The BAN Report: CRA Reform Advances / Fed Crackdown on Wall Street / Buffett Slams Gamification of Wall Street / Productivity Plummets / RIP Greyhound Racing

CRA Reform Advances

Modernizing the Community Investment Act (CRA) has been discussed for years without any consensus on moving forward. While most believed that CRA had to be modernized, many activists feared that modernization would mean less community lending and investing. While it’s too early to opine on whether the Agencies got it right. The new ruling includes:

  • Expand access to credit, investment, and basic banking services in low- and moderate-income communities. Under the proposal, the agencies would evaluate bank performance across the varied activities they conduct and communities in which they operate so that CRA is a strong and effective tool to address inequities in access to credit. The proposal would promote community engagement and financial inclusion. It would also emphasize smaller-value loans and investments that can have high impact and be more responsive to the needs of LMI communities.

  • Adapt to changes in the banking industry, including internet and mobile banking. The proposal would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.

  • Provide greater clarity, consistency, and transparency. The proposal would adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, which includes public benchmarks, for greater clarity and consistency. It also would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities.

  • Tailor CRA evaluations and data collection to bank size and type. The proposal recognizes differences in bank size and business models. It provides that smaller banks would continue to be evaluated under the existing CRA regulatory framework with the option to be evaluated under aspects of the new proposed framework.

  • Maintain a unified approach. The proposal reflects a unified approach from the bank regulatory agencies and incorporates extensive feedback from stakeholders.

The proposed rule is 679 pages long and I frankly didn’t have time to read it yet! But, over the next few months, it will get reviewed by many in the industry. The American Bankers Association didn’t have much to say except:

We look forward to reviewing the proposal in detail and offering comments to achieve workable rules that help spur needed investment across the country without imposing unnecessary costs. This work will not be complete until the increasing array of non-bank financial services providers are held similarly accountable to the communities they serve.

The last part is interesting, as it seems like the banks want to level the playing field between themselves and non-bank lenders, especially since so much lending has been transferred from banks to non-bank lenders.  

Fed Crackdown on Wall Street

The SEC and the Justice Department are ramping up the pressure on banks and market participants to identify and report market manipulation, or other corrupt activities. The arrest of Bill Hwang on 11 felony charges, of which would be effective a life sentence, shows they are aggressive and looking for more unlawful activity.   

Bill Hwang’s lawyers couldn’t believe it.

The fallen billionaire investor was sitting in federal custody in Manhattan, less than 48 hours after his legal team had visited prosecutors to talk them out of criminal charges. The effort seemed to be going well until the feds scooped up Hwang at daybreak on April 27 to face 11 felony charges—and potentially, the rest of his life in prison. “In no event was an arrest necessary,” his attorneys said in a statement expressing frustration that morning, noting Hwang had been voluntarily answering the government’s questions for months.

All of Wall Street should pay close attention. The Hwang case marks an upswing of federal investigations into a slew of suspected trading abuses. Three other broad inquiries have emerged in recent months to examine so-called block trades, short sales, and well-timed wagers. They all center on the same question: Are markets rigged?

Biden administration officials have spent the past year laying groundwork to pursue white-collar crime more aggressively, rolling out policy changes—some disclosed, some not—that will make probes easier to start, faster to finish, and more punishing. The U.S. Department of Justice has quietly ratcheted up pressure on big banks to look for market abuses and then turn in staff and clients, and there’s growing willingness among prosecutors to use tough federal laws against Wall Streeters that were designed to target gangsters. Meanwhile, there are signs that the Securities and Exchange Commission is seeking larger civil penalties. Senior leaders at the agency have stopped accepting ad nauseam meetings with defense attorneys looking to talk their clients out of trouble.

While it’s not clear it’s related to deferred-prosecution agreements, other firms that have reached such deals have been going to lengths to help authorities in recent months. JPMorgan Chase alerted authorities to possible insider trading by prominent clients just ahead of Microsoft’s acquisition of Activision Blizzard in January, a person familiar with the matter said. A month later, Credit Suisse Group AG—one of the biggest losers in the Archegos collapse—gave federal prosecutors in Manhattan a presentation pointing out issues related to the incident, potentially helping investigators as they look into how rival banks make market-moving trades, people familiar with the matter have said.

The fact that the government is using the RICO statutes, which were designed to bring down organized crime, shows they are very serious about going after Wall Street. And they are levying big fines against banks that don’t keep proper records and are not prompt about reporting things like suspicious trades.

Buffett Slams Gamification of Wall Street

At the annual shareholder meeting last weekend, Warren Buffett bemoaned how Wall Street seems to be turning the stock market into a gambling parlor.

“Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism,” Buffett said. “They don’t make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing.”

Buffett bemoaned that large American companies have “became poker chips” for market speculation. He cited soaring use of call options, saying that brokers make more money from these bets than simple investing.

“It’s almost a mania of speculation,” Charlie Munger, 98, Buffett’s long-time partner and Berkshire Hathaway vice chairman, chimed in.

“We have people who know nothing about stocks being advised by stock brokers who know even less,” Munger said. “It’s an incredible, crazy situation. I don’t think any wise country would want this outcome. Why would you want your country’s stock to trade on a casino?”

While I think there are other investors that have a better track record than Mr. Buffett (i.e., Jim Simons and Carl Icahn), almost everything that comes out of his mouth is sensible and well-reasoned. His take on Bitcoin and cryptocurrencies is spot-on:

He described his views on farmland and rental properties versus bitcoin as “the difference between productive assets and something that depends on the next guy paying you more than the last guy got.”

“The apartments are going to produce rent and the farms are going to produce food,” he said. “If I’ve got all the bitcoin, I’m back wherever [anonymous bitcoin founder Satoshi] was.”

Virtually all bonds produce cash flow to their owners. Stocks either promise investors dividends or capital appreciation, which is tied to the earnings of the company. We now have trillions of assets now tied up in cryptocurrencies, NFTS, etc., which do not pretend to ever hope to produce any cash flows for their owners, and function more like non-tangible assets like art.

Productivity Plummets

Something odd happened in the first quarter, in which US productivity plummeted.

