I went to check out a live recording of the Compound & Friends in Charlotte last night and their guest was Campbell Harvey, Professor of Finance at Fuqua. The episode is excellent; Cam made an argument that real inflation is currently < 2% (minute 30), he was critical of the Fed pausing vs ‘terminating’ rate hikes, and that the best way to avoid a deep recession is to grow the economy (vs raising taxes and/or printing money) Cam Harvey’s 1986 Ph.D. thesis noted … Read more

As we roll into Q3 bank earnings after knowing the 10Y yields spiked in the last couple of months, the question(s) become: Its difficult to find any issues in reading through JPM’s Q3 earnings. This thing is an absolute juggernaut, and capital issues are not a problem. But it is worth noting a 4% decline YoY in deposits firmwide. A huge $ number, and while not a problem for JPM, likely a problem for some other banks should that % decrease in deposits … Read more

Marty Gruenberg and team released their Q2 ’23 Quarterly Banking Profile on 9/7 and given these reports provide dated analysis, I was unable to find anything surprising. What’s worth diving into is the forces behind shrinking loan growth across the industry. See below: As mentioned in the notes of this chart, year over year growth is around the average of the last ~10 years @ 4.5%… but velocity and direction are important here. Many banks are experiencing stressed loan to deposit ratios, and … Read more

ADP Released their June 2023 change in U.S. private employment this week and it came in hot, adding 497,000 jobs vs the 220,000 estimate. The market reacted negatively, as the likelihood of the Fed continuing to raise rates increases as job growth helps fuel inflation. Given this increase was largely driven by leisure and hospitality (232,000 new hires), wouldn’t we expect this to be relatively seasonal? The consumer is still spending, service based roles have had trouble hiring the past couple years, but … Read more

Marty Gruenberg is back with the Q1 QBP, and while I was eager to see data based evidence of a shift in banking to support the observational shifts we’ve all seen in headlines as of late, I realized this data is already stale. Marty was quick to call this out immediately – “…these results, especially for earnings, include the effects of only a few weeks of the industry’s stress that began in early March, rather than over the course of the entire quarter. … Read more

I’ve seen references to the below in different formats, leading to comments like “the consumer just wont quit” and “the consumer is still strong given headwinds” While the chart looks strong, I argue the source of that strength is fading and likely lags other indicators. This strength started in the form of cash spent by the consumer, but as we see deposits shrink and credit card totals outstanding increase, we can assume the consumer is now shifting spending from cash to credit. With … Read more

The internet is full of hot takes around the series of collapses we just witnessed and I’ve debated how deep to go here. I found a thread that does a good job of providing a time series of events (with one suggested edit by me) and implications going forward. A big shout out to @professorstam.eth for the quality content 👇 My one edit to the timeline is in the below point, SVB didn’t announce they were liquidating there Available-for-Sale Securities… they announced they … Read more

As part of the FDIC QBP released on 2.28.23, the chart below showed a dramatic swing in unrealized losses in the Available-for-Sale and Held-to-Maturity Securities in bank investments. At first glance, so what? Its an unrealized loss of [likely] longer duration T-bills/bonds paying a fixed rate below what one can get from T-bills today given then sharp rise in interest rates. This isn’t surprising, right? If I were to purchase a bond paying 3% when rates are up are 5-6% then i’ll certainly … Read more

The almighty Jerome Powell addressed congress today as part of the Federal Reserve’s Semiannual Monetary Policy Report. He first covered the Current Economic Situation and Outlook: Second, he covered Monetary Policy: How did the market react? Large banks were down on the day: We saw in the FDIC year-end ’22 numbers that retail portfolio’s are experiencing increased, although not alarming, charge-offs in auto and credit card lending, as well as pressure on deposit costs due to competition and the bank’s need for capital. … Read more

Our fearless leader, FDIC Chairman Martin Gruenberg, has spoken. As time goes on I appreciate more the choice of words from those in leadership roles as they will inevitably be thrust under a microscope and analyzed/ over analyzed/ brought up in the future as a ‘gotcha’….all of this to say how well written this QBP was. In reading the release, my first thought is “where is the weakness?” Macro headlines are full of recession fear, almost as if we are wishing it into … Read more