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3 Trucking Veterans Reveal Why They Closed Their Businesses Amid The “Great Purge”

3 Trucking Veterans Reveal Why They Closed Their Businesses Amid The "Great Purge"

By Rachel Premack of FreightWaves

Back in 2018, when trucking…

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on

3 Trucking Veterans Reveal Why They Closed Their Businesses Amid The "Great Purge"

By Rachel Premack of FreightWaves

Back in 2018, when trucking was red-hot, Texas native Mike Dow got famous — if just for a moment. An article in The Washington Post featured his insights on why companies were struggling to retain truckers

Dow was as confident as ever. That year, he and his brother founded their own trucking company. He told the Post reporter he was planning bringing in a serious salary: up to $120,000.

That turned out to be a modest estimate. In 2021 alone, Dow grossed up to $375,000, thanks in part to retail’s wild uptick. Retail sales grew by 14% in 2021, while it increased on average 3.7% annually from 2010 to 2019. “When you run your own business, it’s a 24-hour-a-day job,” Dow told FreightWaves. “It consumes your life.” 

Business slowed down as the months went on — and not for the better. Spot rates for dry van, which is what Dow Brothers Transportation specialized in, declined by 24% from the beginning of the year to the week of July 17, according to data from load board Truckstop.com. Expenses, meanwhile, have soared. The break-even cost to run a truck in 2022 is $3.27 per mile, significantly up from $2.16 per mile last year. 

That spelled the end for Dow Brothers Transportation. Dow and his brother ultimately shuttered their company, sold off their trucks, and got regular jobs earlier this year. Now Dow hauls construction equipment around the bustling Dallas area. He’s home every night for dinner. 

Big, public trucking companies are reporting their second-quarter earnings. So far, it’s been gangbusters. But small trucking companies are suffering amid the collapse in spot rates, increase in diesel prices and ongoing challenges in finding equipment. Despite rates still being historically high, truckers say that they’re not high enough to deal with the inflated cost of everything else.

“Nobody has the same cost structure on anything,” Thom Albrecht, chief financial officer of transportation insurance agency Reliance Partners, told FreightWaves in June. 

It’s sparking what one freight broker called trucking’s “Great Purge,” with small trucking companies going out of business at a historically high rate. Dry van companies like Dow’s are particularly at risk as the pandemic’s unhinged retail spend cools. Truckers that haul more specialized freight, like grain feed, are still chugging along. 

FreightWaves spoke to Dow and two other longtime truckers to learn why 2022 has been the year that killed their businesses — and what they think it means for the industry.

Why the ‘Great Purge’ is hurting small truckers more than big ones

The three truck drivers all operated in different parts of North America and in different industries. But they shared one common fear: Big trucking companies are getting bigger, and it’s at the expense of the owner-operator. 

“Those small mom and pops have to compete with the big boys,” Dow said. “They’re not always successful. There will always be a need for small companies, but those conglomerates are trying to push us out.”

Data enthusiasts might disagree with Dow’s assessment. Trucking has become increasingly dominated by smaller carriers since the pandemic. One particularly stunning number shows that. Avery Vise of FTR Transportation Intelligence previously told FreightWaves that almost 195,000 new trucking companies entered the industry from July 2020 to June 2022. Just 86,000 new carriers entered the industry during the second-highest 23-month period. 

What’s more, about 70% of those new carriers consisted of just one truck, Vise said. Big carriers haven’t grown by the same rate. In fact, Vise estimated that 6-7% of capacity shifted from fleets with more than 100 drivers to fleets with fewer than 100 drivers in the past two years.

Many of the small, new carriers signed on to operate on the spot market. (A quick note for trucking newbies: The spot market consists of loads that are available on demand, while the contract market is, yes, contracted freight. Small trucking companies are bigger on the spot market, and large ones are bigger on the contract market.) 

Rates on the spot market seemed to break a new record each month of 2021, diverting more and more cash to small trucking companies. Contract rates didn’t climb at the same rate, and mega-fleets didn’t either

Now the big carriers seem to be regaining their share. Large fleets are better able to navigate market downturns as they’re more likely to have hefty cash reserves, long-standing contracts with deep-pocketed customers and, perhaps most importantly for this downturn, bulk discounts when buying fuel and equipment. 

Unable to weather this downturn, we saw a record number of trucking companies shutter this spring, with more likely to come. Many are expected to join larger trucking companies.  

In May, net motor carrier revocations hit a record high, according to an analysis of federal data by FTR. January and March of this year were the previous records. 

As the above graph shows, revocations of trucking authorities reached a record high in May, hitting nearly 9,300. The yellow bar represents some 4,000 revocations due to a processing company that unexpectedly shuttered. Even counting that out, though, the net revocations peaked. 

Meanwhile, big truckers are enjoying record quarters. According to the FMIC-Cowen Index, which tracks tens of billions of freight spend dollars annually, rates on the spot van market are 15.3% down from this time last year. Meanwhile, contract van rates are up 34.8%. 

Second-quarter results are just rolling in, and they’ve already been strong, with mega-carriers like Knight-Swift, J.B. Hunt and Marten all crushing expectations. Each company saw the biggest gains from the parts of their companies that aren’t traditional trucking; Knight-Swift earned big on its less-than-truckload division, J.B. Hunt on intermodal and Marten on brokerage. 

Even amid what Susquehanna Financial Group’s Bascome Majors called the “coming freight recession” in a Tuesday note, trucking and logistics stocks are outperforming the larger stock market. 

“What’s going to happen is going to be tough,” said truck brokerage owner Chris Tucker, who was first to keenly dub the current market conditions the “Great Purge.” “It’s going to be painful for a lot of people. Very few people will be left standing.”

Longtime truckers have already shut down. We talked to three of them:

Dan Chidester, owner-operator since 1981: ‘Fuel has to come down to $3 a gallon to survive’

For a young Dan Chidester back in the 1970s, it was time for a “real job.” He tuned up race cars and was a salesman for a high-performance Chevrolet dealership. But when he got married, Chidester took a job fixing trucks in a field that is about as different from drag racing as you can get: a local bread factory. 

“I hated to go punch in that clock every day,” Chidester, now 71, said. “That was the reason I got into trucking. I wanted to work for myself. I’ve been that type.”

A friend told him about the opportunities hauling freight. He quit the bread company and got a CDL. Suddenly, the western Michigan native was traveling the country — loading up on potatoes from North Carolina and grapefruit from South Carolina, talking to people from all over. 

Being an independent truck driver was challenging. His marriage ended in 1987, the same year his truck literally burst into flames. Chidester found himself once so down on his luck that all he could afford was a loaf of bread, a bottle of mustard and a pack of bologna. He’s outlived recession after recession; the trucking industry goes into downturns twice as often as the rest of the economy.

His luck has changed. In 2021, Chidester only worked three or four days of the week and frequently ran empty when driving back up to his home. But he said his rate averaged around $4 per mile, even with the empty miles. 

