she's maxed out, they give her a lump sum.  Ok..... but then in years when there are no raises everyone else still gets that 3.5%.... she doesn't.   

[Screwball]

I'm getting flashbacks from this corporate America stuff...

I just have to say this. I've been retired for going on 4 years. I spent 25 years with 3 F500 companies.  I only wanted to be a foot solder doing my job and going home and take care of my family.  Unfortunately, my skill set pigeon holed me to the corporate clusterfuck known as the IT/CAD/Eng end of what William Edwards Deming would call the "state of chaos."

If the day to day pressure of getting the trains to run on time (product design & manufacturing) wasn't enough, from the CAD world, you had a second job of rendering pie in the sky marketing wish lists of products that can never be built, or if they could, can't be profitable. Many times obvious. Doesn't matter.  And I have so much time (salary FTR).

But you had to come up with some dog and pony show presentation to sell all this bullshit to the big swinging dicks. Then you got to go mingle with them after the big gig.  I would make buds with the bartenders and staff, while we laughed at these disgustingly phony china dolls get ate by the feeding frenzy of the next in line worthless corporate worms.

I honestly don't know how the fuck they made anything.

 

Edited September 20, 2022 by Screwball

[Screwball]

75 bps and the dot plot shows no let up.  One minute chart of the S&P today.  I'm guessing some people got their faces ripped off, especially the Robinhood tyro types.  This is some pretty wild volatility given everyone was predicting 75.