Jobs, Zelle, China, FTX, Real Estate, C#5
Economically, is there light at the end of the tunnel? Or is it more like cresting the first climb of a roller coaster and we should be hanging on?
Well, it depends on the industry you are involved in.
The jobs report this week was good – 263,000 jobs added in November.
Hospitality added the most which is good news for those folks.
Unemployment rate stayed at 3.7% - basically full employment.
Average hourly earnings grew 5.1% year over year - that’s pretty good and helps to keep up with a 7.6% increase in the cost of stuff – aka inflation.
The ADP Report
This report is exactly what it says: a report from payroll provider ADP on what they are seeing in the employment area.
They had payrolls rising by 127,000, far less than forecast: 190,000
Large and small businesses shed 119,000 jobs while medium sized businesses – 50 to 499 employees - added 246,000
And ADP showed annual pay up 7.6%.
This shows that there is a definite softness in the job market, although there are still 10.3 million job openings.
And what Wall Street liked the best was Federal Reserve Chairman Jerome Powell saying that the next rate hike would be 0.5%.
We new that, but it’s still nice to hear.
Ultimately, things have to get a lot worse for the Fed to stop the rate increases, but they said they would slow them. That’s better than keeping them up at 0.75%.
Residential Real Estate
How slow is the real estate market? It’s so slow that a top performing residential real estate broker sent an out of office response saying she was going to be taking a real vacation for the first time ever; no texts, no emails, no calls. That’s how slow it is.
Speaking of slow, residential real estate sales are down 40% for SB and Riverside counties. That’s what happens when payments jump 60% - fewer people qualify for a mortgage loan; a lot fewer.
The San Bernardino median price is $490,000, off the peak of $523,000.
Riverside county median is $545,000, off the $598,500 high.
Average payments went from $1,793/month to $2,871 in Riverside county and $1,537 to $2,582 in San Bernardino county.
That’s what happens when the average 30-year mortgage is 6.81%.
And that, dear Reader, is the difference between 2007 and now. In 2007, everyone qualified. Now, not so much and even fewer than at the beginning of the year. This time around, this will be a crisis of a normal real estate market where people who cannot afford a home are having their loan request denied, not a crash and burn when everyone realizes that no one can afford to pay their existing mortgage.
Bank Lending: ‘C’ #5: Conditions
This week we wrap up the Five C’s of Credit with ‘Conditions’. This basically addresses the underlying economy, regulatory climate, why you need the money and so on.
This is also why banks tighten up on their credit during a down economy: it presents a real risk to businesses.
What are the exterior and interior influences on the business?
In international credits, we usually address political risk – see the discussion on China below.
As part of the credit analysis, we attempt to forecast the impact of a recession, or high interest rates or regulatory issues to see how the borrower’s ability to repay the bank are impacted by one or a combination of these events.
If you are a bank lending in California, the regulatory risk is becoming a thing.
California could mandate a $22/hour wage for McDonalds, Burger King, Wendy’s and other national fast-food franchisees that are in the state.
California has outlawed single use plastic bags to put your vegetables in at the market or for your shopping convenience.
California has outlawed the ability of most businesses to use contract employees.
This was discussed in last week’s Report as items business owners should plan for if necessary and it also impacts how the bank looks at your business.
It may be that your ability to secure credit has must been impacted by regulatory risk and other risks outside your control.
What are the conditions surrounding the financial health of your business? Your lender will want to know, so be prepared to discuss it.
Can you Zelle it?
Yep, that’s a verb. It’s also the name of a VERY easy payment system IF your bank account is with a participating bank and you’re not running a lot of transactions through it.
Guess how many transactions were done with Zelle in 2021?
1,800,000,000. I was part of a few of those.
That translates into $490,000,000,000 transferred; that’s a lot of transferring. All of that would historically be done with cash or check, and maybe charge.
While scams are 0.1% of transactions, it’s still a concern. What’s different about a Zelle scam is that the perp didn’t take the money out of your account, you sent it to them. It’s kind of like someone falling for a scam that involves them going to the bank, taking cash out of their own account and mailing it to someone; you can’t get it back. When you Zelle someone $200, that money is gone, legitimate or not.
The Consumer Financial Protection Bureau is firmly nudging the operating entity that own’s Zelle, Early Warning Services, LLC, and its owner banks, BofA, Chase, Wells, PNC, Capital One, Truist and US Bank to work something out, so protection for some forms of scams are on the way; the banks just have to agree to what the conditions would be.
Of the roughly 4,300 banks in the US, 1,800 offer Zelle as a payment system.
China
If you are looking for an iPhone 14 Pro, it’ll be a while.
Foxconn, the factory that makes iPhones and particularly that model, is shut down due to… wait for it… covid (the irony is so delicious on so many levels).
Not that your company is Apple, nor are you Tim Cook, the CEO of Apple, but do you rely on materials or work done exclusively in China? Or any one other supplier/place? If so, you may want to make a back-up plan just in case your supply chain gets interrupted, for whatever reason.
FTX – Very Briefly
Volumes have been written already; we don’t need to glorify the pasty, pudgy person that was the CEO.
Where to start?
FTX was an online depository space for individual and corporate speculators of multiple cryptocurrencies, except without the capital requirements and audits that a bank goes through.
And without the FDIC coverage.
So when people went to pull their crypto out, it wasn’t there. $8 billion of it just wasn’t there.
Now some explanations.
Basically, the pasty, pudgy person that used to be CEO took the depositors money and used it for his own crypto-currency speculation, not to mention non-profits and political campaigns. It’s really easy to give to people when it’s not your money. It was an $8 billion casino play that crashed in spectacular fashion. It is fraud, and the pudgy, pasty person should NOT be in his house in the Bahamas; he should be in San Quentin on a $2 billion bail.
I guess it’s all ok, though, because he’s very, very sorry.
A Follow-Up to “Who is Corey Anderson?”
You may recall he is an MMA fighter that could have won a championship fight in April but the fight ended before the end of the 3rd round so it did not count.
Well, they did the rematch and Corey lost in a unanimous decision.
Just in case you were wondering.
From the contractor in the high desert: GRIT: noun; made up of hustle, passion and perseverance; as in “Business owners have grit.”
20 more shopping days till Christmas…