Chidester mostly hauled refrigerated goods from Michigan to major retail warehouses around the Upper Midwest, like a Walmart near Fort Wayne, Indiana, or a Costco near Detroit. 

“For me, every trip is an adventure,” Chidester said. “I’ve been doing it since 1981, but I’m just like a 10-year-old kid on Christmas Eve when I know I’m going trucking tomorrow.”

But Chidester curtailed his trips in 2022. Rates began to decline in March. By May, they didn’t make up for the cost of running his truck. “Fuel has to come down to $3 a gallon again to survive, to make any money,” he said. 

On June 10, Chidester quietly let his decades-old trucking authority go and canceled his insurance.

There’s a creed among some owner-operators: Don’t haul cheap freight. The idea is that if no one takes poor-paying jobs, brokers will be forced to raise their rates. But with an intensely fragmented trucking industry, it’s hard for small truckers to organize. 

It wasn’t always like this. When Chidester started in trucking, the industry was still regulated, which meant that the federal government had limits on the companies that could haul most types of freight. Only 17,000 trucking companies existed. Now there are more than 350,000 owner-operators alone, according to the Owner-Operator Independent Drivers Association. 

“They can’t agree on anything, it’s all broken up. Everybody started fighting for freight and the whole business went down a rathole,” Chidester said. 

As a result of deregulation in 1980, freight rates tumbled and trucker pay has decreased by up to 50%, according to estimates by Wayne State University’s Michael Belzer. Experts say deregulation and cheap trucking have made it possible for big-box retail to build robust supply chains and quickly scale, edging out local businesses.

Chidester has counted some of those retail behemoths as his biggest clients. This spring, they slashed pay. The pay for one 150-mile trip dropped from $1,400 to $900 in just two weeks. Uber Freight economist Mazan Danaf previously told FreightWaves that this spring saw the fastest declines in spot market pay in recent history.

Chidester can stay home and refuse cheap freight, but he knows he’s in a unique position. After all, his equipment is paid off. 

“Most of these guys are running, running, running,” Chidester said. “The more they run, the longer this [fall in rates] will continue to go.

“They’ve got families, payments, bills,” he added. “I was in their shoes back in the early ’80s. I didn’t make any money. I just barely hung on.”

He could make a killing selling his truck, as prices for used trucks are still unusually high, though they’re quickly declining. But Chidester is still scheming to get back out on the road.  

“I miss it, oh man,” Chidester said. “I’d like to get out for just a couple days. It’s not about the money so much. I just like to drive and I like playing the game. And I’m good at it.” 

Jason and Kerry Kraft, owner-operators since 2007: ‘She doesn’t even want to say the word truck anymore’

Jason and Kerry Kraft decided to become truck drivers for a simple reason: They wanted to be together all the time. So 15 years ago, they opened their own trucking business. 

They weren’t ordinary truckers. The Krafts, who live in Edmonton, Alberta, hauled tanks and other equipment for the Canadian military. They moved refrigerated loads and 6-foot-wide tires for mining vehicles on the infamous ice roads. As team drivers, they could score high-priority loads that need to be moved quickly. 

“We ran hard 24 hours a day,” said Jason, 45. “We don’t take vacations. We haven’t even gone on a honeymoon.”

And they had the cash to prove it. In 2021, they grossed nearly $500,000 — one of their best years. 

It wasn’t bad rates that took down the Krafts. Instead, it was the challenge of getting repairs. Once in Toronto, they needed a truck starter, but the only one they could find was back in Edmonton. Another part took three weeks to source and install, when it would normally be readily available.  

Instead of driving, the Krafts found themselves increasingly staying in hotels and waiting for repairs. “It’s not the price of the part that’s killing you anymore,” Jason said. “It’s the downtime.”

The final straw was a bad — and very expensive — repair. A “shoddy mechanic,” as Jason said, replaced the truck frame with a component that had already been damaged. When they got the truck back, it looked worse than when they left it at the shop — and it cost them $50,000. (By the way, if you want to learn more about the Krafts’ story, listen to their appearance on my colleagues’ podcast, Back the Truck Up.)

The Krafts searched for parts but couldn’t find any. Jason said if he were part of a larger company, it would have been easier to place an order, as he would be buying in bulk.

“All these mega-carriers have all the slots for building a truck for the next three to four years,” Kraft said. “That’s another way I’m feeling the mega-carriers are squeezing out the small guy.” 

The Krafts finally shut down in June. They sold their trailer for more than what they paid for it in 2018, which was a bright spot. 

For Kerry, 39, in particular, Jason said it was demoralizing. “She doesn’t even want to say the word truck anymore.” 

Working regular jobs has been a shock for the couple and their dachshunds, Diesel and Turbo. 

“We worked for 15 years and now we’re at entry-level jobs because we don’t have the verified experience to do anything,” Jason said. “We don’t have the education. Now it’s like you have to sell yourself on paper. We don’t have the credentials to get a job anymore.”

Mike Dow, owner-operator since 2018: ‘Operating at a loss was the biggest deciding factor’

These past few years, it seemed like Dow was the only one working anymore. Federal stimulus checks were a lifesaver for many out-of-work Americans, but it also helped drive unprecedented container volumes into American ports, which were filled with televisions, furniture and clothing that people were spending excess cash on. 

Dow and his brother happily hauled all of those goods. 

“You never saw so many people out in the park bike riding and kayaking,” Dow said. “The money has run out, so now everyone has to go back to work.”

The rapid downturn in consumer spending hurt Dow and his brother, who shuttered their trucking company and got company driving jobs this year. 

Retail spend saw a 1% uptick in June, according to federal data. But there’s still a key mismatch between just how many truckers have flooded the industry versus the amount of freight that’s available for them to haul. Since the beginning of the pandemic, federal data reflects that there’s been a 10% increase in drivers available for hire

For those truckers who are seeing decreased rates and increased costs for everything else they need to buy to operate, it’s challenging to keep going. As the spot market softened and expenses piled up, Dow realized his company was hemorrhaging money. 

He still owed money on his truck, and he couldn’t make the monthly payments. The only way to keep the company, it seemed, was to take out a second mortgage on his home. He didn’t want to do that. The price for a typical used truck doubled and even tripled over 2021. Unusually high truck payments were fine when matched with ultra-high spot rates, but the crash in those rates along with the increase in the price of everything else have left some truckers scrambling. 

Record-high diesel prices also crushed Dow, along with an average insurance cost uptick of 20% from 2019 to 2022. Maintenance costs have increased by 30% over the same time period. 

“Operating at a loss was the biggest deciding factor,” Dow said. “You can try to ride it out for a bit to see if the trend swings back around or you can be ahead of the curve and get out before everyone else starts getting out.”

He chose the latter and was able to recoup some cash by selling equipment. Dow now has more free time than ever. He’s using some of that time to ponder about his life as a trucker, which has left him with two divorces and the inability to spend more time at home as his kids were growing up. He shared the following, somewhat chilling analogy: 

“It’s like going to an amusement park. You’re looking forward to ride it, waiting in line for three or four hours. The ride is 45 seconds, then it’s over. You’re thinking, ‘That was fun. It was cool.’ But in the same breath, you’re like, ‘I waited three hours for that?’ 