Productivity, or nonfarm business employee output per hour, decreased at a 7.5% annual rate from the previous three months, according to Labor Department figures Thursday. That compared to a 6.3% gain in the fourth quarter and the 5.3% projected decline in a Bloomberg survey of economists. 

While productivity growth rates can be extremely volatile in normal business cycles, the pandemic and subsequent recovery over the past two years has made the figures more prone to fluctuations. It’s likely to take several more years to gauge whether underlying productivity trends have shifted in the wake of Covid-19.

Fierce competition for a limited supply of workers has led businesses to bid up wages to attract and retain talent. By another measure, employment costs are now rising at a record rate. To help limit the impact of rising costs on balance sheets, firms often adopt new technologies or invest in equipment to make their workers more productive.

 

More generally, rising productivity can help offset the inflationary impact of wage increases. 

Despite the rapid increases in wages they’re still not keeping up with inflation. Real average hourly compensation fell an annualized 5.5% from the prior quarter after falling 0.5%.

It’s hard to tell if this is alarming or not, but it is certainly a warning sign. The productivity rate is tightly related to the GDP growth rate, which was disappointingly down 1.4% in the first quarter.

RIP Greyhound Racing

Back in the 1980s, there were over 50 greyhound racing tracks around the country. As of the end of the month, only two in West Virginia will be left.  

It’s been a long slide for greyhound racing, which reached its peak in the 1980s when there were more than 50 tracks across 19 states. Since then, increased concerns about how the dogs are treated along with an explosion of gambling options have nearly killed a sport that gained widespread appeal about a century ago.

A racing association found that betting on greyhounds plunged from $3.5 billion in 1991 to about $500 million in 2014. Since then, many more tracks have closed.

In some states like the dog-racing mecca of Florida in 2021, it was voter initiatives that ended the sport at the state’s dozen tracks. In others like Iowa, state officials allowed casinos to end subsidies that had kept greyhound racing alive as interest declined.

“Do I think the industry is dying? Yes,” said Gwyneth Anne Thayer, who has written a history of greyhound racing. But “it’s happening way faster than I thought it would.”

The Dubuque track closure and the end of racing in West Memphis, Arkansas, this December will leave racing only in West Virginia, where tracks in Wheeling and near Charleston operate with subsidies from casino revenue.

Apparently, the West Virginia tracks will stay open, and the state is behind keeping the industry alive. The experience of greyhound racing shows that there is a zero-sum element to gambling. As gambling expands into more and more areas, people may shift their gambling dollars.   

The BAN Report: Retail Pain / Ben Slams Jay / Jet Blue's Bear Hug / Bunk Bed Living

Retail Pain

Apologize for the downbeat nature of this week’s BAN Report, but it is what it is. Markets yesterday tumbled 4% in the S&P due to disappointing retail sales from Target and Walmart.   

Target shares tumbled 25% after the retailer posted weaker-than-expected quarterly earnings and said it would rather absorb higher costs than raise prices on shoppers. Target management said fuel and freight costs will be $1 billion higher this year than it had expected, with little sign of their easing this year.

“While we don’t like the impact to our profitability in the short term, we know it is the right thing to do for our guests and our business over the long term,” said Target Chief Financial Officer Michael Fiddelke on an earnings call Wednesday.

Walmart said Tuesday that higher product, supply-chain, and employee costs ate into its profit in the latest quarter, a result that Chief Executive Doug McMillon described as disappointing. The country’s largest retailer by revenue said that while it generally passed along price increases from suppliers to consumers, inflation in fuel costs came faster than it expected and that it would continue working to keep prices on groceries low. After Walmart’s stock shed more than 11% after its earnings report, shares retreated an additional 6.8% Wednesday.

Analysts said the weaker results showed that consumers were beginning to curtail spending amid higher prices. “Underlying volumes are looking really soft,” said Neil Saunders, managing director of research firm GlobalData Retail. “This is the beginning of a consumer pullback.”

Many large companies, including retailers, have been able to increase profits during the Covid-19 pandemic even while facing rising costs for shipping and staffing. Passing along price increases to customers while cutting expenses has been a common path to raising profit margins, but the latest results suggest there might be limits to that strategy amid current economic conditions.

Consumers are beginning to say No Mas to higher prices by curtailing their spending. And retailers can either pass their higher costs on like Walmart is doing or make less money as Target is doing. It seems increasingly clear that rates need to keep climbing (could we get to an 8% 30-year fixed rate?) until we get to a recession. A collapse of demand and a recession may be the only cure.

Ben Slams Jay

We have been critical of this Federal Reserve for some time, and others are now piling on, including Ben Bernanke.

Former Federal Reserve Chair Ben Bernanke said the central bank erred in waiting to address an inflation problem that has turned into the worst episode in U.S. financial history since the early 1980s.

Bernanke, who guided the Fed through the financial crisis that exploded in 2008 and presided over unprecedented monetary policy expansion, told CNBC that the issue of when action should have been taken to tame inflation is “complicated.”

“The question is why did they delay that. ... Why did they delay their response? I think in retrospect, yes, it was a mistake,” he told CNBC’s Andrew Ross Sorkin in an interview that aired during Monday’s “Squawk Box” show. “And I think they agree it was a mistake.

While Ben was diplomatic, former Fed Chair’s rarely criticize current ones. In his new book, he warned of possible stagflation.

“Even under the benign scenario, we should have a slowing economy,” he said. “And inflation’s still too high but coming down. So there should be a period in the next year or two where growth is low, unemployment is at least up a little bit and inflation is still high,” he predicted. “So you could call that stagflation.”

He is particularly aware that runaway inflation can quickly become a political issue — possibly putting the Federal Reserve in the cross-hairs of the public — in a way that even unemployment doesn’t evoke. “The difference between inflation and unemployment is that inflation affects just everybody,” he said. “Unemployment affects some people a lot, but most people don’t respond too much to unemployment because they’re not personally unemployed. Inflation has a social-wide kind of impact.”

CEOs are downbeat as well. The Conference Board, which measures CEO sentiment on a quarterly basis, showed that CEO confidence fell sharply from the first quarter and the majority are predicting a recession. While we have been patiently waiting for supply chain issues tied directly to COVID to moderate, they have been remarkably stubborn, such as China’s Zero COVID policy that has turned its industrial output negative.  

