The Nation's Financial Condition

[Farfromgeneva]

Notes in the Holmes case she wrote but claims was forced too by the creepy boyfriend

https://files.cand.uscourts.gov/files/1 ... 58ebbc3361

When I saw her on 60 minutes, I hugged my wife even tighter.

You know about her new boyfriend? Heir to a hotel fortune (1 generations back) and like 10-15yrs younger than she is. Got herself pregnant from hooking up with him at Burning Man or Coachella and covered herself nicely. Who do you think is paying her attorneys now. Straight con artist.

Well, not everyone can be honest and self-reliant like say Martha Stewart. Got caught, did her time, and still kicking a$$.

“I do what I please and I do it with ease.” —MS

All humans are political beings and play the hand they’re dealt. Don’t like women manipulating paternalism, then get rid of it.

How do I do that?

[Farfromgeneva]

Notes in the Holmes case she wrote but claims was forced too by the creepy boyfriend

https://files.cand.uscourts.gov/files/1 ... 58ebbc3361

When I saw her on 60 minutes, I hugged my wife even tighter.

You know about her new boyfriend? Heir to a hotel fortune (1 generations back) and like 10-15yrs younger than she is. Got herself pregnant from hooking up with him at Burning Man or Coachella and covered herself nicely. Who do you think is paying her attorneys now. Straight con artist.

Nope....now nothing about boyfriend. Agreed on the con artist....likely NPD to the max.

https://www.cosmopolitan.com/entertainm ... -theranos/

[seacoaster]

https://www.washingtonpost.com/opinions ... ven-wrong/

"Corporate greed. The cancellation of an oil pipeline that didn’t yet exist. A secret plot to cancel Halloween.

Every time I think the inflation discourse can’t get dumber, I’m proven wrong.

To be fair: The forces behind inflation, like many economic problems, are complicated. Economists can’t fully explain what determines current pricing behavior and inflation expectations in the real world, much less precisely predict where prices will land in a few months. New waves in the pandemic aren’t helping, either.

Most inflation predictions that top forecasters made in the spring turned out to be much too low. Elite academic economists, when surveyed about the risks of prolonged inflation, candidly acknowledge a lot of uncertainty.

All of which means there’s a lot of room for reasonable error on this issue, even among experts. But lately partisan factions have concocted new, unreasonable sources of error, too. Some of this rhetoric has been impressively creative; it’s basically like inflation fan fiction.

The left, for instance, has been demagoguing about how “corporate greed” is responsible for high inflation — implying that corporations have only just remembered they’re supposed to be greedy after having been very altruistic for several decades, and especially last year. (Inflation was super-low by historical standards in early 2020.)

The right, meanwhile, has been spinning its own increasingly ludicrous tall tales about inflation. That’s because Republicans see high inflation as valuable political fodder heading into the midterms.

“This is a gold mine for us,” as Sen. Rick Scott (R-Fla.) recently put it.

As Scott presumably knows, presidents have extremely limited power to affect prices, especially prices set by global markets (as is the case for, say, oil). But voters don’t really understand this, and many are eager to blame the president whenever they’re unhappy about the rising costs for gas or groceries. The GOP has decided it should take advantage. Strategists are working overtime to exploit voters’ economic ignorance by proposing ways that Democrats might have swelled prices.

Republicans and right-wing media have argued, for instance, that President Biden has driven up energy prices as part of his supposed war on fossil fuels.

Specifically, they blame him for shutting down the Keystone XL pipeline. They don’t mention, however, that this pipeline was only 8 percent built when Biden revoked a U.S.-side permit for its construction. So Biden did not actually shut down any existing supply. (It’s also not clear that the canceled XL pipeline would have much effect on U.S. gas prices, even if it were eventually built someday, given that most oil passing through it likely would be exported.)

Or, Republicans say the real way Biden raised gas prices was by ending drilling for oil and gas on public lands.

This didn’t actually happen, even if Biden’s campaign pledges and executive actions suggested it would. The Associated Press reported in July that the Biden administration was on track to approve more oil and gas drilling permits this year than were approved any year of the Trump administration — actually, more than any year since 2008.

And last month, just a few days after the global climate conference known as COP26, the Biden administration conducted the largest offshore oil and gas lease sale in U.S. history.