“That’s how trucking is. The ride is pretty much over, I’m through the loop-the-loops and they’re pumping the air brakes.  

“I’m 52. I have 10 to 15 years before I retire, if I’m lucky enough to make it to retirement. The thrill of it is gone. It’s just the last little leg before I get off.” 

He’s thinking about opening up a deep-sea fishing business, combining business with pleasure. “The business I’m in now is not so pleasurable,” Dow said, laughing. 

Tyler Durden Sun, 07/24/2022 - 20:30

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Economics

Aviat Networks Issues Open Letter to Ceragon Networks Shareholders to Correct the Latest False Claims and Mischaracterizations from the Ceragon Board

Aviat Networks Issues Open Letter to Ceragon Networks Shareholders to Correct the Latest False Claims and Mischaracterizations from the Ceragon Board
PR Newswire
AUSTIN, Texas, Aug. 11, 2022

Aviat urges shareholders to vote on the GOLD proxy card f…

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Aviat Networks Issues Open Letter to Ceragon Networks Shareholders to Correct the Latest False Claims and Mischaracterizations from the Ceragon Board

PR Newswire

Aviat urges shareholders to vote on the GOLD proxy card for ALL FIVE Aviat nominees to elect directors who will support near- and long-term value creation at Ceragon

AUSTIN, Texas, Aug. 11, 2022 /PRNewswire/ -- Aviat Networks, Inc. (NASDAQ: AVNW) ("Aviat"), the leading expert in wireless transport solutions, today issued the following open letter to shareholders of Ceragon Networks Ltd. (NASDAQ: CRNT) ("Ceragon" or the "Company") to correct the latest false claims and mischaracterizations made by Ceragon's Board of Directors ("Board") in its August 8, 2022 letter to shareholders.

Dear fellow Ceragon shareholders,

Aviat has given the Board many opportunities to consider and negotiate a transaction that would provide shareholders like you immediate value at a significant premium. Rather than engage in fruitful discussion, the Board has delayed, deferred and attempted to distract you with a series of false and misleading arguments designed to disguise their persistent failure to deliver value. Earlier this week, the Board rejected Aviat's revised proposal to acquire Ceragon for $3.08 per share in cash and stock, in another letter that distorts the record and which is replete with false claims and mischaracterizations. We're writing to you today to once again set the record straight.

THE PROPOSED TRANSACTION WOULD DELIVER SIGNIFICANT VALUE TO SHAREHOLDERS, IN EXCESS OF WHAT CERAGON CAN ACHIEVE THROUGH ITS CURRENT STRATEGY, AND WITH SUBSTANTIALLY LESS EXECUTION RISK.

  • Aviat's revised proposal represents a substantial premium of 47% to the closing price of Ceragon shares on June 27, 2022, of $2.09 (the last close price prior to Aviat's first public offer) and a 64% premium to Ceragon's 60-day volume-weighted average share price of $1.88.
  • Analysts' price targets reflect what Ceragon could achieve at some point in the future. However, following several quarters of operational challenges, a rising debt load, negative EPS and cash flow, and a botched chip rollout, we see these targets as, at best, highly aspirational. If Ceragon were to combine with Aviat, it would have the management, discipline, resources and broader platform to achieve its full potential.
  • Ceragon lowered its annual guidance in the first quarter of 2022, and in the second quarter it missed top line consensus, continuing its pattern of underperformance, having missed analysts' consensus earnings expectations for five of the last ten quarters. Continued performance at these woeful levels will lead to analyst price target reductions.
  • While Ceragon touts its progress in North America, industry league tables list Aviat as the number one player in North America, with Ceragon not even among the top three.1
  • In its August 8 report, independent proxy advisory firm Institutional Shareholder Services ("ISS") noted that Ceragon, "underperformed peers and the Nasdaq index over all measurement periods ended on the unaffected date… While revenue growth deceleration has also been an issue at peers, the Company's gross margins are below pre-pandemic levels and have not shown signs of recovery over the past several quarters."2 ISS is an independent shareholder advisory service whose recommendations are relied upon by thousands of institutional investors.

Results like these are what Ceragon's Board expects you to believe is "strong business momentum." Since the beginning of 2019, Ceragon has incurred negative free cash flow of $48 million as it has attempted to produce its much-delayed next generation chip, and this burn rate has accelerated as the company has consumed $35 million of the $48 million in just the last 18 months. We believe that this 28-nanometer chip, when it is finally rolled out, will consume more power and create cost, system design, and supply chain challenges. Ceragon's debt-laden balance sheet will not support the expensive redesign needed to address these problems, which we fear could lead this entrenched Board to raise additional capital through a dilutive equity offering.

The truth is that Ceragon is struggling on its own, and is not going to achieve outlandish price targets, or even its own projections. We continue to believe that Ceragon would see tremendous advantages from being part of a larger platform with more scale and resources as part of Aviat. In fact, ISS noted that a "lack of clear progress" could send Ceragon's stock lower in the absence of a transaction, including one with Aviat.

THE CERAGON BOARD HAS DONE VIRTUALLY NOTHING TO EXPLORE (AND EVERYTHING POSSIBLE TO PREVENT) A POTENTIAL TRANSACTION WITH AVIAT OR TO MAXIMIZE VALUE FOR ALL SHAREHOLDERS.

Despite Ceragon's claims to the contrary, the Board has repeatedly erected roadblocks to exploring a value creating transaction with Aviat at any price, even declining to name their own price when offered the opportunity. Instead, they indicated it would take two months to determine a price, which is not what would reasonably be expected from a party genuinely interested in "maximizing shareholder value" – and which is grossly inconsistent with how quickly they rejected both our original and revised public offers. ISS said that "it is questionable to what extent the board has been open to negotiating a deal," and that the Board "does not appear to have engaged in detailed discussions."

We have been crystal clear since making our offer public on June 27 that our very strong preference is to negotiate a mutually agreeable transaction with Ceragon, and we have always believed that eventually they would come to the bargaining table. Unfortunately, since June, Ceragon has spent less than 30 minutes total in dialogue with Aviat, preferring instead to spend their time coming up with specious objections like demanding a reverse termination fee (payable from Aviat to Ceragon if a mutual definitive agreement was entered into but could not be closed) that was both unorthodox and outrageously high (~$60 million) as a prerequisite for discussions; complaining that our proposed reverse termination fee was too low, when in fact all we proposed is that it be based on market standards; or demanding that Aviat agree that Ceragon would not have to pay a termination fee (in the event someone else proposed to buy them after they executed a definitive agreement with Aviat).

What we now recognize is that this Board cannot come to its senses, because the Board lacks the necessary independence to do the right thing for shareholders.