If I am going to make a prediction, I think we are heading for a moderate recession followed by a below-trend recovery. Since the Fed will be constrained on how much they stimulate an economy in a recession due to continued inflation issues, the recovery should then be less robust than others, perhaps similar to the post-financial crisis recovery, in which the economy grew in the low 2s. I would take modest inflation and sub-par growth, but a recession may be required to get there.

Jet Blue’s Bear Hug

Hostile takeovers seemed to be a relic of the past, but now we are seeing more of them. After Spirit Airlines (free advice: Spirit should only be used as an absolute last resort when flying) rejected JetBlue’s takeover bid, JetBlue submitted a tender offer directly to its shareholders.

In a statement, JetBlue said it was offering $30 a share to buy all of Spirit’s outstanding stock, a move known as a tender offer. That share price, setting the total purchase price at more than $3.2 billion, was slightly less than it originally offered to Spirit.

Spirit’s stock closed at $19.27 per share on Monday following the announcement of JetBlue’s tender offer, an increase of 13.6 percent from its closing price on Friday. Spirit last week scheduled a vote on the merger with Frontier for June 10 and has urged shareholders to approve the deal.

JetBlue said it was willing to pay $33 a share, the price it initially offered last month if Spirit cooperated and shared the same information about its business as it had with Frontier.

Two weeks ago, Spirit’s chairman, Mac Gardner, said that “after a thorough review and extensive dialogue with JetBlue,” his company stood by its plan to merge with Frontier. He argued that it reflected the best interests of long-term shareholders, and he said Spirit had concluded regulators were unlikely to approve the JetBlue deal.

Spirit and Frontier, both low-fare airlines, announced a plan to merge in February. JetBlue stepped in last month with its own offer for Spirit. Either deal would come under U.S. government scrutiny, given the skepticism about industry consolidation by regulators appointed by the Biden administration.

Spirit today urged its shareholders to reject JetBlue’s tender offer.     

 

Spirit’s board reviewed that offer and said in a statement Thursday that it determined it “is NOT in the best interests of Spirit and its stockholders.”

In Spirit’s statement, it said in talks with JetBlue that airline said there “was a 100% certainty” that the Justice Department would seek to block JetBlue’s acquisition of Spirit.

“This deal is illusory,” Spirit’s CEO Ted Christie said in an interview with CNBC’s “Squawk Box” on Thursday regarding the JetBlue bid to acquire Spirit. “It will not happen in our opinion and for that reason our board has rejected it and to imply otherwise again, we think is insulting.”

For those of you who do not remember the days when hostile takeovers were more common, I recommend Barbarians at the Gate, which is about the fall of RJR Nabisco to KKR. Since the 1980s, company Boards made hostile takeovers much more difficult using a variety of tactics from poison pills to staggered board terms.

Bunk Bed Living

Developers in San Francisco have gotten creative in addressing the high cost of housing by a unique concept: bunk beds.

For $800 a month you could live in a tiny bunk bed-style pod with 13 other roommates in the Bay Area.

Eight-month-old startup Brownstone Shared Housing has come under the spotlight this week after an Insider profile on the company revealed what it looks like inside the Palo Alto home with 14 tenants each living in a "pod."

While the $800-a-month rent may seem steep for a stacked bunk bed pod, the average rental rate for a studio apartment near Stanford University, where the pod-home sits, is currently around $2,400. 

The tiny housing was widely shared and critiqued on Reddit last week, with one heavily upvoted comment in the r/Antiwork subreddit stating: "This used to be a major criticism of the abuses in the housing crisis in China. Now it’s being lauded as good here in the US?"

"We plan to open more houses in the Bay Area in the near future," CEO James Stallworth told SFGATE over email. "There’s a lot of need for housing in the Bay Area, and we’ve had a lot of interested residents and landlords reach out to us."

At time of publication, one of the 14 pods was vacant in the Palo Alto home, which would normally house a single family in a three-bedroom space. 

While it’s easy to scoff at this, renters living in these units cut their housing expenses by two-thirds. At least these are month-to-month leases, so one can run for the hills when sick of sharing two bathrooms with 13 other people!

The BAN Report: Housing Market Update / Gen Z Housing Trends / Americans are Over COVID / US Cars Showing Age / The Ice Cream Cone Monopoly

Housing Market Update

The US housing market is showing signs of weakness, as new home sales dropped by 16.6% in April from March.

That is the slowest sales pace since April 2020, when everything shut down at the start of the Covid pandemic. Sales surged quickly after that, as Americans sought bigger homes with outdoor spaces for quarantining.

These numbers are based on signed contracts during the month, not closings, so it is perhaps the most up-to-date indicator in the housing market. Mortgage rates, which have been rising since January, really shot up in April. The average rate on the 30-year fixed loan began the month at 4.88% and ended it at 5.41%, according to Mortgage News Daily.

Consumers are being hit by rising interest rates and four-decade-high inflation. That is making it even harder for them to afford today’s higher home prices. The median price of a new home sold in April was $450,600, an increase of nearly 20% from the year before.

“While new construction gained favor with many would-be buyers over the past two years due to the extreme shortage of existing homes for sale, the rising cost of a new home is now pricing many people out of the market,” said George Ratiu, senior economist at Realtor.com. “The market for new homes is mirroring broader real estate trends, as rising inflation is taking a bigger chunk out of Americans’ paychecks and surging borrowing costs are compressing homebuyers’ budgets.”

A stark pullback in demand, and not overconstruction, is hitting the market. Housing starts have actually been falling over the past few months. Slower sales caused the inventory of newly built homes to jump sharply to a nine-month supply. A six-month supply is generally considered balanced between buyer and seller.

With climbing inventory, prices should soften, but there is no evidence yet and many housing markets are still on fire. The buyers seem to still be there, but they are waiting on sellers to lower their prices. A few anecdotes from agents were noteworthy:

"The buyers just stopped buying," said Shauna Pendleton, an agent with Redfin in Boise, Idaho, until recently one of the hottest markets in the country. "Californication," as she called it, drove an influx of buyers from the West coast, flush with cash courtesy of the also formerly booming stock market. Some listings now sit for weeks without even a showing, she said; like this 4-bedroom priced at $899,000; 42 days without a look-see.

