Conversation Starters, China and Housing, Rainy Day Musings and Who Was Fredric Arnold?
Conversation starters for your next business mixer or obligatory Labor Day BBQ:
Did you read the minutes from the last Fed meeting? Yeah, neither did I, but I heard, through a reliable source, that the feeling was to keep raising rates. I guess prime at 8.5% just isn’t high enough. Good news, though. My grandfather is ecstatic that he can get a one-year CD at 5.5% at Pacific Western Bank.
Did you hear that mortgage rates are the highest they have been in 20 years? 7.07% for a 30-year fixed. I don’t know how I’m going to own a home. My dad tells me he said the same thing 30 years ago, but he’s almost got his house paid for. Get this: he told me his first fixed-rate loan was 9.875% in 1989. Nuts, right? How did that generation do that??
My dad said my grandfather worked two jobs to buy his first home in 1960. Are you kidding? Two jobs??
Along the same lines, model home traffic for residential builders dropped this past month, and along with that, so did the Builders Confidence Index for the first time this year. High mortgage rates will do that, I guess.
I guess some folks will have to work two jobs. Who’s ever done that??!!
Some 75-year-old dude named Jim Jaeger is auctioning off his Ferrari for $60 MILLION!!! It’s a 1962 250 GTO, whatever that is. The guy bought it in 1985 for $500,000. Now here is the fun fact: he made his money by being one of the founders of Cincinnati Microwave and buying his partner out and taking it public. Guess what they did? They made radar detectors!! The popular one was the Escort, light years ahead of the competition. I’m guessing his Ferrari had a radar detector in it; ironic, huh?!
If you need more conversation starters, let me know. In the meantime, in the far eastern country of China…
If you read my letters consistently, you may recall that I talked about a housing bust in China.
Well, it’s here.
Evergrande defaulted on its debt some time ago and now Country Gardens has as well.
Country Gardens is China’s top surviving private developer.
It just missed two bond payments. That’s like you missing two mortgage payments; you’re gonna get a phone call and it’s not from your mother.
It’s probably more like your dad finding out that you just drove his 1961 Ferrari 250 GT through the back wall of his garage into the creek behind your house.
A “shout-out” to anyone that can tell me where that reference comes from. At any rate…
The names of failed Chinese developers are not important and talking about them will make everyone look at their phone for a missed call, but this is another canary in a coal mine.
If your business, or your customers business, is dependent in the financial health of China, it’s time to take a look at how you are going to mitigate the risk of a weakening economy in China.
It may not even affect you, but now, when China catches a cold – or Covid 19 – the rest of the world may get the sniffles.
Musings on a Rainy Day
I lived in Asia from 1968 to 1980, graduating from Taipei American School in 1980. No, I don’t speak any other languages; just not talented that way.
Sunday was just like being in Okinawa on a rainy day: cool and humid. Not able to attend to yardwork, I sat under the patio cover thinking about a conversation with one of my readers this past week or two.
This leads me to a theme that is typical among many successful business owners; they use their common sense and what their eyes and ears tell them. Are the economic forecasters telling you that what will happen will be catastrophic, or are they magnifying the unusual?
I had a conversation with a CFO where she asked about the source of unemployment data. She mentioned that what she uses for economic predictors is what she sees happening around her and using that information to come to her own conclusions.
To that end if you are forecasting for 2024 – which you should be doing around now – increase your expenses by what you think they will be increasing, using your industry forecasts to guide your way and your own industry knowledge. If studies say costs are only going to increase 4% over the next year, but your eyes and ears tell you differently, give yourself some credit and listen to them.
You can also talk to your vendors and plan with them. They will appreciate you including them in the conversation and will provide another barometer of economic forecasting.
And don’t forget your CPA.
It never hurts to use the data offered by the various economic sources but utilize it to the extent that it will impact your business or industry and plan accordingly.
If prognosticators are saying doom and gloom, but your sales are off the charts, don’t pull back; just be on the lookout for signs that will help you.
As Barbara Corcoran would say: "Don't you dare underestimate the power of your own instinct."
She’s right: it has carried you this far already.
Who was Fredric Arnold?
Well, like many people I profile here, he was a WWII veteran – that’s Whisky Whisky Deuce for the vets out there.
He did not die recently; in fact, he passed away on Memorial Day in 2018.
Against the odds, he survived 50 missions in a P-38 Lightning over North Africa and Europe.
He was promoted to Major at the age of 23.
At mission 46, he was shot down and taken prisoner. Being Jewish, that had its own set of risks.
He escaped, went back to duty, and flew four more missions before being relieved of flight duty.
He was a businessman and gifted artist, residing in New York. 70 years after the war, he created a sculpture – Lest We Forget: The Mission - to honor the 14 men in his original unit, 12 of which never made it back home.
You can see it at the WWII Museum in New Orleans.
He also created something else: the folding aluminum beach chair.
A simple design, bent aluminum tubes with nylon straps as support. We have all sat in one; we have three of them.
At its height, his company, the Fredric Arnold Co., produced thousands of folding chairs per day.
So next time you sit on a folding chair, particularly a folding aluminum beach chair, thank a veteran.
Come to think of it, every day you wake up, you should thank a veteran.
That’s it for now, folks, but here’s a bonus. The local banker’s group in the Inland Empire is hosting a panel of CEOs and CFOs, with businesses ranging in size from $20 million to $200 million in revenue. This is an evening shindig in Ontario on September 14 at 5:00 p.m., and the link is here. This is a good time to hear from very successful CEOs and CFOs as to how they plan their business. Seating is limited to 50, so sign up now.