CERAGON SHAREHOLDERS DESERVE A CHANCE FOR GREATER VALUE. THE ZISAPEL BLOC ON THE CERAGON BOARD IS THE PROBLEM. REPLACING A MAJORITY OF THE BOARD IS THE SOLUTION.

Three members of Ceragon's seven-seat Board are closely tied to a fourth director, the Company's Chairman, Zohar Zisapel, and serve on boards or as executives of other companies he controls. Since their other business interests are closely tied to him, it is easy to understand why these directors would support Mr. Zisapel's interests over those of other Ceragon shareholders. ISS said that "investors may question to what extent they would challenge the company's chairman/co-founder." Together this bloc provides Mr. Zisapel with effective majority control of the Board.

Please note that although Mr. Zisapel founded Ceragon, he neither owns nor controls the majority of voting shares. In fact, in February 2021, he sold approximately one-third of his Ceragon shares, when the stock was trading at over $5.00 per share, well above where it has traded since, and has not replenished his position since, showing little confidence in Ceragon's future.

The Zisapel bloc has presided over considerable destruction of shareholder value:

  • Former Ceragon CEO Ira Palti oversaw total shareholder return of -21% during his tenure as CEO of Ceragon versus Russell 2000 TSR of 323% during the same period. That is an underperformance of 343%. ISS agrees that Ceragon has underperformed under Mr. Palti's leadership and recommends that shareholders vote FOR his removal from the Board.
  • Yael Langer, who is currently employed by Mr. Zisapel, has been on the Ceragon Board since 2000, presiding over consistent underperformance. ISS also recommends that shareholders vote FOR Ms. Langer's removal from the Board to bring a fresh view to Ceragon's challenges.
  • Mr. Zisapel himself has watched Ceragon's stock price decline by 87% over the 22 years since he took Ceragon public in August 2000. He has been Chair for every one of those 22 years.
  • David Ripstein was previously employed by Mr. Zisapel, and is CEO of another company that demands considerable time and attention, which leads us to fear he would be quick to defer to Mr. Zisapel and Mr. Palti.

As the Board of a publicly traded company, Ceragon's directors should represent the interests of all shareholders, not just Mr. Zisapel.

A VOTE FOR ALL OF AVIAT'S FIVE DIRECTOR NOMINEES ON THE GOLD PROXY CARD IS THE PATH TO CREATING GREATER BOARD INDEPENDENCE AND GREATER SHAREHOLDER VALUE.

All five of our nominees are thoroughly independent – from Aviat itself, from Ceragon's management and, perhaps most importantly, from Mr. Zisapel – and able to provide a fresh, unbiased perspective at a critical junction for Ceragon. No matter what Ceragon tries to allege, when elected, all five of Aviat's nominees would honor their fiduciary responsibility to maximize shareholder value and evaluate and oversee fairly not just our proposal to acquire Ceragon but also any other path to value creation.

To set the record straight on one of Ceragon's most outlandish red herrings, Aviat director nominee Jonathan Foster has the public company board experience to be an immediate asset to the Ceragon Board. Serving today on four other public company boards, service on Ceragon's Board would not make him over-boarded according to the criteria of either ISS or proxy advisory firm Glass Lewis, both of which consider a director over-boarded only if they serve on six or more boards concurrently. Ceragon has also used cherry-picked dates in an attempt to distort the record of another Aviat director nominee, Dennis Sadlowski, who as first a board member and then CEO of CECO Environmental Corporation helped that company significantly reduce its debt, strengthen its leadership team and implement strong processes and overall operational rigor.

As usual, the Ceragon Board is trying to make issues where none exist, hoping you'll excuse them for refusing to engage in discussions regarding a combination with Aviat that would yield a significant premium for shareholders and provide a more effective platform for its technologies. Only by voting FOR Aviat's proposal to remove three entrenched Ceragon directors and FOR the election of ALL FIVE of Aviat's nominees on the GOLD proxy card TODAY can shareholders realize the considerable value of this combination.

YOUR VOTE IS CRUCIAL. Please visit ValueForCeragon.com for more information.

Sincerely,

Peter A. Smith
Aviat Networks
President and Chief Executive Officer

About Aviat Networks, Inc.
Aviat Networks, Inc. is the leading expert in wireless transport solutions and works to provide dependable products, services and support to its customers. With more than one million systems sold into 170 countries worldwide, communications service providers and private network operators including state/local government, utility, federal government and defense organizations trust Aviat with their critical applications. Coupled with a long history of microwave innovations, Aviat provides a comprehensive suite of localized professional and support services enabling customers to drastically simplify both their networks and their lives. For more than 70 years, the experts at Aviat have delivered high-performance products, simplified operations, and the best overall customer experience. Aviat Networks is headquartered in Austin, Texas. For more information, visit www.aviatnetworks.com or connect with Aviat Networks on TwitterFacebook and LinkedIn.

Forward-Looking Statements
The information contained in this document includes forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements include, without limitations, statements regarding the proposed transaction between Aviat and Ceragon, the results of the requested extraordinary general meeting of shareholders of Ceragon, Ceragon's actions in connection therewith, and any potential related litigation. All statements, trend analyses and other information contained herein regarding the foregoing beliefs and expectations, as well as about the markets for the services and products of Aviat and trends in revenue, and other statements identified by the use of forward-looking terminology, including, without limitation, "anticipate," "believe," "plan," "estimate," "expect," "goal," "will," "see," "continue," "delivering," "view," and "intend," or the negative of these terms or other similar expressions, constitute forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, forward-looking statements are based on estimates reflecting the current beliefs, expectations and assumptions of the senior management of Aviat regarding the future of its business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Such forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this document. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include the following:

  • the impact of COVID-19 on our business, operations and cash flows;

  • continued price and margin erosion as a result of increased competition in the microwave transmission industry;

  • our ability to realize the anticipated benefits of any proposed or recent acquisitions, including our proposed transaction with Ceragon, within the anticipated timeframe or at all, including the risk that proposed or recent acquisitions will not be integrated successfully;

  • the results of the extraordinary general meeting of Ceragon's shareholders;

  • the impact of the volume, timing, and customer, product, and geographic mix of our product orders;

  • the timing of our receipt of payment for products or services from our customers;

  • our ability to meet projected new product development dates or anticipated cost reductions of new products;

  • our suppliers' inability to perform and deliver on time as a result of their financial condition, component shortages, the effects of COVID-19 or other supply chain constraints;

  • the effects of inflation and the timing and extent of changes in the prices and overall demand for and availability of our inputs;

  • customer acceptance of new products;

  • the ability of our subcontractors to timely perform;

  • weakness in the global economy affecting customer spending;

  • retention of our key personnel;

  • our ability to manage and maintain key customer relationships;

  • uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation;

  • our failure to protect our Intellectual property rights or defend against Intellectual property infringement claims by others;

  • the results of our restructuring efforts;

  • the ability to preserve and use our net operating loss carryforwards;

  • the effects of currency and interest rate risks;

  • the effects of current and future government regulations, including the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

  • general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States and other countries where we conduct business;

  • the conduct of unethical business practices in developing countries;

  • the impact of political turmoil in countries where we have significant business;

  • the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; and

  • Aviat's ability to implement our stock repurchase program or the extent to which it enhances long-term stockholder value.