In the Dallas/Ft. Worth area, Redfin agent Robin Glaysher said five people showed up to an open house last weekend; previously there would've been a line out the door. "It's a completely different market now," said Glaysher, who works with homes priced around $400,000.

In the most recent Case-Shiller survey, 12 of the 21 markets tracked showed 1-year appreciation of over 20% and none less than 11.9% with an average of 20.2%. Prices should fall in some markets, but there are still so many positive factors boosting the US housing market. In markets where construction has been limited, prices should remain strong, but you could see some material declines in markets with more new homes.

Gen Z Housing Trends

Generation Z home buyers are looking at smaller markets and avoiding larger cities, according to a report form LendingTree.

According to a report from LendingTree, the online lending marketplace based in Charlotte, N.C., members of Generation Z — identified by the platform as people born between 1997 and 2012 — accounted for 10 percent of home buyers across America’s 50 largest metro areas in 2021. Researchers scanned mortgage offers to more than 890,000 users of the LendingTree platform and isolated borrowers ages 18 to 24 as a percentage of the total number of offers. The larger the share of requests from Gen Zers in a particular metro, the higher its ranking.

Salt Lake City topped the list, retaining the No. 1 spot from last year, with 16.6 percent of its mortgage offers going to Gen Z borrowers. The city has finance, medical and tech industries as a draw for young professionals, said Jacob Channel, the senior economic analyst for LendingTree.

The study’s results were dominated by inland cities, as more workers abandoned coastal areas. Louisville, Ky., (at 15.9 percent) climbed into the No. 2 spot from seventh place the previous year, and Oklahoma City (15.3 percent) fell one spot into third place. At the bottom were the notoriously expensive coastal cities of San Jose, Calif. (4.5 percent), New York (4.4 percent) and San Francisco (3.6 percent).

While the report did have some interesting trends, the vast majority of young adults are renters, and they may have different tastes and interests than home buyers. It seems clear that remote work has made home ownership more of an option for these adults, as they can pursue the American Dream in a cheaper and more affordable market.  According to the US census bureau, larger cities are losing population relatively to small and midsize cities.

The largest cities lost a greater share of residents than small- and midsize cities during the year that ended July 1, 2021, new estimates show. Collectively, in the nine cities with more than one million people, the population fell 1.7%, a loss of 419,000 residents. Only two cities in that group grew: Phoenix and San Antonio.

New York, the nation’s largest city, lost 3.5% of its residents, or about 305,000 people. The second-largest city, Los Angeles, lost 1%, or 41,000 people, while the third-largest, Chicago, lost 1.6%, or 45,000 people.

Many of these trends were likely due to COVID.

Americans are Over COVID

While daily new cases are topping 100,000 a day again, Americans have largely moved on from COVID, and have resumed their pre-COVID lifestyles.

COVID-19 cases are on the rise, but many Americans are over thinking of the virus as a crisis.

Even in blue cities, restaurants are packed with people, and many Americans don’t wear masks even on the subway or on airplanes.  

Amid this national attitude, it may be extremely difficult for local or national leaders to try to reimpose any COVID-19 restrictions.

An Axios-Ipsos poll this week found just 36 percent of Americans said there was significant risk in returning to their “normal pre-coronavirus life.”  

 

At the same time, cases are rising to over 100,000 per day.

About 18 percent of the U.S. population now lives in “high” risk areas where the Centers for Disease Control and Prevention (CDC) urges everyone to wear masks indoors, and another 27 percent lives in “medium” areas where higher-risk people should consider wearing masks.

But experts say that the average American is not constantly checking the CDC risk levels in their area.

“People have checked out a little bit,” said Chris Jackson, senior vice president at the polling firm Ipsos. “People aren’t as tuned in.”  

Only in the Americas and the Western Pacific are COVID cases rising currently.  No one seems to be interested in following China’s “zero COVID” policy. However, some school districts like Providence, Philadelphia, and Boston are still requiring mask mandates.

US Cars Showing Age

In 2021, the average age of vehicles on US roadways hit a record of 12.2 years.

The average age of vehicles on U.S. roadways edged higher in 2021, hitting a record of 12.2 years, as Americans challenged by high car prices and slim pickings on dealer lots held on to cars longer.

This was the fifth straight year the average vehicle age in the U.S. has increased, according to new data released Monday by research firm S&P Global Mobility.

Vehicles on average have been getting older in the U.S. for the past two decades as quality has improved and cars generally are lasting longer, analysts say.

During the pandemic, the trend has only accelerated, largely because of a computer-chip shortage that has curbed factory output and left dealership lots bare, S&P Global Mobility said.

With car supplies constrained, prices have also soared on both new and used vehicles, resulting in more shoppers choosing to delay purchases. The average vehicle age crossed 12 years for the first time in 2020, the firm found.

“You can’t find a replacement for a reasonable cost,” said Todd Campau, associate director of aftermarket solutions at S&P Global Mobility.

With drivers hanging on to vehicles longer, the percentage of cars and trucks scrapped—or taken out of use—each year fell to 4.2% in 2021, one of the lowest rates in two decades, according to S&P Global Mobility.

So, there clearly must be pent-up demand for new cars, but buyers are balking at the limited supply and high prices for new cars. Wait times are long, especially if you want a unique configuration. Tesla’s Model S, for example, is promising deliveries in the Spring of 2023.

The Ice Cream Cone Monopoly

Business academics love studying monopolies and anti-trust litigation, as it shows how companies obtain lasting competitive advantages in a particular sector. In the ice cream cone industry, Joy has obtained a dominant market share.

Joy now makes 41.3 percent of the cones sold in American stores, according to an April 2022 report from IRI, a data analytics company — and likely more, since it also manufactures private-label cones. Malcolm Stogo, a consultant for ice cream shops, estimated that 60 to 70 percent of the cones sold in food service are Joy’s. Its closest competitor, Keebler, controls 14.5 percent of store sales.

Joy’s ascendance has come from attracting customers of bygone cone companies or acquiring competitors. In March, Joy bought Novelty Cone, the supplier of Mister Softee trucks for over 50 years.

