Recently, Europe and the United States have continued to raise interest rates, and the local banking industry has continued to suffer. In order to enjoy the success smoothly, the editor also learned some common sense in the financial field, but when learning, I always have a sense of déjà vu. What happens in the financial field is also happening in different forms in the textile industry. This article explains some of the editor’s thoughts.
Expansion
The essence of finance is interest rate. In the past few decades, because the long-term interest rate of funds was generally higher than the short-term interest rate, the main theme of world finance was “borrow short and buy long”. It is also easier to understand. Anyone who has ever deposited money in a bank knows that 5-year deposits generally have higher interest than 3-year deposits. If If you can borrow a large amount of money for 3 years and then deposit it for 5 years, you can earn interest. Difference. With stable profits, some people used their brains and started a series of operations such as increasing leverage. As a result, profits increased and risks also expanded.
In the decades after the reform and opening up, the textile industry has followed a similar path. Demand has grown rapidly, and product sales profits have not been worried about. The competition is who can expand production capacity faster. In order to expand production capacity, companies often face With extremely high balance sheets, we have tried every means for funds. Looking back now, at that time, there were eight ways for companies to make money, including legal and illegal methods. They developed rapidly, but the hidden dangers were also huge. Some hidden dangers have been eliminated during development, while others have continued.
Crisis
Human nature is greedy. The higher the leverage, the greater the profit. However, capital also has a cost. When leverage is increased to a certain extent, profits will inevitably fail to cover the cost, and it will become a Ponzi scheme and trigger an economic crisis.
The real industry is also volatile. The speed of expansion is uncontrolled and will always exceed the growth rate of demand. If the leverage of a company is high, its ability to resist risks will also become weaker. There will always be some cyclical fluctuations in the market. Maybe the downstream payment is not timely, or the guarantee company has gone bankrupt. A large number of companies have low risk resistance, which can easily cause great market turbulence.
Clear
The financial crisis had an extremely serious impact and indirectly caused a world war. In the face of the disasters caused by the financial crisis, the financial systems of various countries have established certain regulatory systems. For example, the Basel Agreement has put forward certain requirements for banks’ reserve ratios. After the subprime mortgage crisis, the market has strengthened supervision of subprime debt.
The domestic modern textile industry has been developing for decades, and it has also experienced rounds of reshuffles. Some companies have taken the initiative to reduce risks, and some are due to market supervision. In short, the expansion of textile companies is not as crazy as in the past, but the financial situation I am also much healthier.
Repeatedly
Hegel——The only lesson that human beings can learn from history is that,human beings have always been Won’t learn from history.
Market supervision is very effective in the short term, but as long as people’s greed is still there, there are always ways to bypass supervision. No, the recent trouble has come again, caused by the Federal Reserve’s unlimited money printing and interest rate hikes. . We said at the beginning that modern finance is largely about “borrowing short and buying long”. However, once interest rates are raised, the basis for long-term returns to be higher than short-term returns no longer exists, resulting in a mismatch between long and short term, and long-term bonds produce Floating losses are what Silicon Valley Bank is experiencing.
As a real industry, the textile industry also faces the problem of long-term and short-term mismatch, but the mismatch is production capacity. 2018The hot sales of conventional fabrics in 2018 is the product of policies, but many fabric owners regard it as long-term demand growth and adopt long-term production capacity investment to deal with this phenomenon. Facts have proved that This short-term hot sales situation is unsustainable, especially after the epidemic and the development of the textile industry in Southeast Asia. The basis for rapid growth in domestic textile demand no longer exists, but the increased production capacity cannot be reduced in a short period of time, ultimately resulting in the current situation Mismatch between production capacity and demand.
Cash flow or profit, a difficult choice
The relationship between cash flow and profit is very complicated. Some companies may seem to be developing well, but they may collapse in an instant, especially at this time when “black swans” occur frequently. Long-term profits are good, but But sometimes it is not as life-saving as liquidity. During the visit to the market, the editor learned that the main problems encountered by textile companies nowadays are generally concentrated in several aspects such as inventory backlog and longer payment cycle, which are all issues that test cash flow. Therefore, now we have also seen that more and more textile companies are not so enthusiastic about buying raw materials. No matter how cheap they are, they will not buy more. The main reason is that the raw materials cannot be cashed in when the situation is really critical, and the cloth needs to be discounted to cash in.
No one knows how long this crisis will last or how long it will take for the global economy to recover. For companies in crisis, liquidity is sometimes everything. But without reasonable profits, it is difficult to maintain reasonable liquidity for a long time. This is what textile companies need to think about.
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