For more information regarding the risks and uncertainties for Aviat's business, see "Risk Factors" in Aviat's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on August 25, 2021, as well as other reports filed by Aviat with the SEC from time to time. Aviat does not undertake any obligation to update publicly any forward-looking statement, whether written or oral, for any reason, except as required by law, even as new information becomes available or other events occur in the future.

Additional Information

This document does not constitute an offer to sell or exchange, or the solicitation of an offer to buy or exchange, any securities, nor will there be any sale of securities in any states or jurisdictions in which such offer or sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities will be made except by means of a prospectus meeting the requirements of section 10 of the Securities Act of 1933 or an exemption therefrom.

In connection with any transaction between Aviat and Ceragon that involves the issuance of Aviat shares to the Ceragon shareholders, Aviat will file a registration statement with the SEC. INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT, ANY AMENDMENTS THERETO AND OTHER RELEVANT DOCUMENTS THAT MAY BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION. Investors will also be able to obtain copies of the registration statement and other documents containing important information about each of the companies once such documents are filed with the SEC, without charge, at the SEC's web site at www.sec.gov.

Investor Contacts

Aviat Networks
Andrew Fredrickson
+1-408-501-6214
andrew.fredrickson@aviatnet.com

Okapi Partners LLC
Bruce Goldfarb / Chuck Garske / Teresa Huang
+1-212-297-0720
info@okapipartners.com

Media Contact

Abernathy MacGregor
Sydney Isaacs / Jeremy Jacobs
+1-212-371-5999
sri@abmac.com / jrj@abmac.com

____________________

1 Source: Skylight Research

2 Permission to use quotations from ISS was neither sought nor obtained.

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Woke Airline Policies Threaten Safety, Workers Say

Woke Airline Policies Threaten Safety, Workers Say

Authored by Janice Hisle via The Epoch Times (emphasis ours),

Southwest Airlines Co. is…

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Woke Airline Policies Threaten Safety, Workers Say

Authored by Janice Hisle via The Epoch Times (emphasis ours),

Southwest Airlines Co. is basking in accolades for its “diversity, equity, and inclusion” (DEI) efforts, award-winning customer service, and record-breaking quarterly revenues.

A traveler walks past a Southwest Airlines airplane as it taxies from a gate at Baltimore Washington International Thurgood Marshall Airport on October 11, 2021 in Baltimore, Maryland. (Kevin Dietsch/Getty Images)

Behind the scenes of that rosy picture, heartaches are afflicting Southwest, called “the airline with Heart” because of its heart-shaped logo and a corporate culture steeped in “The Golden Rule,” treating others the same way they’d like to be treated.

But eight current Southwest employees, including three minorities, told The Epoch Times that “woke, leftist” DEI policies, as implemented, have tarnished the cherished Golden Rule principle, fractured a once-cohesive workforce, and, ultimately, may put safety at risk.

Faced with pandemic-related staffing shortages and pressure to add minorities, the company has changed the way it hires, trains, and disciplines workers—mostly to benefit less-qualified new hires representing the diversity rainbow, the employees say.

One Southwest flight attendant, a Hispanic female, said: “They are compromising safety for the sake of race, gender identity, and sexual preference … They’re risking people’s lives because of agendas.”

Southwest, one of America’s largest air carriers, didn’t respond to messages seeking comment.

Similar issues have spread industry-wide, according to 10 airline employees who agreed to be interviewed. Four are pilots and six are flight attendants; most have 20 or more years of experience. All of them, including two American Airlines pilots, spoke on condition of anonymity to protect their jobs.

While no one thinks the policies are causing an imminent threat of a plane falling out of the sky tomorrow, all of the interviewees agreed that each time a standard is lowered, or a less-qualified employee is hired, the risk that something can go horribly wrong inches forward a notch or two. In an industry that depends on a near-miracle integration of people, machinery, and computers, even a few deviations can culminate in catastrophe.

Still, some employees worry about what could happen if current trends continue to stress out and distract safety professionals. Said one flight attendant: “It’s a recipe for disaster. I just hope I’m not at work when it happens.”

Us-Versus-Them Mentality

While promoting diversity sounds like a great idea, the inclusionary policies have actually become exclusionary at Southwest, employees say. Disparate treatment has divided their ranks into two distinct camps: those with “desirable” or “approved” personal, social, or political characteristics—and those without.

Minorities or people with leftist political views, varying gender identities, and alternative sexual orientations appear to be given wide latitude. This “protected class” is allowed to bend or break rules, and new hires in these classifications may be given extra chances to pass required skills tests, the employees said.

At the same time, veteran workers—especially those who are white, heterosexual, and conservative—find themselves in the crosshairs for almost anything, including making a personal statement of religious or political beliefs, the Southwest workers said. Even minorities can be shifted into this targeted group if they espouse personal beliefs running counter to causes that the company supports.

There are two sets of standards: One for us and one for them,” said an experienced flight attendant.

One of her colleagues said: “The company is trying to eliminate anybody who does not agree with their agenda. The last few years, anybody who speaks up against them, they want gone.” That flight attendant said she had no problems at work until she posted her Christian religious beliefs on her personal Facebook page, along with her support of President Donald Trump. A coworker reported the posts to Southwest, and the flight attendant said she has faced repercussions ever since.

She and others say the targeting of conservatives is common—and they point to the recently publicized case of fired Southwest flight attendant Charlene Carter as a prime example.

‘Targeted Assassinations’ of Conservatives

Last month, a federal jury in Texas awarded Carter more than $5 million after finding that Southwest wrongfully terminated her and that her union didn’t live up to its duty to represent her. The company fired Carter after she expressed her pro-life views to a union leader via social media and opposed the union’s pro-abortion activism.

The company supported the union’s political activism, Carter’s suit says, by accommodating work-shift changes for union members so they could participate in the Women’s March on Washington, D.C., in January 2017. Marchers were protesting Trump’s inauguration; one of the primary sponsors of the event was Planned Parenthood. Southwest also showed “solidarity” with the protesters by bathing its airplane cabins in pink lights on some D.C.-bound flights, Carter’s lawsuit says.

Documents in the case revealed that some union officials and political activists were singling out dissenting Southwest employees for “targeted assassinations,” meaning that they would try to get the company to fire them, using the company’s social media policy as a bludgeon.

In an interview with The Epoch Times on Aug. 8, Carter, who lives near Denver, Colorado, said she can’t believe that some leaders of Transport Workers Union of America Local 556, who helped set her up to be fired, are still working for Southwest.

Carter also validated her coworkers’ concerns about the disparate treatment of employees who dare to oppose leftist agendas. “I think there are a ton of cases out there just like mine,” she said. Terminated employees from Southwest and other airlines have been continuously contacting Carter for help after learning about the July 14 verdict in her case.