“They have the capacity to control the business. They have the equipment to control the business,” Mr. Stogo said. “They aren’t depending on any one location, because they have factories all over the United States. So, frankly, I think they will be more dominant three to four years from now.”

Joy focuses on its three basic cone styles. Specialty varieties, like cookie cones, account for just 4 percent of revenue.

“It’s already a niche business,” Mr. George said. “So, it is not like we come out with new flavors all the time, because then you are talking about a niche of a niche.”

Where Joy has innovated is in its technology: a robotic arm that gently moves cones from the oven to a conveyor belt to be packaged, or a machine that snugly wraps and seals the cones. Engineers have tweaked the cone design, too, moving up the grid pattern at the bottom of the cake cone to strengthen it. Most of the cones are extremely delicate, and piles of broken ones lie beside some machines.

 

Despite its dominance, the company has not leveraged its market dominance to raise prices, as their price increases have tracked the inflation rate. They seem to have superior technology, economies of scale, and the ability to buy out competitors who can’t compete at reasonable multiples. Additionally, they have an ESOP-ownership structure, which means their people are more invested in the business.

The 15MM Bluegrass Hotel Portfolio / Higher Rates Matter / Inventory Levels Rise / Midtown Manhattan is Back / LIV Golf Challenges PGA

 

The $15MM Bluegrass Hotel Portfolio

Clark Street Capital’s Bank Asset Network (“BAN”) proudly presents: “The $15 Bluegrass Hotel Portfolio.” This exclusively offered portfolio is offered for sale by one institution (“Seller”). Highlights include:

  • A total outstanding balance of $15,043,278 comprised of seven loans and five relationships

  • The loans are secured by first mortgages on six hotels located in Kentucky

  • The weighted average coupon is 4.38% and a weighted average LTV of 69%

  • The weighted average seasoning is 54 months

  • 58% of the loans are floating based on WSJ Prime

  • All loans are performing and only one loan has been 30-days delinquent

  • 76% of the properties are major hotel franchises

  • All loans include personal guarantees

Files are scanned and available in a secure deal room and organized by credit, collateral, legal, and correspondence with an Asset Summary Report, financial statements, and collateral information. Based on the information presented, a buyer should be able to complete the vast majority of their due diligence remotely. 

Timeline:

  • Sale Announcement: Thursday, June 9, 2022

  • Due Diligence Materials Available Online: Monday, June 13, 2022

  • Indicative Bid Date: Thursday, June 30, 2022

  • Closing Date: Thursday, July 21, 2022

Please click here for more information on the portfolio. You will be able to execute the confidentiality agreement electronically.

Higher Rates Matter

The recent rate increases, and the expectation of further rate increases are certainly making an impact. US car sales, for example, may be already at recessionary levels, according to RBC.

U.S. new-car sales dipped below an annualized 13 million vehicles in May, prompting analysts at RBC to say they are at “recessionary levels,” although demand is still heated and auto makers offer few if any incentives to those looking to buy a new vehicle.

By RBC’s reckoning, the May U.S. light-vehicle seasonally adjusted annualized rate (SAAR) of sales came in at 12.8 million vehicles, below RBC’s forecast of 13.4 million vehicles and down from April’s 14.6 million.

It’s one month, but May is usually a good month for new car sales. Meanwhile, commercial property sales fell in April after 13 months of increases.

Commercial real estate is showing the first signs of cooling in more than a year, disrupted by rising interest rates that are already causing some deals to collapse.

Property sales were $39.4 billion in April, which was down 16% compared with the same month a year ago, according to MSCI Real Assets. The decline followed 13 consecutive months of increases.

Other investors are walking away from large deals already in contract. Innovo Property Group recently backed out of an agreement to buy a Midtown Manhattan office tower for $855 million after surging interest rates made it harder to find a mortgage, according to a person familiar with the matter. The about-face meant the investor lost its $35 million deposit, according to another person involved in the deal.

Sales that were going to close in April were probably under contract when rates were lower, and now buyers need to renegotiate or walk away. Finally, residential mortgage demand has fallen to its lowest level in 22 years.

Total mortgage application volume fell 6.5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand hit the lowest level in 22 years.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40% from 5.33%, with points rising to 0.60 from 0.51 (including the origination fee) for loans with a 20% down payment.

Refinance demand, which is most sensitive to weekly rate moves, fell another 6% for the week and was 75% lower than the same week one year ago. The vast majority of mortgage holders now have rates considerably lower than the current one, and even those who would like to pull cash out of their homes are choosing second mortgages, rather than refinancing their first liens.

All of this is both good and bad news. We need to reduce demand to tame inflation. Higher rates are doing the job and demand is falling. 

Inventory Levels Rise

Many retailers are experiencing higher inventory levels. Target announced a plan to shed excess inventory levels earlier this week.

Mr. Cornell, who joined Target as CEO in 2014, surprised some investors on Tuesday when he said the retailer would report lower profits this quarter because it will move to quickly shed excess inventory due to shifting buying patterns. The news came less than three weeks after Target reported lower-than-expected profits, in part due to the cost of managing bloated inventory. Now the company will quickly cancel orders or sell products at a discount during the current quarter, eating further into profits, Mr. Cornell said.

Other retailers with too much inventory on hand—including Walmart Inc., Macy’s Inc., and Gap Inc.—have said they would discount some items and hold on to others to sell at a seasonally appropriate moment.

“We have to be decisive and get out in front of this to make sure this doesn’t linger through the back half of the year,” Mr. Cornell said in an interview earlier this week. Target’s stock sank 7% when the market opened Tuesday, then recovered some value throughout the day, eventually closing down 2.3%.

During its annual shareholder meeting Wednesday, Target executives were asked why the company cut profit forecasts so quickly after its earnings announcement.

“While we’ve continued to see strong traffic and sales growth since we reported our first-quarter results we’ve watched as many competitors have reported elevated inventory levels,” said Michael Fiddelke, Target’s chief financial officer. “As such we announced yesterday that we are taking a number of actions to further right-size our inventory.”

