Your Financial News Roundup
September 20, 2023
TL;DR
1. Economy: The Federal Reserve is expected to keep interest rates steady; while labor union strikes have led to 7.4M lost work days this year.
2. Tech: Ex-FTX CEO Sam Bankman-Fried’s parents siphoned millions from the company before it collapsed; meanwhile Shaquille O’Neal is investing in ed-tech and impact startups.
3. World: Major world powers are calling for Azerbaijan to stop its attack on Armenia; and when scientists removed algae from dead coral, their recovery rate surged 600%.
Personal Finance Concept [Part 8/10]: Debt Detox — Business Debt
Economy
🇺🇸 What Next?: The Federal Reserve is meeting later today to decide if the economy needs another rate hike. Economists believe the Fed will keep interest rates steady this month as it waits for new data. Both inflation and the job market are cooling, as well as car prices and rents. Forecasts indicate a 69% chance of the Fed continuing to pause interest rate hikes in November. However, looming problems remain, including a potential government shutdown, rising energy prices, and the ongoing worker strikes. (CNN)
Our Take: If the Fed pauses interest rate hikes, it may bring relief to the broader economy and potentially lead to positive investor sentiment and market performance.
🪧 A Striker’s Summer: Recent strikes by unions like the Writer’s Guild of America (WGA) and United Auto Workers (UAW) are impacting the economy at a level unseen in decades. In total, all strikes have led to 7.4M lost work days in 2023 — the most in 23 years, according to the Labor Dept. Inflation is driving union activity as workers demand higher wages and workplace flexibility. Critics argue that higher wages for unionized workers will make it harder harder for the Fed to tame inflation, but unions only account for 10% of the workforce. (CNBC)
Our Take: Inflation has cut into workers’ real wages while automaker executives received double-digit salary increases over the same period. Outsized fears of employee raises driving inflation or company cost likely have some bias and should be treated with skepticism until further research.
Tech
👑 A King Made Pauper: Former FTX CEO Sam Bankman-Fried (SBF)’s parents were sued by the reorganized exchange on its victims’ behalf. FTX alleges his parents received millions in fraudulent money and ignored corporate misconduct to enrich themselves. Specifically, FTX gave the couple $10M in gifts and a $16.4M property in the Bahamas. SBF’s father supported the firm’s mismanagement, covered evidence of fraud, and misused company funds. Meanwhile, his mother helped him make hidden political donations. (Reuters)
Our Take: This lawsuit underscores the growing scrutiny and demand for justice and guardrails in the crypto space. As the industry matures, such incidents highlight the need for stronger governance to bring the decentralized finance space mainstream.
🏀 Balling: NBA legend Shaquille O’Neal spoke at TechCrunch Disrupt about his investment interests, particularly in edtech startups that have the potential to transform lives. He is the lead investor in Edsoma, an AI-driven educational platform aimed at teaching millions of children how to read. O’Neal’s investment strategy is influenced by his desire to support ventures that will make a significant difference in people’s lives. He draws from his own experiences and the value his parents placed on learning. (TechCrunch)
Our Take: Shaquille O’Neal’s commitment to transformative education solutions highlights the potential of leveraging fame and philanthropy for impactful and widespread societal change.
World
⚔️ Rising Tensions: Azerbaijan launched a “counter-terrorist” attack into Armenian-controlled Nagorno-Karabkh (Artsakh) yesterday. The nation’s defense ministry claims Armenia’s armed forces have been attacking them and fortifying its positions. Meanwhile, Armenia’s foreign ministry argues the military presence in the area is strictly for humanitarian purposes. They also claim the Azerbaijani side has been stockpiling weapons and preparing for a genocide. The United States and France are working with the United Nations and its Security Council to negotiate a ceasefire, as is Russia. (Yahoo! News)
Our Take: Following the collapse of the Soviet Union, Azerbaijan and Armenia have fought several wars over Karabkh. It’s uncertain if both sides can come to agreement on a permanent peace treaty, which can have lasting impact on the region.
♻️ An Underwater Garden: A volunteer “sea-weeding” program in Australia has led to a significant improvement in coral regrowth. Following the initiative, scientists observed a compounded recovery in both the quantity and diversity of corals, suggesting that this straightforward method can rejuvenate reefs overrun by algae. Over 3 years, the program engaged citizen scientists to remove macroalgae from 2 experimental reef sites. The results revealed a 600% increase in coral recovery rates. (Good News Network)
Our Take: Coral reefs provide food sources and medicines to 500M+ people, in addition to a myriad of ecosystem benefits. Restoration efforts such as these can help coral live in rising sea temperatures and preserve vibrant ecosystems and valuable natural resources.
Finance Concept of the Week
Debt Detox [Part 8/10]: Business Debt
Common types of debt and how to best tackle them
Starting and managing a small business is no easy feat. That’s why many entrepreneurs turn to loans to finance their business ventures. Whether you’re just starting out or planning for expansion, you may need to take out a loan to pay for operations, equipment, wages, inventory, rent, etc. In fact, a study by Experian found that the average small business owner in the U.S. carries $195,000 of debt. While some debt may be necessary to jumpstart or expand your business, carrying too much debt can potentially put you out of business.
