The End of An Era
It was a good week for the markets as all three major indices booked gains. With the passing of Queen Elizabeth II, the news has been mostly focused on her life and legacy. To some extent, this has taken a bit of the focus off the markets. Additionally, the Labor Day holiday took a bite out of the week and contributed to the feeling that not much else happened. Analysts continue to scrutinize the tea leaves, but at the end of the day, we’re going to have to wait until the end of this month for the Federal Reserve’s decision on the next interest rate hike.
With regards to interest rates, the European Central Bank (ECB) is playing catch-up. Facing headwinds and crises on all sides, the ECB is likely to begin a super aggressive phase of monetary policy, with the largest rate hike in the institution’s 24-year history. The ECB raised rates by 0.50% in July, which marked its first rate hike in over a decade. This week it raised rates another 0.75%, recognizing the devastating impact inflation is having on its economy. The United States isn’t the only country facing stiff headwinds from inflation. Perhaps the irony is that both the ECB and the Fed are racing against the clock to normalize interest rates before the next recession hits, which will inevitably force them to begin cutting rates yet again. This see-saw of hiking and then cutting rates has been on autopilot for more than two decades. It’s like watching an accordion move from side to side with predictable regularity.
Back home, the Federal Reserve released its Beige Book which shows that for the past two months the economy is mostly unchanged. Five of twelve districts reported slight to modest growth and five others reported slight to modest softening. Furthermore, most districts reported steady consumer spending as households continued to trade down and to shift spending away from discretionary goods and toward food and other essential items. The expectation is for further softening over the next six to twelve months as rising interest rates slow the economy down.
In company news, Apple had an event to highlight its new iPhone 14, Apple Watch Series 8, and AirPods Pro. By most accounts, the company continues to do just enough to get people to upgrade and this new set of products didn’t disappoint. While the changes are incremental, as is the way Apple operates, there are some interesting new features, including safety features like satellite SOS and Crash detection. On the other hand, Google seems to be working toward cutting expenses and potentially reducing its workforce. The company has told senior management to restrict travel to business-critical trips only and its CEO is reported to have said he wants to make Google 20% more productive hinting at job reductions. Lastly, UPS has announced that in preparation of the upcoming holiday season, it plans to hire more than 100K extra workers to support the anticipated annual increase in package volume that will begin in October and continue through January. In recent years, about 35% of people hired for seasonal package handler jobs were later appointed to permanent positions.
In closing I turn to a story a co-worker shared with me last week. For those of you who have had the opportunity of renting a car, either for work or for pleasure, you undoubtedly struggled reading the pages of fine print, instead opting to just sign on the dotted line. With this as the backdrop, I turn to Giovanna Boniface who was charged $8,000 after Avis claimed she drove nearly the distance of the earth’s circumference in three days. In total, she drove approximately 300 kilometers by the time she returned the car to the airport and checked in for her flight. While checking her credit card statement she noticed a charge for over $8,000 from Avis. The company had charged her for driving 36,482 kilometers at a rate of $0.25 per kilometer. As an aside, she would have had to drive 72 hours straight at a speed of 310mph for this to be possible. Somehow, I doubt the GMC Yukon Denali could manage that, but what do I know? However, the story has a happy ending. Once the media got involved, she got a call back from Avis notifying her the extra charges would be refunded. The moral of the story is to check your credit card statements and try not to drive the circumference of the earth in a rental car. Now you know.Bruce J. Mason, MBA