Shoppers aren’t buying as many pandemic favorites such as patio furniture and small kitchen appliances, instead spending on food and entertainment. Some items arrived late after shipping delays, Mr. Cornell said. “Now that it is here, the demand signal has changed.”

Managing inventory levels has been difficult the last couple of years. In my view, we are in the 8th inning of Phase II of Post-COVID consumer spending. Phase 1 was the lockdown economy, in which consumers bought bigger ticket durable goods. Phase II is the experience phase, in which people are catching up on lost entertainment, dining out, and travel. So, what happens next? If prices are soaring for experiences and falling for durable goods, will demand shift again?   

Midtown Manhattan is Back

The buzz is back in Midtown Manhattan. 

 

A familiar lunchtime sport has returned to Bryant Park: chair stalking. Once again, afternoon crowds are swarming the six-acre Midtown oasis, and its 2,000 forest-green chairs have become hot commodities.

“We’re waiting for a shipment from France,” said Dan Biederman, the president of the Bryant Park Corporation, which has ordered 2,500 additional chairs this year to keep up with demand.

A few blocks away, Times Square is buzzing with more than 330,000 pedestrians on the busiest days, or nearly 80 percent of the foot traffic there prepandemic.

And over in Rockefeller Center, there are lines — even with no Christmas tree — at its new trendy bars, shops, and cafes, not to mention its roller rink with weekly D.J.s.

Midtown Manhattan, though not as jam-packed as it was before Covid, is starting to thrive again. Not even the resurging virus in recent weeks and fears about crime on the subway have kept the crowds away from its parks, plazas, and public spaces. Sidewalks are gridlocked. Lunch counters and happy hours are elbow to elbow, especially on Tuesdays, Wednesdays, and Thursdays, as office workers adjust to hybrid schedules.

Occupancy rates at Midtown hotels rose to 78 percent in May compared with 90 percent for the same time in 2019, according to STR, a global hospitality data and analytics company.

I had a long-delayed closing dinner in NYC two months ago. Bryant Park was packed with people, and the restaurants and bars in the East Village were crowded as well. While downtown wasn’t exactly bustling, the neighborhoods where people play and live seemed vibrant.

LIV Golf Challenges PGA

LIV Golf, a rebel golf Tour backed by the Saudi Government, is starting its first event today in London today, threatening the dominance of the PGA Tour. Several PGA Tour players, including Dustin Johnson, Phil Mickelson, Louis Oosthuizen, and Bryson DeChambeau have defected and several more are rumored to be waiting in the wings. Phil Mickelson, for one, is getting $200MM to take the plunge.  

But in staging some of the most lucrative tournaments in golf history — the winner’s share this week is $4 million, and the last place finished in each event is guaranteed $120,000 — Saudi Arabia is also relying on a proven strategy of using its wealth to open doors and to enlist, or in a cynic’s view, buy, some of the world’s best players as its partners.

Some of the touches at its debut on Thursday might have felt kitschy — red phone boxes, sentries dressed like British palace guards and a fleet of black cabs to deliver the players and their caddies to their opening holes — but there was no hiding what was at play: In its huge payouts and significant investment, the series’ Saudi backers have taken direct aim at the structures and organizations that have governed professional golf for nearly a century.

While the Saudi plan’s potential for success is far from clear — the series does not yet have a major television rights deal, nor the array of corporate sponsors who typically line up to bankroll PGA Tour events — its direct appeal to players and its seemingly bottomless financial resources could eventually have repercussions for the 93-year-old PGA Tour, as well as the corporations and broadcasters who have built professional golf into a multibillion-dollar business.

Today, the PGA Tour suspended all 17 players, even those who previously resigned their memberships. A key battleground will be the four major championships, and whether these players will be able to play in them. The US Open already announced they would allow these players, if they qualified, to compete next week. Another front is the Official World Golf Rankings, which determine eligibility towards the Majors and other events. The OWGR is controlled by the PGA Tour and its allies. Most likely, this battle will be settled in a courtroom near you.
​​​

The BAN Report: Fed 3x / Mortgage Rates Surge / Revlon Files Chapter 11 / The End of the Millennial Lifestyle Subsidy / The $15MM Bluegrass Hotel Portfolio

Fed 3x

The Federal Reserve yesterday took its biggest swing yet against inflation, raising interest rates by 75 basis points.

The Federal Reserve on Wednesday launched its biggest broadside yet against inflation, raising benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994.

Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5%-1.75%, the highest since just before the Covid pandemic began in March 2020.

Stocks were volatile after the decision but turned higher as Fed Chairman Jerome Powell spoke in his post-meeting news conference.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said. He added, though, that he expects the July meeting to see an increase of 50 or 75 basis points. He said decisions will be made “meeting by meeting” and the Fed will “continue to communicate our intentions as clearly as we can.”

“We want to see progress. Inflation can’t go down until it flattens out,” Powell said. “If we don’t see progress ... that could cause us to react. Soon enough, we will be seeing some progress.”

FOMC members indicated a much stronger path of rate increases ahead to arrest inflation moving at its fastest pace going back to December 1981, according to one commonly cited measure.

The Fed’s benchmark rate will end the year at 3.4%, according to the midpoint of the target range of individual members’ expectations. That reflects an upward revision of 1.5 percentage points from the March estimate. The committee then sees the rate rising to 3.8% in 2023, a full percentage point higher than what was expected in March.

Raising rates by 75 basis points, albeit necessary, is essentially an admission of failure. The Washington Post concluded that the Fed was trying to avoid the mistakes they made following the Great Recession.

Paradoxically, a big reason Fed policymakers misjudged inflation was because of their strict resolve to avoid the kind of slow labor market recovery that followed the Great Recession, when it took nearly a decade for millions of workers to get back into jobs. Last year, policymakers failed to clearly understand how the pandemic recovery was unfolding in real time, and how few lessons from the last crisis could be applied. Workers returned to work far sooner than expected — though the data didn’t show it immediately — while inflation burrowed deeper into the economy, growing into a bigger threat.

Larry Summers believes the Fed is too optimistic about the odds of a recession.

On Sunday, Summers, an early and frequent critic of the Fed’s response to surging inflation that reached fresh four-decade highs in May, said he disagreed with current Treasury Secretary Janet Yellen’s recent claim that there was “nothing to suggest a recession is in the works.”

