Cookies, Commodities And Confidence
Image courtesy of Creative Commons
NOTE: The below originally appeared as the editorial in our September 4 One Minute Week newsletter. To find out more, and sign up for free, please click here.
I ate a fortune cookie last night. It was crisp and tasted OK, but I am hoping it was past its use-by-date. This is because the message inside said: “Sell your Chinese shares. The stock market is about to crash.”
As everyone knows, the last few weeks have been torrid for many markets. This alone is not a disaster for business aviation. Before 2008 many people felt that business jet orders and equities were correlated. In fact orders have not tracked stock markets for the last seven years.
If you are looking for worrying news, however, there is a lot out there.
On this day last year a barrel of Brent Crude cost $103. Today it is $50. Lower oil and commodity prices should help the global economy. But whilst low oil prices benefit airlines and cut charter costs, they are mainly negative for jet sales. It is not just US energy companies which have been loyal buyers of aircraft.
Wealth-X data shows that most billionaires have made their money through finance or diversified industries. But this varies by region. About 12% of African billionaires are reliant on oil and gas. Oil and gas accounts for 18.2% of Russia’s economy. It is not just oil. Mining and commodity firms – which are now struggling – have been big buyers.
Falling currencies also make business jets much more expensive. Brokers say we are seeing South American, Central European and Asian sellers cashing in jets. With a strong dollar they are not looking to replace them.
The US – the key business jet market – is stronger. But it is not where you would expect it to be.
In July US small business confidence was still way below the 42 year average (the August figures will be out next week). Small business confidence tends to predict GDP figures (more than 50% of the US economy relies on smaller companies) and it does correlate well with orders.
“Domestically, the economy feels so flat – because it was, and still is. Exports have been strong in the recession, explaining a lot of things such as the performance of the large firms with profits at a record high share of GDP,” said William Dunkelberg, chief economist of the NFIB, which represents small businesses. “Exports and foreign operations contributed to record high profits for the Large Firm division of USA, Inc. which has been hoarding cash and repurchasing shares, not investing in the real economy.”
The number of business jet flights in both the US and Europe was down in August compared to the year before.
But despite all of this, we should not be downhearted. OEMs have been cautious and are not overproducing. Flat growth has become normal. If – and no one knows – we are about to see another global economic downturn, the swing for the business jet market will not be the same as in 2008.
And there is one market where you can be truly excited and bullish. But more on that next week.