Other GOP talking points about “Bidenflation” have gotten increasingly wacky. Recently Lara Trump told Fox News viewers that inflation is part of a Democratic plot to force families to give up beloved American traditions and holidays, including Thanksgiving and Halloween. (The “War on Christmas” now has spinoff conflicts, apparently.)

There is a more plausible argument Republicans could be making to attack Biden on inflation.

The main reason price growth is up has to do with constrained supply not keeping up with booming demand. That is, the pandemic has resulted in worker shortages, supply-chain disruptions and other bottlenecks in the United States and abroad. These problems are happening at the exact same time that cooped-up consumers are eager to buy even more stuff than they did pre-pandemic.

Arguably, recent U.S. fiscal policy may have exacerbated this dynamic: Biden and the Democrats enacted stimulus payments and other government transfers earlier this year, which gave consumers more cash to spend. Now consumers are spending that cash. That could be one reason inflation is higher here than it is in, say, the euro zone — though inflation has reached record highs there, too.

Aside from some vague rhetoric about Democrats’ “big spending” habits, though, those checks are not really what Republican politicians are criticizing Biden for. Perhaps with good reason: The spring stimulus checks were extremely popular, including among Republican voters. Plus, this line of attack might also implicate former president Donald Trump and Republican lawmakers, since they too passed multiple rounds of stimulus payments last year.

So they’re peddling “war on Halloween” hokum instead."

[Farfromgeneva]

First Friday of the month labor data

https://www.bls.gov/news.release/empsit.nr0.htm

[seacoaster]

First Friday of the month labor data

https://www.bls.gov/news.release/empsit.nr0.htm

These seem pretty positive to me, but I am not a finance guy qualified to say. Care to opine?

[Farfromgeneva]

First Friday of the month labor data

https://www.bls.gov/news.release/empsit.nr0.htm

These seem pretty positive to me, but I am not a finance guy qualified to say. Care to opine?

Things are going fairly well. Labor is tight. I’m concerned about weakness in credit spreads on new issue asset related debt, a potential implosion of BNPL and the latency affect of support from Covid having just rolled off in Aug-Oct not yet rolling through the system. Bigger concern is panicky politicians trying to do more vs letting the system do what it does in self correcting mechanisms. This is where not having immediacy but looking short-interim 6-24mo out is my preference. Not ten years out and not today. But not how folks with the keys like to behave and that’s what worries me. The round of stimulus the Biden admin layered on top last winter/spring clearly was a mistake that even they’ll privately acknowledge and hampering their plans now and they didn’t see it coming which is what’s disappointing knowing they had these grand plans behind it.

I think we’re ok but Dec may look rocky in various markets. Jan will look frothy but come end of Jan - March will tell us a lot.

[Farfromgeneva]

First Friday of the month labor data

https://www.bls.gov/news.release/empsit.nr0.htm

These seem pretty positive to me, but I am not a finance guy qualified to say. Care to opine?

This is the area of potential weakness and consequence

The number of long-term unemployed (those jobless for 27 weeks or more), at 2.2 million,
changed little in November but is 1.1 million higher than in February 2020. The long-term
unemployed accounted for 32.1 percent of the total unemployed in November. (See table A-12.)

The labor force participation rate edged up to 61.8 percent in November. The participation
rate is 1.5 percentage points lower than in February 2020. The employment-population ratio
increased by 0.4 percentage point to 59.2 percent in November. This measure is up from its
low of 51.3 percent in April 2020 but remains below the figure of 61.1 percent in February
2020. (See table A-1.)

The number of persons employed part time for economic reasons, at 4.3 million, changed
little in November. These individuals, who would have preferred full-time employment,
were working part time because their hours had been reduced or they were unable to find
full-time jobs. This figure was about the same as in February 2020. (See table A-8.)

The number of persons not in the labor force who currently want a job was 5.9 million in
November, little changed over the month but up by 849,000 since February 2020. These
individuals were not counted as unemployed because they were not actively looking for
work during the 4 weeks preceding the survey or were unavailable to take a job. (See
table A-1.)

Among those not in the labor force who wanted a job, the number of persons marginally
attached to the labor force was little changed at 1.6 million in November. These individuals
wanted and were available for work and had looked for a job sometime in the prior 12
months but had not looked for work in the 4 weeks preceding the survey. The number of
discouraged workers, a subset of the marginally attached who believed that no jobs were
available for them, was essentially unchanged over the month at 450,000. (See Summary
table A.)

