Dear Readers,
Its Thinking Time! This week we cover the union strike at Boeing, the need for American consumers to fall back on the most expensive kind of borrowing, and some big news for Intel.
TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.
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Boeing Union Goes on Strike, Halting 737 Production (WSJ) Boeing’s largest labor union is on strike—94% of the 33,000-member International Association of Machinists and Aerospace Workers chapter voted to reject the contract agreeing to 25% wage increase, and 96% agreed to go on strike.
The rejected deal, reached by union leaders and Boeing’s executives, also offered bolstered retirement benefits, lowered healthcare costs, and agreed to a union demand to build planes in the unionized Pacific Northwest, but fell short of the union demand for a 40% wage increase. Although union leaders recommended accepting the deal, members voted to strike in a bid to return to the table for negotiations. Striking members include thousands of mechanists who build Boeing’s 737, 777 and 767 jets.
The strike deals a heavy financial blow to Boeing as it bleeds cash and piles up debt following January’s Air Alaska incident, in which the door plug flew off its jetliner midair. With the company now preserving as much cash as possible, and halting production of its bestselling jets, an extended shortage can further exacerbate the industry supply chain and jet shortages for airlines.
The company is also freezing hiring and delaying pay increases for its salaried employees in the face of the strike, and in a memo to the staff said it is considering temporary furloughs for employees and executives. The strike could cost Boeing as much as $500 million per week according to analysts. The company was already burning about $1 billion per month for its operations prior to the strike. Credit-rating firms have warned they might downgrade Boeing.
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Consumers Have a Debt Problem: Not Enough of the Right Kind (WSJ) American consumers have increasingly been turning to the most expensive forms of borrowing: credit cards. The Fed’s first rate cut since 2020 is set to be announced today, and the next several meetings will impact the health of the American spender. Cutting rates could provide consumers with other avenues of borrowing, especially in the face of rising delinquency rates—around 9.1% of credit-card balances turned delinquent over the past year, the highest rate in over a decade, according to an August report from the Federal Reserve Bank of New York. The truth is that Fed cuts don’t filter through to credit card rates nearly enough to truly help the consumer.
A big reason people use credit cards to borrow is the lack of accessibility of other kinds of debt. Personal loans have often been relied on by consumers to refinance credit card debt, but unlike deposit-funded banks, many personal-loan lenders are fintech firms that get their funding from the market. Increasing interest rates led to the slowing growth in personal loans, something online lenders hope will change once rates go down.
Consumers can also raise cash from home equity and get a home equity line of credit (HELOC) but the pool of who can actually get one is extremely limited. Since 2010, post the global financial crisis, organizations overwhelmingly favor borrowers with very high credit scores, alienating borrowers in trouble or those that don’t have sterling credit to begin with.
Refinancing a mortgage is another way to access funds through borrowing, but rising interest rates have made it unfeasible to swap out mortgages at lower rates and refinance at newer levels. Consumers hope the Fed’s first rate cut announcement provides a much needed respite to their credit card rates, but we know that this first move by itself won’t be enough. This dynamic is part of the reason we believe that the Fed is set to slash rates by 2-3% over the next year. A few quarter point cuts won’t move the needle for this uptick in consumer delinquencies, but a drastic reduction might.
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Intel to Make Custom AI Chip for Amazon, Delay German Plant (BBG) Intel has landed Amazon Web Services (AWS) as a client for its manufacturing business, potentially bringing work to new plants under construction in the US. The two companies will also coinvest in a custom semiconductor for artificial intelligence computing, also known as a fabric chip, in a multiyear multibillion-dollar framework.
Intel also announced it is postponing factories in Germany and Poland, but is committed to expanding in the US in Arizona, New Mexico, Oregon, and Ohio. The projects in Germany and Poland are expected to be on pause for about two years depending on market demand. A project in Malaysia will be completed but only put in operation when conditions support it. Last month Intel announced plans to slash 15,000 workers and find $10 billion in cost savings, along with suspending Intel’s dividend in the face of decreasing sales and increasing losses.
The CEO’s turnaround plan for Intel hinges on transforming the company into a foundry—a chipmaker that manufactures chips for outside customers—and Amazon as a client is a big move in the right direction. Intel’s foundry operations, also referred to as IFS, will be separated from the company and function as a wholly owned subsidiary.
Intel also announced that it will be eligible to receive $3 billion in funding from the US government to manufacture chips for the military as part of an effort called Secure Enclave. The Secure Enclave award is separate from a possible $8.5 billion Chips and Science Act grant that Intel is set to receive to support factories across four US states, including the facility in Ohio, which Intel says has the potential to the world’s largest chipmaking operation.
Until next time,
TBL Thinks
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
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