Lower Rates, Jobs, Tricolor Loans, the Budget, California, and hell freezes over.
The Numbers Last Week
The Fed lowered its target lending rate, known as the Fed Funds rate, by 0.25%.
That makes the prime rate 7.25%.
That’s pretty much the only thing that folks with business lines of credit and HELOCs care about.
Folks are also expecting two more rate cuts as the job market continues to soften.
That rate cut was the most important number this week. Oh, and Texas over-reported its new unemployment claims the week before, so we are back down to 231,000.
The Russell Report Editor-in-Residence commented that there were waaay too many numbers in last week's Report, so we’ll go right to the non-number stuff.
Tricolor Holdings
Is this the small box of three crayons your toddler gets at the neighborhood breakfast grill?
Nope.
It’s an automobile lender that specializes in subprime car loans and is based in Texas.
Uh-oh. The ‘s’ word.
And guess what happened? The ‘B’ word.
That would be bankruptcy, not the other ‘B’ word, although I’m sure lenders Chase and Fifth Third were saying that word too.
Consider the profile of its borrower:
Over 60% lacked any sort of credit score. Yep. Those who did have a credit score averaged 614.
As an aside, I’ve had folks tell me “hey, that’s not bad”. Hmmm, no, it’s bad.
Half did not have a driver's license.
Yep, that makes for subprime lending. But the returns were good!
In a throwback to the real estate world in 2006, these car loans were packaged and sold. A piece of its higher-quality loans recently received a AAA credit rating.
And you guys wonder why I have no respect for credit rating agencies.
That same piece is now trading at 78 cents on the dollar. One of the less-than-sterling tranches is trading for 12 cents on the dollar.
Time will tell if this is a canary in an auto lending mine. However, it does, once again, foretell the hazards of anything labeled subprime.
And relying on the credit agencies.
September
Nope, not the song by Earth, Wind & Fire, that focuses on the night of the 21st.
The 30th, when the current fiscal year ends for the Federal government. That’s an important date.
Why? By the 30th, Congress must pass annual appropriations bills—or a temporary stopgap measure known as a continuing resolution—to provide funding for government operations.
Déjà vu all over again, and again, and again.
If Congress fails to act, federal agencies face a shutdown: they cannot spend money or continue many activities, and fingers start pointing. Again.
Some essential services (such as national security, Social Security payments, and air traffic control) continue.
With that deadline 8 days away, the Dow, S&P 500 and NASDAQ all set records on Friday. Naturally.
Your 401k is happy, but there seems to be a disconnect somewhere.
The California Legislature
Last Sunday, the California legislature passed a round of end-of-session bills that the Governor is expected to sign.
See the next segment for the jaw-dropper.
The legislature submitted almost 2,400 bills, of which about a third were passed and now seek the signature of the governor.
He has until October 13 to sign them. Or autopen them.
That’s 2,400 bills in 8 months. That’s about 10 bills per day. Really?!
Do you really think any legislator is reading all of them?
How about this: In order for a politician to vote on a bill, they must pass a 10-question multiple-guess test on what the bill is about. If they fail with less than 7 correct, it counts as a ‘no’, and the results are made public.
The good news is, the legislature is now out of session until January.
The Weather Forecast for Hades: 32 Degrees and dropping
Last weekend, the California legislature ended its session for 2025 and did the unthinkable… at least for California.
It approved legislation allowing Kern County (the oil patch of California) to authorize 2000 new drilling permits per year through 2036.
Jaw drop. But they weren’t finished. They modified parts of the California Environmental Quality Act – CEQA - to make it easier for the county to issue said permits.
In related news, Lucifer was seen shopping for snow shoes…
After I picked my jaw up off the floor, I did some digging around.
It turns out, California imports about 64% of its crude oil from other countries. Not other states, other countries.
BTW, this information is from the California Energy Commission website.
Of that 64%, the following countries are our largest trading partners for crude oil:
Iraq – 21.3%.
Brazil – 20.4%
Guyana – 15.8%. And it goes on...
Ecuador, Canada, Saudi Arabia, United Arab Emirates, Colombia, Argentina, and others.
I guess that’s what happens when you make it very difficult to extract oil in the state where Chevron had its headquarters until this year.
Hello, Houston!
This is the last full week of the third quarter. Basically, it’s pretty much year-end. If your sales process takes longer than 8 weeks, it’s not in the books this year. If your sales cycle is quicker, time to ramp up the sales calls. And start planning for 2026.
Larry Ellison, the founder of Oracle, has been in the news quite a bit lately, and he has a lot of quotes I like. This week:
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work.”
Do your very best, and you will produce truly exceptional work. Focus.