[Farfromgeneva]

Is private equity overrated?
By Michelle Celarier
Since 2017, investors have poured more than $1 trillion into global private equity buyout funds. That amount dwarfs the cash directed to venture capital, real estate funds, private debt, hedge funds and just about any other form of alternative investment, according to McKinsey.

It’s not hard to see why: Investors have been told over and over again that these private equity funds produce the best returns, far outperforming the stock market (and just about everything else). As a result, private equity has become the hottest home for institutional money, whether that of pension funds, endowments or sovereign wealth funds. Lately, retail investors have also bet big on the strategy.

But private equity’s returns increasingly may not provide the stellar performance that investors have been sold — and the returns can be misleadingly calculated in a way that overstates success.

As of September 2020, private equity funds had produced a 14.2 percent median annualized return, net of fees, over the previous 10 years, compared with 13.7 percent for the S&P 500, according to an analysis of indexes by the American Investment Council, a lobbying group for the industry, using the latest numbers offered. Public pension funds invested in private equity actually had worse returns than from the S&P 500 — 12.8 percent, net of fees. (These returns, and others quoted in this article, do not include venture capital, which is typically viewed as a separate asset class.)

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Private equity firms have long engaged in contentious practices, including loading companies with debt and laying off workers. And calls for more transparency have arisen in Congress and the Securities and Exchange Commission. In October, Senator Elizabeth Warren, the Massachusetts Democrat who is one of Capitol Hill’s most vocal critics of private equity, reintroduced legislation that would, among other things, require more disclosure of returns and fees by private equity funds. The S.E.C. chair, Gary Gensler, has said the agency is taking a look at the same issues.

Regardless, private equity is sitting on a mountain of cash. At the end of the first quarter this year, U.S. private equity funds had $841 billion in so-called dry powder, or money that was still to be invested, according to PitchBook.

The deluge of dollars, which has continued apace in 2021, might be enough to make returns harder to come by. “Private equity is still outperforming public equity, but this outperformance is narrowing as all markets benefit from nonstop monetary and fiscal stimulus, and as private acquisition multiples rise,” Michael Cembalest, the chairman of market and investment strategy at J.P. Morgan Asset Management, wrote in a report this summer.

Since 2009, Mr. Cembalest said in an interview, the median annual outperformance of private equity buyout funds has been “bouncing around on a median and average basis from 1 to 5 percent.” That’s down from around 15 percent in outperformance 20 years ago, according to his report, which also shows that private equity returns peaked in the early 1990s.

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“Since the financial crisis the industry has had a tougher time outperforming public equity benchmarks,” Mr. Cembalest noted. He also asked if today’s returns were high enough “given the illiquidity of private equity.”

Ludovic Phalippou, a professor of finance at Oxford’s Said Business School, came to a harsher conclusion in a 2020 research paper that looked at North American private equity performance for funds launched between 2006 and 2015. It found that investors could have done just about as well with a stock index fund during that period, while the fees paid to private equity firms came to at least $230 billion, enabling the number of private equity multibillionaires to jump to 22 in 2020 from three in 2005.

“The big picture is that they’re getting a lot of money for what they’re doing, and they’re not delivering what they have promised or what they pretend they’re delivering,” Mr. Phalippou said in an interview.

The topic is so fraught that some people don’t want to discuss it. The American Investment Council declined an on-the-record interview, as did the Institutional Limited Partners Association, which represents institutional investors in private equity. The California Public Employees’ Retirement System, which recently announced it was adding about $25 billion to its $40 billion private equity portfolio, also declined to comment.

[Farfromgeneva]

Interesting bit from the Fed

https://www.federalreserve.gov/econres/ ... 211203.htm

Why Did Credit Card Balances Decline so Much during the COVID-19 Pandemic

December 03, 2021

Robert M. Adams, Vitaly M. Bord, and Bradley Katcher

1. Introduction

Consumer credit card balances in the United States experienced unprecedented declines during the COVID-19 pandemic. According to the G.19 Consumer Credit statistical release, revolving consumer credit fell more than $120 billion (11 percent) in 2020, the largest decline in both nominal and percentage terms in the history of the series. Revolving consumer credit fell an additional $28 billion (almost 3 percent) between December 2020 and April 2021, before beginning to recover.