How Business Debt Works
Businesses incur debt when they borrow money from external sources, such as banks, financial institutions, investors, or other lenders. Before taking out a loan, it’s best to access different financing options to determine which one fits the business’s need. These options could include loans, lines of credit, bonds, or other financial instruments. Once the business has found the right loan, they can submit an application to lenders, who will evaluate the business’s creditworthiness, financial health, business plan, etc.
Once approved, the business and lender will negotiate the terms and conditions, including the loan amount, interest rate, repayment period, repayment frequency, and collateral requirements. After both parties agree on the terms and sign off on them, the lender will disburse the funds to the business to use for the intended purchases.
The business must repay the debt according to the agreed upon terms and may need to meet certain conditions, such as financial reporting requirements or maintaining a favorable debt-to-equity ratio. Depending on the market conditions and the business’s financial standing, they may be able to refinance the debt to get better terms or interest rates later on.
Common Types of Business Debt
- Term Loans: With a term loan, you’ll get a lump sum of cash upfront and repay the loan with interest over a set period. This allows you to invest in your business quickly and potentially borrow more than other types of loans. However, these loans may require a personal guarantee or collateral in case your business defaults on the loan.
- SBA Loans: The Small Business Administration guarantees these loans from banks and lenders. They have some of the lowest rates available on the market and long repayment periods ranging from 7 to 25 years. You can borrow up to $5M, but SBA loans have stricter eligibility criteria and a more rigorous application process than other loans.
- Business Line of Credit: A business line of credit allows you to access funds up to your credit limit. You’ll pay interest only on the money you borrow and they are typically unsecured, meaning you don’t need to provide collateral. However, they may carry additional costs, such as maintenance and draw fees.
- Business Credit Cards: Similar to personal credit cards, business credit cards are revolving lines of credit. You can borrow up to the credit limit and earn rewards on your purchases. Some business credit cards also offer a 0% intro APR period and balance transfers. But the interest rates are fairly high and you may incur extra fees.
- Microloans: Microloans are small, low-cost loans, typically $50,000 or less, that nonprofits and mission-based lenders offer to businesses. They are usually available to startups, newer businesses, and businesses in disadvantaged communities. Microloans may also include free services, such as business consulting and training.
Pros of Business Debt
- Capital Infusion: Business debt gives you quick access to capital, allowing you to expand operations, purchase more inventory, invest in new technologies, or hire more staff.
- Business Growth and Leverage: Businesses can use debt to invest in projects or assets that can potentially generate more profits without paying the full costs upfront.
- Tax Deductibility: In some cases, the interest accrued on business loans is tax deductible. That can help reduce the business’s overall tax liability.
- Maintain Ownership Control: Equity financing, such as raising money from venture capital (VC), requires the business owner(s) to give up some control over the company. Taking on debt allows you to retain full ownership of the company.
- Flexible Payment Terms: Business loans typically come with various repayment options, allowing your business to choose a structure that aligns with its current financial situation.
Cons of Business Debt
- Interest Costs: One of the main drawbacks of business debt is the cost of interest. Over time, the interest payments can accumulate, increasing the overall cost of borrowing.
- Financial Risk: If your business struggles to meet its debt obligations, it may face financial distress, damage to its credit rating, or even bankruptcy.
- Risk of Overleveraging: Taking on too much debt, especially if it’s not managed wisely, can lead to overleveraging. This makes your business more vulnerable during economic downturns or unexpected challenges.
- Cash Flow Constraints: Like most forms of debt, your business must make regular payments to the lender to pay off the balance. If the business doesn’t generate enough revenue to cover these payments, it could face liquidity issues.
How to Manage Business Debt
- Get a clear picture of your current financial situation. The first step to taking control of your business debt is to understand all the numbers. This includes your profits, inventory costs, gross margin, existing debt, etc.
- Revise your budget frequently. As the market conditions evolve, different factors may impact your bottom line and debt obligations. Having an updated budget helps you accurately manage your finances.
- Cut costs wherever possible. If you can reduce some of the smaller expenses or any unnecessary expenses, that can add up to a lot of money saved over time.
- Reach out to lenders. If you have a bank loan, reach out to the bank to see if you can get a lower interest rate or extended repayment period. If you have credit card debt, consolidate your credit cards and apply for a 0% APR credit card with a balance transfer option.
- Increase your income. You can raise your revenue by acquiring new customers, increasing the average transaction size, raising prices, and increasing how often customers check out. For example, if you have a loyal customer base, think of ways to incentivize them to shop more frequently or make higher transaction purchases.
What Else Is New?
- Mexico held its first congressional hearing on aliens and UFOs last week, where Jaime Maussan, a self-proclaimed UFO enthusiast and investigator, presented 2 “non-human corpses.”
- A study found that people who exercised in the morning between 7AM and 9AM had lower BMIs, which could help with weight loss.
- Republican hardline conservatives in the U.S. House of Representatives sided with their Democratic counterparts to oppose an $886B defense appropriations bill. This move pushes the the government closer to a partial shutdown later this month.
- Over the next decade, Disney plans to spend $60B to expand its domestic and international amusement parks and expand Disney Cruise Line.
#Oof
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