Carter spent five years fighting in court; she thinks she was one of the first casualties of the erosion of Southwest’s unique corporate culture, which she witnessed during the latter part of her 20-plus years at the airline.

“We all loved our jobs; we all loved each other—our CoHearts, that’s what we called each other,” Carter said, pointing out that the airline’s stock ticker is LUV, a nod to its birthplace at Love Field, Texas.

Corporate Culture Shift

But corporate leadership and philosophy shifted. Carter said, her former coworkers tell her the culture is now one where people are fired on a whim, and they’re encouraged to file complaints against each other over perceived insults, such as failure to use the “preferred pronoun” of a person asserting an alternative gender identity.

Employees who face such accusations are presumed guilty, a current flight attendant said, and they risk suspension or termination. “That is how we are treated now,” she said.

“It’s gotten ridiculous,” Carter said. She was astounded to learn that lapel pins, designating preferred pronouns, are being offered to staff.

A fellow flight attendant says the company’s priorities are misplaced.

“We used to be focused on hiring ‘the best of the best,’” she said. “So why is it now that we feel at Southwest Airlines that we have to use the right pronouns and we have to acquiesce to someone’s gender-fluid mentality?”

The DEI Effect

The interviewed employees blame DEI policies for sowing the seeds of division. Ironically, before DEI was implemented, “people were never labeled,” a flight attendant said. “I find it very divisive,” she said, “because now everyone is labeled, divided by race, gender sexual orientation … whatever.”

This is wrong—all the way wrong,” she said.

The company’s annual report, in its DEI section, says, “Southwest Airlines recognizes, respects, and values differences. … At Southwest, DEI is and always has been a part of our DNA.”

All four major airlines—and many other American companies—publicly disclose DEI-related information, such as data on minority recruitment and the racial makeup of their workforce.

Every airline is trying to push forward with minority hiring because they want to ‘show that they care,’” aviation analyst Jay Ratliff said. “They’re being asked, ‘How many women are within your pilot ranks? … How many pilots of color?’”

If an airline’s diversity metrics seem low in comparison to their competitors’ numbers, the company’s reputation and bottom line can suffer, Ratliff said.

That’s not necessarily fair, he said, because few people have the ability, interest, and financial means to qualify as a commercial airline pilot. Amassing the FAA-required 1,500 hours of flight time with an instructor can cost $75,000 or more, pilots said.

Last year, United Airlines announced its goals: to train 5,000 new pilots by 2030 at its new flight school, with “at least half of those students to be women or people of color.” The first class of new recruits “exceeded that goal,” with 80 percent of the 30 students fitting that category, the airline said in a report.

Considering that white males make up about one-third of the American population, a Southwest pilot said that composing a class with 80 percent minorities and women looks like “DEI special-status hiring on steroids.”

Scoring Systems Push Diversity

DEI data play a significant role in corporate ESG scores—ratings of a company’s “environmental, social, and governance” performance. It’s a complex—and controversial—way to assess which companies are considered “good corporate citizens.”

Most of the interviewed airline employees believe that the pursuit of ESG scores is driving corporate personnel practices, including ignoring well-qualified male applicants while eagerly hiring less-experienced female and minority candidates.

Increasingly, ESG scores can help determine whether a company sinks or swims. A good ESG score can attract investors, government contracts, and favorable loan-interest rates—benefits that are especially important for the airline industry, in which lucrative U.S. Department of Defense contracts are at stake and profit margins are razor-thin because of astronomical costs for equipment and personnel.

ESG ratings have existed in some form for decades, yet they barely registered a blip on internet searches until a few months ago, amid the Biden administration’s continued push for businesses to address environmental concerns and to institute “green” policies, which weigh heavily in ESG scores and DEI metrics.

Florida Gov. Ron DeSantis recently announced his intent to push back against ESG, calling it “leveraging corporate power to impose an ideological agenda on society.”

Refinitiv, a company that produces ESG scores, says its process for calculating the ratings starts with collecting more than 630 ESG measures from each company’s public disclosures. Other ESG assessors have their own rating systems, which means results can vary depending on which assessment method is being used. ESG advocates are now working on standardizing how these scores are calculated.

Several airline employees said it would benefit their company, their industry, and society in general if ESG scores and DEI programs were abolished.

One Southwest pilot with decades of experience said such measures create unnecessary complications with no positive effect on the airline’s core mission.

Why do we need DEI programs? Why do we need ESG? A lot of the public isn’t even aware these things exist,” he said. “The passengers just want people like me to get them, and their bags, to the same place at the same time, safely … DEI and ESG do nothing to support that—zero.”

“I need these DEI programs and ESG scores to go out the back of the airplane like the jet fuel that we burn.”

Non-Pilots Hiring Pilots

Southwest’s annual report says it has been “evolving hiring and development practices to support diversity goals.”

Those changes are troubling to the interviewed employees and to the pilots’ union. In a letter to members last month, the Southwest Airlines Pilots Association pointed out that, for the first time in the company’s 51-year history, a non-pilot is in charge of hiring pilots. The “system chief pilot” used to have that responsibility. “We are just a single step away” from hiring pilots based upon mere reviews of their resumes, association president Casey Murray wrote to union members. Southwest has about 9,600 pilots, the letter said.

Putting a non-pilot in charge of hiring pilots most likely will affect the quality of the pilots who are being hired, Southwest interviewees said. People who lack specific knowledge of this specialized job would have a hard time telling the difference between a good hire and a bad one, pilots said. One of the interviewed pilots said that the chief pilot told him: “The diversity department has a very strong voice in who gets hired.”

Southwest wants to hire more than 2,000 pilots in the next year, the union’s letter said, questioning whether those new hires will be required to meet Southwest’s traditionally high standards. “Across the entire commercial aviation industry, employers are fighting for an ever-shrinking pool of qualified pilots,” yet Southwest may be at a disadvantage to compete for those pilots. Contract negotiations with Southwest’s pilots are lagging, compared to progress with other airlines’ pilot unions, Murray said.

“Pilots are the fuel that powers Southwest Airlines, and right now Southwest’s supply of fuel is running low. Time is growing critical, and options are becoming limited,” Murray wrote.

Seeking the Best (Non-White) Pilots?

Current pilots also say they have learned that hiring decisions are being driven by a job candidate scoring system; they’re unsure how long it has been in place, how it works, or whether it unfairly elevates minorities. The company controls all of that information.

Still, the employees feel confident in anecdotal evidence suggesting that the scoring system, coupled with other hiring practices, could be producing a pattern of discrimination against men, especially white men who come from military backgrounds—previously highly sought-after job candidates. “We could be wrong, but I don’t think we are,” said one pilot who has military experience.

That pilot said he thinks the vast majority of his colleagues have heard accounts of possible discrimination similar to the following:

When a well-qualified former military pilot applied for a job, Southwest never contacted him for an interview. But the applicant learned that a woman was hired as a pilot, despite having half as much experience in the airline industry.