In this Note, we examine the major drivers of this decline in balances using account-level data. Following up on our previous Note, "The Effects of the COVID-19 Shutdown on Consumer Credit Markets: Revolvers versus Transactors," we show that most of the initial decline in credit card balances in mid-2020 was primarily due to a decrease in purchase volume. Subsequently, as spending on credit cards rebounded, three additional factors came into play: higher paydowns of revolving balances; increases in the share of purchases that are paid down prior to statement close (and are not reflected in balances); and changes in the issuance and usage of new cards.

We find that both paydowns and prepayments rose sharply to historically high levels by April 2021, and we also present evidence consistent with stimulus programs driving some of the higher paydowns. These higher paydowns dampened growth in credit card balances through April, before subsiding somewhat as the stimulus payments waned. In addition, changes in both the number and usage of new cards originated since the start of the pandemic contributed to decline in balances, explaining approximately 20 percent of the decline in 2020 and 13 percent of the decline in the first four months of 2021.

Throughout this note, we use account-level credit card data from the Capital Assessments and Stress Testing Report (FR Y-14M). The Y-14M data provide information on all credit card accounts for the largest banking organizations (that is, those involved with stress testing). For more information on our dataset, please see Adams and Bord (2020).

2. Credit Card Purchases

We begin our analysis by examining the components of credit card balances during the COVID-19 pandemic.

Figure 1 shows the total credit card balances, separated into its 3 main components: revolving balances—defined as the previous statement balance minus payments; net purchase volume, defined as purchase volume minus any early payments that pay down these purchases prior to statement close, and other charges such as balance transfers. After falling from a high of about $625 billion in January 2020 to less than $550 billion in December 2020, total balances dropped further to about $500 billion by April 2021 before recovering to $520 billion by July 2021.

Figure 1. Total Credit Card Balances

Figure 1. Total Credit Card Balances. See accessible link for data.
Note: Revolving balance is the previous statement balance minus any payments. Net purchase volume is new consumer purchases using credit cards less any prepayment of these purchases. Other charges are finance charges, fees, and other charges posted to the account. Key identifies bars in order from top to bottom.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
As discussed in Adams and Bord (2020), the initial stage of the decline in balances was mainly driven by the decline in credit card purchases. Net purchase volume fell from $151 billion in January 2020 to a low of less than 100 billion in April before rebounding slowly.1 By January 2021, net purchase volume stood at $135 billion, approximately 10 percent below January 2020 levels. This slow rebound in purchase volume ended in April 2021, as credit card spending took off amid widespread vaccinations and the general opening of the economy.2 Net purchase volume rose from $140 billion in March 2021 to $170 billion by July.3

Although the drop in credit card purchases explains the decrease in balances in the first months of the pandemic, balances continued to decline through most of 2020, even as purchase volume slowly recovered. This decline in balances occurred as revolving balances—that is, balances that borrowers carry on their accounts for a prolonged period which may accrue interest charges—fell from about $460 billion in January 2020 to $348 billion by April 2021, before inching up to $352 billion by July. We next examine how changes in consumer payment behavior drove this decline in revolving balances.

3. Changes in Consumer Payments

We identify two channels through which payments reduced balances: paydowns of existing revolving balances and pre-payment of purchases before a statement closes so they are never reflected in statement cycle-end balances.

3.1 Paydowns
The first channel focuses on declines caused by consumers paying off their revolving balances. As Figure 2 shows, payments in excess of the minimum due as a fraction of the previous statement balance (in blue) reached historical highs of around 15 percent in early 2021, up from around 12 prior to the pandemic.4

Figure 2. Paydowns and Prepayments

Figure 2. Paydowns and Prepayments. See accessible link for data.
Note: Paydowns are payments in excel of minimum due as a percentage of previous statement balance for borrowers with a revolving balance in the previous month. Prepayments are percent of purchase volume paid down before statement close.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
We next examine the role of the stimulus payments in these higher paydowns. Figure 3 decomposes payments into those made by accounts eligible for the stimulus checks in 2020 and 2021 (in blue) and those ineligible (in orange).5 After undergoing only small changes in payments early in the pandemic, borrowers eligible for the stimulus increased their paydowns substantially at the start of 2021, likely supported by the second and third rounds of stimulus.6 Indeed, the large surges in paydowns among borrowers eligible for the stimulus occur in January and March, at about the same time as the second and third stimulus.7 Consistent with this, paydowns by borrowers eligible for the stimulus dropped sharply in May 2021, before recovering somewhat over the following months.8