“When inflation is as high as it is right now and unemployment is as low as it is right now, it’s almost always been followed, within two years, by recession,” Summers said during an appearance on CNN.

“I look as what’s happening in the stocks and bonds markets, I look at where consumer sentiment is, I think there’s certainly a risk of recession in the next year and I think given where we’ve gotten to, it’s more likely than not that we’ll have a recession within the next two years,” Summers added.

In a world in which the Fed is basically in charge of the economy and people get canceled due to tweets, it’s peculiar that no one is calling for Powell’s resignation. Let’s hope that Mr. Powell can fix this difficult problem. Unfortunately, as Rich Miller of Bloomberg noted, “he probably has to push the economy into recession in order to regain control of prices.”

Mortgage Rates Surge

Remember when the 30-year mortgage dipped below 3%? As the Fed raises rates and tapers its security purchases, mortgage rates have reached their highest level since 2008.

U.S. mortgage rates reached their highest level in more than 13 years, the latest sign of market tumult tied to the Federal Reserve’s campaign to cool inflation.

The average rate on a 30-year fixed-rate mortgage rose to 5.78%, mortgage-finance giant Freddie Mac said Thursday, the highest level since November 2008 and well above the 3.11% recorded near the end of last year. Last week, Freddie Mac reported an average mortgage rate of 5.23%.

The surge marks the largest weekly increase since 1987. It stands to add to the pressure on U.S. home prices, which remain strong despite rising rates and tumbling affordability.

Home buyers in May paid about $740 more a month to finance a median-priced U.S. home than they did in May 2021, when rates were closer to 3% and prices were lower, according to Realtor.com. News Corp, parent of The Wall Street Journal, operates Realtor.com.

Now, the Fed is also winding down its purchases of mortgage-backed securities, and that is also sending rates higher. Without the Fed’s big purchases, investor demand for bundles of home loans is waning. Less demand means issuers must offer higher yields to attract investors, so lenders are raising interest rates on the mortgages inside those bonds.

“This has been brewing for a long time,” said Walt Schmidt, a mortgage strategist at FHN Financial. “It’s all because the MBS market is losing its single biggest buyer,” referring to mortgage-backed securities.

Investors who are still buying mortgage securities want to be paid for it. The extra yield over Treasurys, or spread, that investors demand to own mortgage-backed securities has been rising this year.

Presumably, higher rates will put the brakes on the housing market and price declines could be around the corner. There is a lag between softening demand and sellers lowering their prices, so we may not see any material decline in prices for several months. Home prices rose 20% over the past year, so a correction seems inevitable, but inventories are still low in many markets.

Revlon Files Chapter 11

While bankruptcies are running at their slowest pace since 2010, Revlon filed for Chapter 11 protection last night.      

Cosmetics giant Revlon filed for Chapter 11 bankruptcy protection on Wednesday evening as it grappled with a cumbersome debt load and a snarled supply chain.

The company said it expects to receive $575 million in debtor-in-possession financing from its existing lender base, which will help to support its day-to-day operations.

The filing “will allow Revlon to offer our consumers the iconic products we have delivered for decades, while providing a clearer path for our future growth,” Revlon President and Chief Executive Officer Debra Perelman said in a press release issued Thursday morning.

“Our challenging capital structure has limited our ability to navigate macro-economic issues in order to meet this demand,” Perelman added.

Revlon’s bankruptcy filing said the company is currently unable to timely fill almost one-third of customer demand for its products, due to an inability to source a “sufficient and regular supply of raw materials.” Shipping components from China to the United States takes Revlon eight to 12 weeks and costs four times 2019 prices, it said.

Revlon is the first major consumer-facing business to file for bankruptcy protection in what has been a yearslong pause of distress in the retail sector. More than three dozen retailers filed for bankruptcy in 2020, marking an 11-year high, which experts say was an extensive and Covid pandemic-driven pull-forward of restructuring activity.

Supply-chain issues appear to be the primary cause of the bankruptcy. The firm narrowly escaped bankruptcy in 2020. Revlon’s filing could be harbinger of other filings, as companies that narrowly escaped when rates were near-zero may need bankruptcy relief.

The End of the Millennial Lifestyle Subsidy

An Uber ride across downtown might have been $5-6 bucks a few years ago; today, it is now often close to $20. The Atlantic had a great piece on how several money-losing tech firms in search of market share subsidized Millennials and others. Now these firms are under pressure to show profits, thus ending the free ride we all enjoyed.

But something beyond rising energy and labor costs led to that startling price tag. With markets falling and interest rates rising, start-ups and money-losing tech companies are changing the way they do business. In a recent letter to employees, Uber’s CEO, Dara Khosrowshahi, said the firm needs to “make sure our unit economics work before we go big.” That’s chief-executive speak for: We gave Derek a nice discount for a while, but the party’s over and now it costs $50 for him to get home.

For the past decade, people like me—youngish, urbanish, professionalish—got a sweetheart deal from Uber, the Uber-for-X clones, and that whole mosaic of urban amenities in travel, delivery, food, and retail that vaguely pretended to be tech companies. Almost each time you or I ordered a pizza or hailed a taxi, the company behind that app lost money. In effect, these start-ups, backed by venture capital, were paying us, the consumers, to buy their products.

It was as if Silicon Valley had made a secret pact to subsidize the lifestyles of urban Millennials. As I pointed out three years ago, if you woke up on a Casper mattress, worked out with a Peloton, Ubered to a WeWork, ordered on DoorDash for lunch, took a Lyft home, and ordered dinner through Postmates only to realize your partner had already started on a Blue Apron meal, your household had, in one day, interacted with eight unprofitable companies that collectively lost about $15 billion in one year.

These start-ups weren’t nonprofits, charities, or state-run socialist enterprises. Eventually, they had to do a capitalism and turn a profit. But for years, it made a strange kind of sense for them to not be profitable. With interest rates near zero, many investors were eager to put their money into long-shot bets. If they could get in on the ground floor of the next Amazon, it would be the one-in-a-million bet that covered every other loss. So they encouraged start-up founders to expand aggressively, even if that meant losing a ton of money on new consumers to grow their total user base.