Further, the man had experience as a captain while the woman had only been a first officer, who sits next to the captain in the cockpit. “It’s a completely different world” when a person shifts into the captain’s chair, said the pilot.

We’re leaving a lot of people behind who are better-qualified, just because they’re the wrong color, or they’re identified the wrong way. That’s concerning. We’re not putting the best up-front,” he said. “We have people’s lives in our hands. It’s just like with doctors. If you go to a doctor, you want to go to the best doctor you can.”

An American Airlines pilot with decades of experience said he was less troubled than some of the Southwest interviewees who worried about the effects of reduced standards as a result of the increased emphasis on diversity hiring. However, that pilot said he would become very concerned if standards are lowered “to the point where people aren’t flying as confidently.”

A second American Airlines pilot said he has observed that “training is not nearly as comprehensive as it used to be,” he said. “But these people who are starting out are flying with people who are supremely qualified to be flying airplanes—so mistakes can be covered.”

He thinks the reduced standards could eventually cause problems if the hyperfocus on diversity continues: “If you’re looking for a diverse workforce and not a qualified workforce, you’ve got issues. … You haven’t seen any accidents because of ‘diversity,’ but the potential is there.”

All 11 people who were interviewed for this story, including Carter, the ex-flight attendant, said personal traits such as gender and race shouldn’t be part of the equation at all.

“From the cockpit door forward, guys and gals of all ethnicities are after the same thing—and that’s a safe flight,” said one of the American Airlines pilots. “They don’t care who sits next to them as long as they can do the job.”

More Than Snack Servers

Most air passengers think of flight attendants as hospitality ambassadors who make them comfortable with beverages, snacks, blankets, and pillows. But their main purpose is to assist in the rare event of an in-flight emergency.

Six Southwest flight attendants, along with Carter, say they feel less able to perform crucial duties because of the climate in which they’re now operating—and new hires appear to be less equipped to shoulder those responsibilities.

They have just made it such a hostile work environment. Southwest has made it that way, and flight attendants are afraid to do their jobs,” a flight attendant said. “But you’re supposed to put a smile on your face and pretend that everything is grand.”

The flight attendants describe feeling as though a backstabber is always ready to pounce, to report any action or statement that doesn’t fit the corporate ideology. They’re being held to strict conduct and uniform standards while “accommodations” are extended to people in protected classes, such as a minority woman who was allowed to wear a nose ring—which got a white female in trouble—and a male flight attendant who described himself as “nonbinary”—neither totally male nor totally female—being allowed to wear a skirt that appeared to be shorter than regulations allowed.

The nonbinary employee seemed to be using his position at the airline as a platform for LGBTQ activism and self-promotion, rather than focusing on benefiting the company or its customers, fellow flight attendants said. They shared screenshots of the nonbinary employee’s social media posts. One is a selfie of the mustached man posing in his Southwest uniform, with the comment, “My dress looks better on me than most chicks.”

That employee no longer works for Southwest, flight attendants said. Yet they said they were aware that a couple of employees faced disciplinary action for referring to the nonbinary employee as “he” in a members-only Facebook group for flight attendants.

Antics Embarrass Fellow Flight Attendants

One flight attendant perceives that the company is making skewed, unfair hiring decisions, and creating a level of absurdity that’s hard to stomach. She knows of people who are related to Southwest employees and have college degrees—which go beyond the high-school education requirement for flight attendants—“and they don’t get hired, and yet we have this guy, with a mustache, in a skirt, distracting us all because the company wants to fight over his pronouns.”

Being a flight attendant used to be considered prestigious and classy; Southwest was viewed as “Mount Rushmore,” a pinnacle for flight attendants, who felt proud just to be hired.

Now the pride is not about the brand of Southwest Airlines,” a flight attendant said. “It’s about how different I can be as an employee of Southwest Airlines—like, ‘Y’all need me more than I need you.’”

Public perception of the role has diminished, not just at Southwest, but across the industry. Airlines grant diversity-based exceptions to people who don’t want to look or act professional, the flight attendants said.

It used to be unusual to see flight attendants behave in ways that brought embarrassment to their coworkers. Now, quite a few of the new hires who were prized for their diversity “are rather risqué,” a flight attendant said. “They become very emboldened; they feel they can get away with this because they are in a protected class.”

Still, Southwest has had to fire employees who pushed the envelope too far, including one minority flight attendant who solicited sex in a social media video and another who videoed herself twerking. In both instances, the videos, provided to the Epoch Times, show the employees in Southwest uniforms.

Such conduct disgusts the flight attendants, and their concern is more than superficial. “If we relax the appearance standards and we’re letting people lower their professional standards, then they obviously are not equipped to handle any type of safety issue that can happen on that plane,” a flight attendant said.

“Where do you draw the line and say enough is enough?”

Commitment, Skills Insufficient

One of the flight attendants who has been targeted for religious and political views said her commitment to her job boils down to this: “I will give my life for my passengers and my crew, if that’s what I need to do. My last words will be, ‘Let’s roll,’” she said, referencing the famous words spoken by a passenger on one of the U.S. airplanes that were hijacked on Sept. 11, 2001.

She doesn’t see that same level of grit from the new hires. “They don’t have the same tough mentality,” she said. Nor do they have the same work ethic, which might be attributable to differences between the younger and older generations.

The older flight attendant described being busy from the beginning to the end of each flight while many of the new hires tend to just serve one round of drink orders, “then they go back to the back (of the airplane) and sit down for the rest of the flight.”

The new employees aren’t demonstrating mastery of the skills they were supposed to have been taught, or willingness to perform them. A passenger was having a medical emergency but the flight attendant in charge of that section “wouldn’t even come out of the galley to assist,” said one flight attendant. Instead, she and a second colleague had to take care of the ailing passenger.

Such an incident stokes her worst fear: “Somebody’s gonna die. With the lack of training that we’re seeing in the new hires that are coming out … there’s going to be somebody who’s not trained, facing an emergency.”

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Tyler Durden Thu, 08/11/2022 - 06:30

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Government

‘Ding, Dong Inflation Is Dead’… But Probably Isn’t So Don’t Get Your Hopes Up Yet

‘Ding, Dong Inflation Is Dead’… But Probably Isn’t So Don’t Get Your Hopes Up Yet

Authored by Bill Blain via MorningPorridge.com,

“Inflation…

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'Ding, Dong Inflation Is Dead'... But Probably Isn't So Don't Get Your Hopes Up Yet

Authored by Bill Blain via MorningPorridge.com,

“Inflation is everywhere a misunderstanding of what actually caused it..“

The pace of US CPI inflation moderated slightly, but it’s too early for the market to conclude rate hikes are over. There are many imbalances still to resolve – especially in consumer credit. Meanwhile, the new UK premier’s clumsy attempts to blame the BOE raise questions.

Markets surged last night on the back of lower-than-expected US inflation. Markets globally rallied, anticipating a slowdown in the pace of Fed Interest Rate Hikes, and a resumption of the long bull Equity market. Bonds rallied. Joy, joy… joy..