Figure 3. Paydowns by Stimulus Eligibility

Figure 3. Paydowns by Stimulus Eligibility. See accessible link for data.
Note: Paydowns are payments in excel of minimum due as a percentage of previous statement balance for borrowers with a revolving balance in the previous month. Eligible for full stimulus are borrowers with reported individual (household) income of less than $75,000 ($150,000). Ineligible are borrowers with individual (household) income of more than $100,000 ($200,000).
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
That said, borrowers ineligible for stimulus checks also paid down balances at similarly high or even higher rates during this time. Credit card users ineligible for the stimulus may be using other sources of income and wealth to pay down credit card balances. Higher-income consumers are more likely to own stocks or a house and since both the stock market and housing markets experienced significant gains during the pandemic, these higher payments by stimulus-ineligible borrowers in the winter and spring of 2021 may reflect a wealth effect arising from increases in the values of these assets. In addition, higher-income households experienced a larger rise in excess savings, stemming in part from a cumulative decline in consumption (Batty, Deeken and Volz, 2021). This increase in excess savings also may have led to higher debt paydowns. Finally, besides stimulus payments and the potential wealth effects, consumers also could have changed their consumption, saving, and credit card payment behavior during the pandemic.9

3.2 Prepayment

The second channel through which balances decline focuses on the higher prevalence of prepayments. A prepayment occurs when a borrower makes a payment towards purchases prior to the statement closing. For example, sometimes borrowers pay for large credit card purchases before they receive their statements.10 Another example occurs when transacting users pay more than the statement balance, effectively paying down new purchases between statement closing date and the payment due date.11 As the share of transactors—that is, accounts that do not revolve a balance—increases, the share of accounts making early payments also tends to rise.

Since April 2020, the share of accounts with revolving balances fell sharply, first due to the declines in spending during the early parts of the pandemic and then due to the substantially higher payments discussed earlier. Indeed, as Figure 4 shows, the share of accounts that revolve a balance, in orange, declined from around 40 percent in early 2020 to a historical low of 33 percent by April 2021, before beginning to recover somewhat in the following months. Similarly, the share of accounts that make early payments, in blue, increased from 19 to almost 26 percent by April 2021, then declined to 24 percent by July.12

Figure 4. Prepayments and Prevalence of Revolvers

Figure 4. Prepayments and Prevalence of Revolvers. See accessible link for data.
Note: Prepayments are payments made before statement close.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
Importantly, increases in the share of prepayments essentially mean that a higher share of credit card spending is not reflected in credit card balances. Therefore, increases in the share of purchase volume that is prepaid cause credit card balance growth to be understated.

In all, the increase in prepayments has had a significant impact on the growth of credit card balances. As Figure 2 shows, the share of purchase volume that is prepaid increased from around 17 percent prior to the pandemic to around 20 percent by the second half of 2020 and 22 percent by April of 2021. If these increases had not taken place, revolving credit growth would have been much higher. For example, if the share of purchase volume prepaid had remained at 17 percent, credit card balance growth would have been higher by more than 1 percentage point in February 2021 and by almost 2 percentage points in April 2021.13

4. Usage of New Cards

Another driver of the decline in balances is the difference in trends between credit cards originated prior to and during the pandemic. New credit card originations plummeted in the second quarter of 2020, before beginning a slow rebound in the second half of 2020 (Figure 5). This rebound strengthened in the 2nd quarter of 2021, with issuance at or above pre-pandemic levels in all credit score categories by June.

Figure 5. New Credit Cards by Credit Score

Figure 5. New Credit Cards by Credit Score. See accessible link for data.
Note: Data for the last month are partially estimated.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
In addition to the extensive margin of originations, the intensive margin of how borrowers use new cards also remains depressed.14 Average balance transfer volume and average purchases on new cards remain lower than prior to the pandemic.15 Indeed, as Figure 6 shows, the decline in average balances among new cards, those originated within the past 12 months (blue line), is larger than among existing cards (orange line) since the start of the pandemic. The average balance on a new card declined from $1400 in December 2019 to $950 in April 2021, whereas the average balance on an existing card declined from $1900 in December 2019 to $1600 during the same periods. That is, even as the number of new originations continued to rebound in 2021, the average balances on new cards continued to decline. From May through July of 2021, as average balances began to recover, they grew more for new accounts (5.8 percent) than existing accounts (3.7 percent) but the cumulative net decline since the start of the pandemic remains larger for new accounts.

