Out of Fashion

Central banks around the globe are raising interest rates ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 17, 2022

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TOGETHER WITH

Good morning.

During a freewheeling video call with Twitter employees meant to address his $44 billion planned takeover of the company, Elon Musk mused Thursday about the existence of alien civilizations. When asked by a staffer, he clarified "I have seen no actual evidence of aliens."

This came one day after the official newspaper of China's Science Ministry published a report claiming researchers at Beijing Normal University may have detected signals from alien civilizations, only to mysteriously delete it. The truth, as they say, is out there.

Morning Brief

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Central banks around the world are going all-in on rate hikes, and analysts are increasingly going all-in on recession calls.

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Revlon, a company with a history of fascinating legal chapters, has found its latest: Chapter 11 bankruptcy.

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High fuel exports may be to blame for high gas prices.

Economy

This Was The Week That Central Banks Went All In

Take a hike. That was the mantra Thursday.

A day after the US Federal Reserve set its highest benchmark interest rate increase since 1994, central banks in the UK, Brazil, and Switzerland followed with their own rate hikes. Widely seen as the most effective tool for policymakers to fight a dismal outlook for inflation, experts are lining up to question whether it's going to shift the economy into reverse gear.

Gone Soft

After (in hindsight, wrongly) arguing inflationary forces were "transitory" last year, Federal Reserve Chair Jerome Powell has been open about the fact that he's not sure whether rate hikes can lead to a so-called "soft landing" where higher interest rates tame inflation and avoid tipping the economy into recession.

"I think that what's becoming more clear is that many factors that we don't control are going to play a very significant role in deciding whether that's possible or not," Powell said Wednesday, alluding to commodity prices in disarray thanks to the war in Ukraine and supply chain disruptions lingering from the pandemic. "It's not going to be easy." Experts agree:

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Wells Fargo analysts said Thursday they expect the US economy to tip into a "mild recession" in 2023. "In our view, the recession will be more or less equivalent in magnitude and duration to the downturn of 1990-1991," the bank wrote to clients. That recession lasted for two quarters with a peak-to-trough decline in real GDP of 1.4%."

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Bloomberg Economics estimates the odds of a downturn before 2024 is 72%. A senior White House official told Bloomberg News that internal government forecasts peg the odds of recession between 25% and 35% — high household savings, strong business profits, and a robust job market are notable signs of optimism that usually don't coincide with a downturn.

Hawk-Induced Selloff: Central bank hawkishness plunged its talons into stock markets Thursday: the Dow Jones fell 2.4%, the S&P 500 3.2%, and the Nasdaq 4%. "The selloff is entirely related to the shift in central bank policy — there are renewed concerns of a synchronized global slowdown that has to do with central banks around the world being more hawkish than expected," Ross Mayfield, an analyst at Baird, told Reuters.

Retail

Supply Chain Woes Drive Revlon Into Bankruptcy, Its Latest Crazy Chapter

Revlon, much like its famous lipstick line, has gone too far in the red.

On Thursday, the 90-year-old cosmetics mainstay filed for Chapter 11 bankruptcy protection in New York, citing a heavy debt load and supply chain struggles. Let the makeover begin.

Extreme Makeover: Bankruptcy Edition

Revlon broke through in the 1980s with splashy advertising fronted by supermodels. But when cosmetics trends shifted to muted colors in the 90s, the company's line of famously bright lipsticks stuck out like a Duran Duran fan at a grunge concert, and Revlon was slow to adjust. According to WWD, Revlon has since fallen from the world's second-largest cosmetics company by sales to 22nd.

More recently, market share has been claimed by makeup brands backed by celebrities and influencers like Kylie Jenner and Rihanna. Masking up during the pandemic made lipstick as pointless as a winter coat in July, lopping 21% off sales in 2020. Revlon staved off bankruptcy that year by convincing bondholders to extend its maturing debt, but a small recovery (sales rose 9% to $2 billion last year) wasn't enough to offset higher costs and supply chain snarls. Now facing up to $10 billion in liabilities, the bankruptcy filing adds to Revlon's surprisingly colorful financial history:

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Revlon's owner, billionaire Ronald Perelman, is responsible for a famous legal principle called the "Revlon Rule." In 1985, he won in court after Revlon's board tried to sidestep his hostile takeover by negotiating a cheaper deal with another buyer — the Delaware Supreme Court ruled that, when a takeover is imminent, company directors must pursue the deal that creates the most value for shareholders.

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In 2020, Citibank made one of the greatest financial errors in history when it accidentally repaid $900 million in Revlon loans that weren't due until 2023 with its own money. Lenders who got $500 million refused to give it back, and last year a US District Court said they can keep it.

Revlon expects to receive $575 million in financing from its existing lenders — which will be sent on purpose — to support its day-to-day operations.

Unfashionable: While economic alarm bells are ringing all over, 2022 hasn't been a big year for bankruptcies. As of May 31, S&P Global Market Intelligence counted 143 bankruptcies, the least for the first five months of the year since 2010. Although, in fashion, isn't it all about being ahead of a trend?

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Fuel

Mad About Gas Prices? Blame Exports

High demand, crunched supply, war in Ukraine, and possible profiteering — you've heard just about every reason possible for why gas prices routinely hover above $5 per gallon. Now, another culprit has emerged for the US' new national headache.

American companies are exporting fuel at higher than normal levels and it's contributing to domestic supply problems, analysts claimed in a Wall Street Journal report on Thursday. It's the first time such a trade dynamic has ever affected prices at home.

Great Exportations

The US has long sent high levels of fuel abroad without pumping up prices at home, in large part due to the booming growth of fracking. But a decrease in production and refining capacity during the pandemic — coupled with the demands of reopening economies and war — has upset the equilibrium.

While exports have yet to reach record levels, outbound trade has increased this year with oil companies chasing higher prices in fuel-starved foreign markets:

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Market-intelligence firm Kpler tells the WSJ that seaborne exports of gas, diesel, and jet fuel have jumped 32% on average year-over-year in March, April, and May, and are 11% higher than the same three-month span in 2019.

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Natural gas exports, however, did hit a record in March, with 22% of all US gas production being shipped out either by pipeline to Mexico and Canada or by tanker to Europe, according to data from the Energy Information Administration.

Leaders in Washington — undoubtedly heeding countless constituent calls about pump prices — are split on the solution. Some call for curtailing exports to help lower domestic prices. Others say increasing exports will help wean the world of Russian energy. Everything, it seems, is a trade-off.

Extra Upside

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Decor disaster: Sonos accidentally sent one couple so many extra speakers their living room now looks like a fulfillment warehouse.

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After years of complaints that the sport was too boring, an increase in scoring has the NHL on pace for record revenues this year.

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