Oh dear. It may be well to remember the Happy Munchkins in the Wizard of Oz singing Ding Dong, Inflation’s Dead…” but, that occurs right at the start of the film… before things get “challenging”. I’m not saying End-of-the-World.. just not-quite-as-rosy-as-you-hope!

The pace of US consumer price inflation fell to 8.5% y-o-y, down from 9.1% in June. It’s well to remember what the CPI number shows is fast prices are rising, not how much they have risen – it’s a subtle, but critical difference…

8.5% Inflation means prices are still rising, (Doh!), just less quickly than last month. Rising prices mean the Fed, and other Central Banks still have to address them. (Which is why expecting Central Banks to mellow rate rises/tighter monetary policy on a single snapshot number is a foolish hope.) 8% inflation sounds so much better than 9%, but it’s still inflation; an imbalance between supply and demand that prices are trying to correct. Result: central banks will keep raising rates to stun demand – if they are brave enough to court criticism from politicians.

The US number shows there are still significant inflationary pulses – and concurrent consequences – surging through the US economy. The lower number will focus analysts on just how quickly the inflation pace will start to fall. The oil shocks in the 1970s lasted effectively a decade. The first 1973 shock took around three years to abate, and was followed by an even stronger price shock in 1977 that took till the early 80s to resolve.

A one-month reversal in a longer-term inflation trend is not unusual – it’s far too early to say a one-month slight improvement in the pace of rising prices means the top has been crossed. But the inflation charts do show it is unusual to get consecutive months of declines, and then a sharp increase again. Its more common for inflation to remain stubbornly high for a number of years following an upspike. (That said… in time of “policy experimentation”, like 2010, an upspike was swiftly followed by a down spike.)

What the US CPI number did confirm is the US economy is in a very different place, and a different stage, to Europe and the Global economy. The key difference is the US report showed energy prices are normalising and reducing as petrol prices moderate. Jet fuel costs declined bringing down the cost of travel. In Europe – there is little chance of energy price moderation – if anything consumer energy bills will become increasingly chaotic and damaging to sentiment. Queue the great divergence between US and Europe – and what that means in terms of investment opportunities.

On the other hand; the US numbers show rising interest rates are impacting consumers cash, food prices continue to rise sharply while housing costs are also spiking. Ah… common experiences Europe and the US share.

The CPI numbers suggest the US economy is still in trouble. Over the past few months I’ve been watching things like Auto-loan delinquencies – as rates rise, and car prices surged on the back of availability and supply chain issues (primarily the shortage of chips), car financing costs became increasingly unaffordable. Auto-loan defaults are rising – but they have not become a crisis because – thus far – the used-car market can very quickly absorb repossessed cars. The reality is 20% of US autoloans go to sub-prime borrowers – who are the ones living pay-check to pay-check, and following years of declining real income (and now a crashing real-income shock) lack the financial resilience to keep paying.

Figures from the Fed show US Household debt is increasing – up 2% in Q2 2022 to $16.15 trillion (!). Officially, that’s because of repressed spending during the pandemic.

In reality, it’s cash-strapped US consumers are living off credit. Much of that credit is real: mortgage and auto-lending, but other numbers like credit cards and  from new DeFi lenders showing rising shadow-banking sector lending problems. The default crisis impacting lenders like Klarna comes on the back of cash-strapped consumers using credit to buy their daily milk, bread and petrol. You can’t repossess a bag of shopping.

The inflation driven economic threat in Europe is also about consumers. Years of low incomes, wage constraints, and job insecurity across much of Southern Europe leaves a massive number of consumers with precious few savings. The middle classes have been decimated by rising costs, consumer debt, and taxes.

(It’s a truism: if you can afford a lawyer and an accountant, you can avoid taxes… which is why tax gatherers, like the UK HRMC go for the weakest targets to collect unpaid dues. It takes less effort to extract a million in taxes from 10 struggling middle-class businessmen that it takes to get Amazon to pay a single cent. If there businesses collapse – so what, the tax got its money…)

Who is to blame for inflation?

The UK’s prime minister in waiting, Tank Girl Liz Truss ,says it’s all the Bank of England’s doing. Which is somewhat harsh.

  • I was unaware Bank of England Governor Andrew Bailey triggered the Russian invasion of Ukraine after first persuading Angela Merkle to close her nuclear plants and give German energy security to Vladmir Putin. `I though the Energy shock and food inflation shock were exogenous.

  • I was unaware it was Andrew Bailey who decided Tory MPS could give billions of govt money to their chums to not deliver functional PPE to the health service during the pandemic.

  • I was unaware it was Andrew Bailey who came up with (actually brilliant) furlough scheme to preserve jobs and consumer security (that was a very clever civil servant who has got zero credit for his efforts.)

  • I was unaware it was Andrew Bailey who set the government’s spending plans…

What I thought was Andrew Bailey and his colleagues at the Bank of England were maintaining a low interest rate economy to keep the pandemic economy functioning through the challenging pandemic years, and to keep the gilt market looking attractive so the UK Debt Management Office could continue to fund the Government’s funding schemes – all the while fretting about how to normalise ultra-low interest rates put in place to stimulate the economy in the 20-teens without destabilising everything.

Liz Truss doesn’t think so. That’s why she will not be getting my vote. (Not that I have one to give her.. but that’s not the point.)

The point is our next prime minister and First Lord of the Treasury will be chosen by 160,000 rank and file conservative party members. They are generally older, well-off, white, male and Eurosceptic. 63% are male. 80% are in the wealthy ABC demographic. 58% are over 55 and remember the Glory of Margaret Thatcher with religious reverence.

Which is why I think someone has been whispering in Tank Girl’s ear – I suspect the Minister for the Spanish Inquisition (Jacob Rees-Mogg). Now, Tank Girl wants to remove the Bank’s independence and replace inflation targeting with money supply targeting. Christ-on-a-bike: did I just drop through a worm hole into 1981? Big hair, shoulder pads, Duran-Duran and economic disaster…

I fear She opened the door into the Treasury’s Black Museum – and unlocked the box of Tragic Economic Mistakes, unleasing the Zombies of Monetarist Economic thinking like Mad Paddy Mitford (who says her plans are brilliant – unsurprisingly) and Tim Condon. Oh dear. Lord spare us…

If so, then we really are rubber ducked. Monetarism, ahem,  was such a success back in the 1980s – NOT! In the form of Thatcherism, the consequences are today’s broken Britain, the imbalance between London and the regions unknown outside the M25, the rebellious Scots and a host of long-term structural problems.

If someone had unleashed the Zombie Vampyres of Monetarism, then I’ll be sure to carry my crucifix, a sharp pointy wooden stake, and flask of Lagavulin (my holy water) when next in London.

Although its only August, the Christmas shops are already opening. I am tempted to write to Santa now. “Dear Father Christmas… I have been a very good boy all year. Please can we have a completely new UK Government?”

Tyler Durden Thu, 08/11/2022 - 07:20

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