Figure 6. Average Balances on New and Existing Cards

Figure 6. Average Balances on New and Existing Cards. See accessible link for data.
Note: New accounts originated within the previous 12 months.
Source: Federal Reserve Board, Form FR Y-14M, Capital Assessments and Stress Testing.
Accessible version
To estimate the contribution of this larger decline among new accounts, we perform a simple counterfactual estimating what aggregate balances on new accounts would have been if balances on new and on existing accounts had declined at the same rate. We then calculate how much of the total decline in balances can be attributed to the stronger decrease on new accounts. Total credit card balances in our sample declined 13 percent from December 2019 to December 2020 and a further 7 percent in the first four months of 2021. The steeper decline in balances on new cards—due to both differences in originations and usage—can explain approximately 21 percent of the decline in 2020 and 13 percent of the decline through April 2021.

References

Adams, Robert M., and Vitaly M. Bord (2020). "The Effects of the COVID-19 Shutdown on the Consumer Credit Card Market: Revolvers versus Transactors," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, October 21, 2020, https://doi.org/10.17016/2380-7172.2792.

Batty, Michael, Ella Deeken, and Alice Henriques Volz (2021). "Wealth Inequality and COVID-19: Evidence from the Distributional Financial Accounts," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, August 30, 2021, https://doi.org/10.17016/2380-7172.2980.

Frankel, Robin Saks (2021). "How Covid Has Changed Americans' Credit Behavior." Forbes. https://www.forbes.com/advisor/credit-c ... -behavior/

1. The trends in net purchase volume—that is purchase volume net of prepayments—generally mirrored the trends in gross purchase volume in 2020. Return to text

2. This rise in purchase volume coincided with rise in inflation as well as reported supply chain shortages. Return to text

3. Gross purchase volume has rebounded even more strongly than net purchase volume because of the increase in prepayments, as we discuss below. Return to text

4. Paydowns are defined only for accounts with a revolving balance. Accounts that do not revolve pay down the full balance each month. Return to text

5. Income is either reported at origination or requested by the lender at a later date. In either case, income is self-reported. Return to text

6. Coinciding with stimulus payments, starting in April 2020, the Federal Pandemic Unemployment Compensation (PUC) provided increased unemployment benefits for those who lost their jobs, providing up to $600 per week in additional support. Return to text

7. Approximately half of respondents to the Census Bureau's Household Pulse Survey indicated they would mostly use the stimulus to pay down debt. In addition, in unreported results, we show that states in which a higher share of respondents indicated they would use the second stimulus to pay off debt experienced a stronger decline in credit card balances. Return to text

8. It is possible that high paydowns in July is driven by the Child Tax Credit Expansion payments, implemented as part of the American Rescue Plan (ARP) passed by Congress in March 2021. The ARP increased the number of households eligible for child tax credits and increased the amount of each credit. As with the stimulus payments, the credit is phased out for single heads of household making more than $112,500 and joint filers making more than $150,000. Return to text

9. Popular press noted some anecdotes of changing consumer behavior amid a focus on debt repayment during the downturn. See, for example, Frankel (2021), "How Covid Has Changed Americans' Credit Behavior." Return to text

10. Borrowers may purposefully pay off large purchases prior to statement close because large statement balances can negatively affect credit scores. Return to text

11. Often, credit card users pay off their current balance, which is higher than their statement balance. In all, approximately a quarter of accounts who pay at least their statement balance pay more than their statement balance. Accounts with a revolving balance cannot make early payments; any payment is first applied to their revolving balance. Return to text

12. As with increases in payments, it is possible that pandemic-induced changes in consumer behavior also contribute to higher prepayments. For example, prepayment on large purchases may have become more prevalent during the downturn as consumers became more wary of negatively affecting their credit scores. Return to text

13. We calculate this counterfactual growth rates based on counterfactual balances assuming that the prepayment rate had stayed at 17 percent from March 2020 on but allow other changes to balances to go through. On average, purchase volume is approximately 30 percent of balances between June 2020 and February 2021, jumping to 35 and then almost 40 percent as purchase volume recovered beginning in March 2021. Return to text

14. We define new cards as those originated in the prior 12 months. Return to text

15. This likely reflects both supply and demand factors. Average balance transfer volume remains low because lenders cut the number of balance transfer offers during the pandemic. Therefore, the composition of borrowers applying for new cards, even conditional on observables such as credit score, may be different than pre-pandemic. Return to text

[youthathletics]

Biden bank regulator pick Saule Omarova withdraws after Senate fight over her background: https://www.cnbc.com/2021/12/07/biden-b ... round.html

[PizzaSnake]

Biden bank regulator pick Saule Omarova withdraws after Senate fight over her background: https://www.cnbc.com/2021/12/07/biden-b ... round.html

Excellent, excellent.

