CW Industrial Partners

INVESTOR LOGIN

The Private Equity for Families Blog

Grease Is The Word

In a tribute to Olivia Newton John who died last week and who at age 29 acted as teenage Sandy to a 23 year old John Travolta in “Grease” I dedicate this timely reminder that grease is still the word.

Recent discussions with several of our portfolio companies suggest a new set of challenges for the manufacturing omelet. While unit demand shows signs of slowing down there are still supply chain disruptions and insufficient safety stock in inventory components. Component scarcity is still real issue along the whole length of manufacturing supply chains, especially small companies with broad bills of materials

When you consider the labor ingredients the omelet gets even messier. Almost all our companies are experiencing wage inflation as they try to protect key contributors. There is also an unending mismatch between skills needed and skills available as well as between wage expectations and wage affordability. While the latest jobs report showing 528,000 new jobs in July is wonderful news for employers, the mismatches remain sticky.

What is intended as the manufacturing equivalent of a  a western omelet is being served as something else because important ingredients like peppers, onions, tomatoes, ham and cheese are simply unavailable and the chef wants $20/hour, but only knows how to scramble eggs.

 A Well-Greased Machine

 This is not the narrative we are hearing. The jammed parts of the recovery are being greased over by the Wall Street narrative machine and the cacophonous voices of all the Fed governors talking at once and often in direct contradiction to each other.

There appears to be calm acceptance of a return to normalcy as reflected in the equity markets’ strong rally since the end of June. Here is a chart from Yahoo Finance showing the one month performance of the S&P500 through the first week of August:

Prominent financial experts  want you to believe a 25 basis point rise in March and two subsequent 75 basis point increases in fed funds rates since then are greasing a “soft landing”. Under circumstances not unlike the hand Chairman Powell is playing today, in 1980 it took Chairman Paul Volcker many interest rate increases and two recessions in three years to grease the skids for the subsequent 40 year taming of inflation as shown in the following chart:

My personal experience in almost every business interaction I have had in the last 12 months is employers cannot find enough qualified workers irrespective of price. It may be true manufacturers are looking for fewer people now, but the wage expectation gaps have not narrowed and skills don’t match needs.

Notwithstanding expert opinion, the investing public may be paying for western omelets but getting scrambled eggs –with a side of grease.

Get a Heads Up When Rob Posts

Recent PE4Fams Posts

Rowboat Investing

One of the challenges of having a rowboat is learning to navigate forward by constantly looking backward. This is unique. No other mode of transportation has your future course

Read this blog »

Musk Eschews Deal Math

Elon Musk shocked many private equity firms when he proposed acquiring Twitter in a going private transaction for $44 billion plus fees. Twitter had struggled after the recent departure

Read this blog »

Tightening Its Own Noose

Quantitative easing was pure honey. Buying low yield, new issue Treasury bonds, buying government mortgage-backed securities, and providing overnight liquidity with yield through a repo facility were the important

Read this blog »

Sneak a Tax

Wait until people start getting their 2022 real estate property assessments and their new real estate tax bills. After decades of small increases in property taxes, state and local

Read this blog »

Rob McCreary

Rob McCreary has more than 40 years of transactional experience as an attorney, investment banker and private equity fund manager, and has spent his career in building entrepreneurial organizations with successful track records. Founder and chairman of CW Industrial Partners (originally CapitalWorks, LLC), he is responsible for developing and maintaining senior relationships with investors and portfolio governance.

This blog represents the views of Rob McCreary and do not reflect those of CW Industrial Partners or its employees. This blog is not intended as investment advice. Any discussion of a specific security is for illustrative purposes only and should not be relied upon as indicative of such security’s current or future value. Readers should consult with their own financial advisors before making an investment decision.