Underground Infrastructure - April 2023 - 10

UTILITY&COMMUNICATIONS
Construction Update
Daniel Shumate | Managing Director, FMI Capital Advisors Inc.
What a diff erence a week can make. At
the beginning of March, testimony by
Jerome Powell regarding interest rate
policy suggested that fi ghting infl ation
remained the number-one priority of
the Federal Reserve.
Following an old-fashioned run on
Silicon Valley Bank and an awakening
to the interest rate risk sitt ing on regional
bank balance sheets, meaningful
stimulus has once again entered the
market. In one weekend, the Federal
Reserve grew its balance sheet by nearly
$300 billion. To cap the week, UBS
acquired Credit Suisse in a forced transaction,
at a steep discount, to limit the
risk of a global banking crisis.
All these national banking crises lead
to a simple question. So, what does this
mean for me?
FIGURE 1: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of March 21, 2023
First, if you are a company with substantial
cash deposits held at an institution,
where most of the deposits are
not FDIC insured, then it is worthwhile
to ensure the health of the bank you're
working with is strong. Most underground
contractors keep high cash balances,
due to the bonding requirements
of municipal work, that leave them
more exposed than other industries to
a bank that could fail.
Second, the ability of the Federal
Reserve to fi ght infl ation aggressively is
limited by the regulatory mandate for fi -
nancial stability. Th us, we could see the
cost of goods continue to rise and interest
rates either temper or decline, due to
the banking challenges that are ongoing.
Th e Federal Reserve has already slowed
the pace of interest rate hikes and the
likelihood of increases declines, as the
banking system becomes more volatile.
Lastly, the cost of fi nancing equipFIGURE
2: 3-Year UCC Index. Source: FMI Research, S&P Capital IQ; as of March 21, 2023
10 APRIL 2023 | UndergroundInfrastructure.com
ment and other elements of the business
are likely to remain at similar levels
throughout the year. While rates may

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Underground Infrastructure - April 2023

Table of Contents for the Digital Edition of Underground Infrastructure - April 2023

Underground Infrastructure - April 2023 - Tip1
Underground Infrastructure - April 2023 - Tip2
Underground Infrastructure - April 2023 - 1
Underground Infrastructure - April 2023 - 2
Underground Infrastructure - April 2023 - 3
Underground Infrastructure - April 2023 - 4
Underground Infrastructure - April 2023 - 5
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