[Farfromgeneva]

I have major problems with her but every time I suggest I’d be fine without FDIC deposit insurance everyone on both sides complains. But that will force banks to differentiate on quality and be arbiters of credit Vs. the commodity it is today. That forces the cost of debt down for everyone which is not the panacea folks seem to think it is. Leads to greater inequality and creates zombie companies. It’s a subscription service that uses docsend (a néw tech that can send PDF/PPTs but there is zero way to download it, I’ve tried every manner imaginable from print to pdf to saving images, it’s totally secure except literally taking photos of the screens) so I can’t share it but saw a chart regarding companies with EBIT < debt service has absolutely skyrocketed the last two years. It’s a huuuuge problem.

[Matnum PI]

Kellogg is among several U.S. firms, including Deere & Co (DE.N), that has faced worker strikes in recent months as the labor market tightens.

[CU88]

Last night, the House passed a $768 billion defense budget.

That's a full $30B more than Trump’s last defense budget.

It’s also $24B more than what Biden requested.

And to top it off, we just ended the longest war in US history.

https://www.defensenews.com/congress/20 ... e-up-next/

Freaking entitlements...

[youthathletics]

Last night, the House passed a $768 billion defense budget.

That's a full $30B more than Trump’s last defense budget.

It’s also $24B more than what Biden requested.

And to top it off, we just ended the longest war in US history.

https://www.defensenews.com/congress/20 ... e-up-next/

Freaking entitlements...

Can you clarify your final comment? To me, it makes perfect sense that the bill would be higher. National Defense has turned significantly in the direction of all things technology.....that takes a major investment in R&D, which also provides technology into our civilian world.

[Farfromgeneva]

So most folks have heard the term “FinTech” tossed around a billion times and as anyone thoughtful would guess it’s turned into what the .com mania late 90s was-just slap a website up and your a tech company. There’s a lot of elements from the “plumbing” to customer facing such as lending. My view having worked with a bunch including some larger names out there is that it’s classic underinvestment by the banking system combined with a “different” (non existent) regulatory regime that allows much of this capital to flow to it and “succeed” (is building a private enterprise valuation high on losses with limited future cash flow but destroying an existing business so there’s nothing there and then dumping your investment into retail investors as an exit a success?). But banks a F’ng up by anachronistic thinking, not building “moats” around their business, not providing great customer service or cross selling effectively and simply relying on a cost of capital advantage via deposit insurance. (Banks have a ridiculously low cost of capital even if the equity is 10-15% because their 90% debt at sub 1% so you’re in blended under 2% WACC these days). Anyway this being said there’s an interesting piece written about a FinTech that merged with a bank recently I’m sharing here that’s worth considering.

18 Nov, 2021

American Challenger sees no 'shortcuts' into banking without charter – chairman

Author Yizhu Wang
Theme Healthcare & PharmaceuticalsReal EstateBankingFintechInsurance
For American Challenger Development Corp., the first step to challenge banking is to become a bank.

Formed in January 2020, the Stamford, Conn.-based fintech company has agreed to merge with Patriot National Bancorp Inc., a community and commercial bank headquartered in the same city. The deal is expected to close in the first quarter of 2022 pending approval by regulators and Patriot's shareholders. Patriot's shares were up as much as 49% following the announcement Nov. 15, and have since retained the gains.

Unlike its neobank peers that rely on bank partnerships, American Challenger believes in the most fundamental economics of banking driven by net interest income, Chairman and President Felix Scherzer said in an interview Nov. 16. The business is rooted in creating return on equity through depository and lending operations, as opposed to charging consumers interchange or other fees, he said.

"We don't believe that there are shortcuts. We do not believe that the rent-a-bank model is a sustainable model long term. And this is why this team chose to go down the path of working with regulators of building a bank from scratch," Scherzer said.

