I write this report every week and I try to remain detached from the absurdity. I really do! But I just, I just can't. For weeks now I've been talking about the uncontrolled rise in critical fuel inputs like diesel and kerosene (jet fuel) but it just keeps getting worse. Right now we are at all-time highs for diesel which is the life blood of our entire economy affecting absolutely everything we need to maintain our businesses and current standard of living. Truckers can't truck at this price, shippers can't ship and planes can't fly and still make a profit. The problem has become existential so what is the solution? FIVE THOUSAND DOLLARS??!!
Last week I spoke with one of my good clients in the transportation space who explained the issue in simple terms. He told me "Nick, I get $1000 per load on a truck which used to cost me $300 to fill with diesel. Now it costs $600 plus the cost of the driver at $35/hr, insurance, finance payment and maintenance. I'm losing money on every load so the truck is parked even though I'm still making payments on it" Whatever product he was moving from point A to point B is now not moving. Period.
I don't care much about politics at all. I do care about policy however because what we are all experiencing currently (left, right and center) is due to unbelievably stupid policies. No one voted for unaffordable groceries, endless wars which cause unaffordable diesel, gas and jet fuel or tariffs and sanctions against our greatest trading partners. No one voted for $40 Trillion in debt, 7% mortgage rates, unavailable credit and crushing inflation that is decimating our living standards. The offer everyone heard last week is this: "ignore all that, here's $5000 for your trouble". Yea, that's a hard "NO" from me. Five grand doesn't even begin to cover the damage so far.
Weren't we all supposed to get a $5000 "dividend check" from DOGE a year ago? How's that going? I'm not going to dwell on this, there's more material and memes that anyone can imaging but at some point it's going to get serious. Like, empty shelves serious, closed gas stations serious, businesses shutting their doors serious. No one will be laughing or talking about 5-D chess then. You can't run the most powerful economy in the world from social media.
"His latest nonsensical statements include a promise that the Iran war will end “after the midterm elections,” and that he will pay every adult in America $5,000 if the Republicans win the midterms. He also said this week that when the Iran war ends, gasoline prices in America, now sitting at record highs of $4.28 a gallon on average, will plummet to $2.00 a gallon. Rather than anything based on sound policy or wise strategy, this sounds like a series of childish bribes. Vote for my guys in November and I’ll do everything I’ve been unable or unwilling to do my first two years in office.
Sometimes I have to pinch myself to keep believing I am not trapped inside of a bad dream."
Exactly one year ago gas was $2.57, diesel was $3.69 and the economy was rolling along without too much disruption. Today, every business owner I speak with about their borrowing needs is telling me they want to wait and see how all this will play out before making any moves. It's not helping that there's no viibility at all about what might be coming in a few weeks or months much less years. Business owners need to plan ahead just to maintain their current revenue levels and even more so to grow their businesses further.
One piece of good news is that rates on commercial capital haven't really moved up that much; they have stayed in the 7-12% ranges depending on the programs. The problem for business owners however isn't so much what they're paying for capital but rather what they should do with it. How do business owners plan their use of proceeds when the external conditions are this volatile? How can anyone predict with any certainty how spending plans will pan out?
Commercial real estate office building loans are experiencing default rates of over 12% which is higher than the great financial crisis in 2008. Treasury bonds are needing daily interventions by the Treasury department and the Fed to keep them from exploding higher. Treasury secretary did his best Clint Eastwood impression last week by publicly challenging anyone willing to bet against his interventions to prop up the Japanese currency (Yen) by saying "I'm the house now!" The fact that the US has to intervene in order to protect a foreign country's currency is a "tell" that we're in trouble and these interventions will be needed continually until something breaks.
I get the feeling that the next few weeks will be exciting as we crash into these elections. Interest rates and many other economic metrics will be manipulated to the extreme to keep up the appearance of "normalcy" whatever that even means anymore. The window to lock in affordable rates for commercial capital is going to close abruptly IMHO so, for any business owners who can feasibly use loan proceeds to benefit their company, now is the time to close a deal. For the rest of us there's always that $5000 check coming, right?