Happy Friday!
Like I said last week, I’m taking some time off from writing, but there are still a few stories worth discussing before the long weekend…
This is what they want
There is no Federal Reserve meeting in August because the St. Louis branch hosts a central banker conference in Jackson Hole instead.
Yes, you read that right. The St. Louis Fed doesn’t do it in St. Louis or maybe even Pittsburg, where hotels are like 70% cheaper than one of the most expensive and exclusive resort towns on the planet. It’s in Wyoming, and we, as taxpayers pick up the tab.
Anyway, Jerome Powell kicked off the day with a speech that freaked out financial markets because of some uncharacteristically aggressive language like this:
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
It’s rare for the Fed to communicate so bluntly. They’re usually masters at masking their intent behind run-on sentences and questionably-placed adverbs. And within seconds, every major equity index crashed. The Nasdaq ended the day down 4% or so.
This week, two other Fed governors came out with equally hostile tones. The message is clear – the Fed wants inflation back down to 2%, and they’re willing to risk a recession to do so.
The Fed was apparently annoyed that stocks were climbing higher from the lows in June, and they used Jackson Hole to cut the legs out from under the bulls. Why would they do that, you ask?
The Fed doesn’t want stocks going any higher for the same reason they’re happy to see the housing market in a recession. The less wealthy we all feel, the less money we spend. Slower economic growth should then lead to lower inflation.
Ok right. Super scary stuff coming from the most powerful economic force in the known universe. There’s just one tiny little issue with it all – it’s just talk. And even with rates rising like they have this year, talk is still cheap. Saying you’re going to lose 50 pounds is a LOT easier than losing 50 pounds, and since there’s zero accountability at the Fed, nobody is risking their career by acting tough right now.
There’s also historical precedence to suggest the Fed may back down at some point. In 2019, Powell acted all tough for months until the country experienced economic pain equivalent to a low-grade paper cut. He then blinked and cut rates.
Sure, inflation wasn’t elevated back then, like today, but that’s not the point. It’s one thing to say you are committed to doing something, but it’s an entirely other thing to stay committed. We’re seeing a lot of the former right now with zero evidence to suggest that they have the stomach for the latter. I, for one, am very skeptical.
September sucks for stocks
It just does. On average, it’s the worst month of the year for stocks, and I’ve had a longstanding theory about why that I’ve shared before:
September is always a massive letdown for three reasons:
1. Coming out of the summer heat, we expect the global thermostat to drop 15 degrees ten minutes after Labor Day, but that’s just not how it works. September is still miserably hot in like 92% of the country until early/mid-October. It’s not a climate change thing, either. Look at the data going back 100 years, and September weather just sucks.
2. Kids are back in school, which we think will solve all our problems, but it doesn’t because kids are psychos for the first 3-5 weeks of the school year. They need this time to acclimate to a structured environment where they don’t get 100% of the attention 100% of the time. This creates difficult mornings and afternoons for everyone.
3. The realization that the September to November corridor is one of maybe two windows of the year where there’s no break from work within reach (the other being from President’s Day through Memorial Day). Sure, there’s Columbus Day (only if you work in the bond market) and the Jewish holidays, but fasting is not a holiday. It just can’t be. So, we go in thinking, “finally, I can get some work done,” but then we look down the long runway and start to fantasize about living in Europe, where hard work was outlawed centuries ago.
Maybe investors take out their September frustrations on the stock market?
I wish I could be more optimistic heading into a holiday weekend, but given the Fed chest pounding and this heat wave that’s going to torch the West Coast so badly that the People’s Republic of California has asked its citizens to not charge their electric cars two days after passing a law that will ban gas-powered cars, those fantasies of quitting finance and opening a CrossFit are becoming more attractive by the hour.
But since we all know that markets don’t run on calendars, there’s nothing to trade here because even though September sucks, stocks have ended the month lower only 55% of the time. To me, that’s still pretty close to a coin toss and not worth throwing discipline out the window.
NSFW
I’ll spare you the trip to Google. That acronym stands for Not Safe For Work (NSFW), and it’s now become an integral part of RadioShack’s new marketing campaign consisting of tweeting incredibly vulgar material that has nothing to do with radios and/or shacks.
It’s tough for that last sentence to stand on its own, so let’s unpack it before we go any further:
- Yes, RadioShack is still around. They were bought back in late 2020 by a private equity group in Miami specializing in dumpster diving through old retail brands like Pier 1 Imports, Modell’s, and Dressbarn.
- This new-ish management team felt that the RadioShack brand needed a shot of adrenaline as the company attempts to pivot from electronic parts to crypto.
- RadioShack presumably has no revenue, so its marketing budget is likely zero or close to zero.
- Tweeting on Twitter is free.
- Rather than tweet about deals on cell phone cases, drones, or whatever they’re selling these days, they’re dropping some of the most vulgar tweets on Twitter.
I will neither link to nor include any screenshots of these tweets. If you choose to check them out, in no way did this blog provide a direct link.
That being said, this could be one of the boldest marketing/branding moves in modern history. So much that several franchisees are now terminating their relationship, which is quite telling.
These aren’t millennials who throw in the towel 12 minutes after incorporating because some customer didn’t acknowledge their feelings at checkout. We’re talking about a group of hardened, salt-of-the-earth roughnecks who welcome daily beatings. Because that’s what it must take to run a RadioShack in 2022.
Think about it. Who else has the fortitude to run a brick-and-mortar that competes solely with Shenzhen specials on Amazon? It’s hard enough to live in an area with little to no internet connectivity, but to run a business? That’s hardcore.
So, now that we have a pretty good picture of the garden variety RadioShack franchisee, and we’re up to speed on how their business has likely performed over the last three decades, it should provide context into how uncouth this marketing campaign really is.
To be abundantly clear, I’m not shocked or criticizing a franchisee for leaving RadioShack. I totally get it. I’m saying this is a group of business owners operating under some of the most brutal conditions imaginable for decades (brick and mortar, lockdowns, irrelevant products, etc.). Even they can’t stomach these tweets.
No clue how this is going to play out. They say there’s no such thing as bad PR, so maybe RadioShack will pull it off and become the leading marketplace for crypto. But to shove a hose down the throat of your franchisees who have been drowning for so many years is next-level savagery.
On that note, enjoy the holiday weekend…
Mike on Markets 