Not a rent-a-bank scheme

Patriot, meanwhile, decided not to be a bank for rent. Although it had been exploring digital transformation "for quite some time," it did not rush into any fintech partnerships to be a sponsor bank, said Michael Carrazza, Patriot’s current chairman. Opportunities of successful fintech partnerships are limited in the industry, and many fintechs may not have a robust platform that can handle a nationwide rollout. The fintechs' potential failure poses risks to their bank partners, Carrazza said in an interview.

The appeal of American Challenger is its readiness to be operable, which also mitigates Patriot's execution risk compared to building digital banking in house, Carrazza said. "It is not a merger of consolidation, but a merger of growth and building," he said.

After the deal is closed, the combined entity will operate as two divisions under the bank holding company for American Challenger to initially focus on product rollouts, Carrazza said. While Patriot continues to use the branch network since it is proven profitable, American Challenger's technology will also be available to Patriot's customers, he said.

American Challenger, currently pre-revenue, will start with nationwide high-yield savings and mortgage products in its proprietary digital application as well as commercial banking business as a subsidiary of Patriot. It plans to originate deposits and loans organically through its own marketing efforts, and the recapitalization as part of the reverse merger agreement will fuel the expensive growth pattern, Scherzer said. It is raising at least $890 million in fresh equity capital to recapitalize Patriot.

Rebuilt from scratch

With the purely digital approach and better efficiency, American Challenger aims to reduce the operating costs significantly compared to traditional banks. In this way it will be able to improve the cost-to-income ratio without taking additional investment risks, Scherzer said.

"The reason we can compete with banks is because we rebuilt the bank from scratch. The reason we can compete with neobanks that have a rent-a-bank model is because we are actually built to be a bank," Scherzer said.

The board of the combined entity will be comprised of Scherzer and Carrazza, along with financial services veterans like former E*Trade CEO Karl Roessner, former Discover Financial Services CFO Mark Graf, former Sallie Mae CEO Raymond Quinlan and former Capital One Commercial President Dean Graham.

American Challenger obtained conditional approval from the Office of the Comptroller of the Currency for a de novo charter in December 2020. It has also filed an application with the Federal Deposit Insurance Corp. in November 2020 but has not completed the process.

[Farfromgeneva]

Negative 3 percent real earnings yield


Warning signs
U.S. stocks have been on a run, with the S&P 500 up nearly 4 percent so far this week, and more than 25 percent for the year. Fears about the Omicron variant of the coronavirus quickly faded, with stocks regaining all their lost ground. This makes some market watchers nervous.

In a note to clients, Bank of America equity strategists led by Savita Subramanian said that the S&P 500 now has a real earnings yield, the inflation-adjusted ratio of earnings per share to the stock price, approaching negative 3 percent, the lowest since 1947.

A low earnings yield means that corporate profits are not keeping up with stock prices. Since real yields factor in inflation as well as earnings, a negative yield means that a company, based on its stock price, is not earning enough to keep up with inflation. (Using last month’s inflation number, Tesla’s real earnings yield is negative 5.2 percent.)

Negative real earnings yields are rare and often precede a stock market slump. The last time the S&P 500 had a negative real earnings yield, the Bank of America analysts said, was in 2000, before the tech bubble burst. It also happened twice during the stagflation of the 1970s and ’80s. This year, the S&P 500’s real earnings yield turned negative in June, but it really sunk in the past few months as inflation has marched higher.

Besides a bear market, there are two ways a negative earnings yield can turn positive.

Inflation would have to drop significantly, which some economists think is possible.
Corporate profits, at a time when wages are rising and supply issues are interfering with plans, would have to accelerate faster than expected.

After the initial shock of the pandemic, stocks have shrugged off negative news and set records. (S&P 500 futures are down modestly this morning.) But the more that analysts consider the numbers, the more they worry that the gravity-defying rise may not last much longer. That said, “we live in a world where real negative rates are almost acceptable as a norm,” Subramanian noted.

[youthathletics]

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[Farfromgeneva]

Inflation data hot off the press

https://www.bls.gov/news.release/pdf/cpi.pdf

Ex food and energy +0.5 (Monthly)

All items 6.8% annul inflation.

[MDlaxfan76]

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How do you read this chart of dollar to euro for instance: https://www.xe.com/currencycharts/?from ... UR&view=2Y

https://www.bloomberg.com/opinion/artic ... -the-world