Consider this simplified example. Let’s say that the ingredient, labor, and transportation costs of a pizza delivery in New York City average $20. If a company charges $25 for the average NYC delivery, it will make a profit. But if a start-up charges $10 for the same thing, it will lose money but get a lot more pizza orders. More pizza orders means more total customers, which means more overall revenue. This arrangement is tailor-made for a low-rate environment, in which investors are attracted to long-term growth more than short-term profit. As long as money was cheap and Silicon Valley told itself the next world-conquering consumer-tech firm was one funding round away, the best way for a start-up to make money from venture capitalists was to lose money acquiring a gazillion customers.

I call this arrangement the Millennial Consumer Subsidy. Now the subsidy is ending. Rising interest rates turned off the spigot for money-losing start-ups, which, combined with energy inflation and rising wages for low-income workers, has forced Uber, Lyft, and all the rest to make their services more expensive.

Terrific analysis of the shift from market share to profits. Too many tech companies are copying the Amazon playbook, in which you lose money for a decade-plus, and then find profits after you establish your market position. This strategy works with low interest rates and very patient investors. Now, tech companies are under pressure to put up or shut up.

The $15MM Bluegrass Hotel Portfolio

Clark Street Capital’s Bank Asset Network (“BAN”) proudly presents: “The $15 Bluegrass Hotel Portfolio.” This exclusively offered portfolio is offered for sale by one institution (“Seller”). Highlights include:

  • A total outstanding balance of $15,043,278 comprised of seven loans and five relationships

  • The loans are secured by first mortgages on six hotels located in Kentucky

  • The weighted average coupon is 4.38% and a weighted average LTV of 69%

  • The weighted average seasoning is 54 months

  • 58% of the loans are floating based on WSJ Prime

  • All loans are performing and only one loan has been 30-days delinquent

  • 76% of the properties are major hotel franchises

  • All loans include personal guarantees

Files are scanned and available in a secure deal room and organized by credit, collateral, legal, and correspondence with an Asset Summary Report, financial statements, and collateral information. Based on the information presented, a buyer should be able to complete the vast majority of their due diligence remotely. 

Timeline:

  • Sale Announcement: Thursday, June 9, 2022

  • Due Diligence Materials Available Online: Monday, June 13, 2022

  • Indicative Bid Date: Thursday, June 30, 2022

  • Closing Date: Thursday, July 21, 2022

Please click here for more information on the portfolio. You will be able to execute the confidentiality agreement electronically.

The BAN Report: Housing Decline? / RIP Overdraft Fees / Banks Drag Feet on Zelle Issues / How to Lose $20 Billion / OSU Trademarks THE?

 

Housing Decline?

With mortgage rates approaching 6%, some forecasters are now predicting modest pricing declines. Senior Property Economist Matthew Pointon of Capital Economics recently modified his forecast.

  • We have previously argued that a mortgage rate of above 6% represents the threshold at which house price falls become likely. With rates recently rising above that level, we are therefore revising down our house price forecast. That said, the prevalence of fixed rate mortgages, tight credit conditions and a relatively healthy labor market still rules out a price crash. We now expect annual house price growth will fall to -5% by mid-2023, followed by a gradual recovery to 3% by end-2024.

  • We have previously claimed that the US would avoid an outright fall in house prices. After all, most borrowers are protected by a fixed rate mortgage, levels of home equity are high, credit conditions have been tight over the past couple of years and the chance of a large rise in unemployment is slim. That argues against a rise in forced home sales, which will keep the market relatively tight and support house prices.

  • But we have also argued that house prices will come under pressure if mortgage rates rise above 6%. (See Update.) And a surge in the 10-year Treasury yield following more aggressive hikes in the fed funds rate pushed mortgage rates above that level last week. At 6%, the median income household looking to buy the median-priced home today will have to put close to 25% of their income toward mortgage payments, higher than the previous record of 24% seen in the mid-2000s.

  • With no sign that lenders are set to aggressively ease lending standards, that deterioration affordability will shut many potential buyers out of the market. Indeed, the first-time buyer share has recently dropped to a 13-year low. And for those still in a position to buy a home, the surge in mortgage rates means many will have to cut their budget. That will reduce the competition for homes, and sellers will eventually see the need to accept a lower price for their property.

If mortgage costs go up and home prices are still high, the only other lever to pull is on the credit side, and the QM rules make it harder to loosen credit. Non-QM loans are still less than 4% of the first mortgage market. Nevertheless, a “bearish” forecaster is still only predicting a 5% fall in home prices. There is some evidence though that prices may be falling already. Take a market like Provo (Utah, not Spain):

Look no further than Provo, Utah. The market, just a short drive from several ski slopes, saw a huge influx of remote workers during the pandemic. Between May 2020 to May 2022, home prices spiked 65.7% in Provo—well above the 37% spike that occurred nationally during the first 24 months of the pandemic. But as that pandemic housing boom fizzled out last month, things shifted quickly. In May, a staggering 47.8% of Provo sellers slashed their list price. That's up from 12.2% in May 2021.

A real estate consulting firm though noted that the cost of owning versus renting have shifted dramatically in the past year to the highest differential in history.

This chart implies that rental apartments are likely to do well as rents are likely to rise if there is more demand.    In Atlanta, for example, extended stay hotels are becoming more and more like class-C apartments.

Simmons is one of a growing number of residents priced out of the red-hot housing market in Metro Atlanta. The city has one of the largest concentration of discount extended-stay accommodations in the US - hotels initially designed for traveling workers needing temporary lodging, but are increasingly being used as permanent housing for low-income workers. In a sign that more families are forced to cram into one-bedroom units for long periods: local school districts include stops at the hotels in their bus routes.

In 2019, a survey of budget extended-stay hotels in suburban Gwinnett County, northeast of Atlanta, found 45% of the room nights booked were for stays of 30 days or more. Such a long stay often is a sign of residency. By 2021, that number had jumped to 67%, according to the Highland Group, an Atlanta firm that advises hotel investors.

So, multi-family and the single-family rental market will appear to benefit from higher home ownership costs.   But, a material drop in home prices does not appear to be in the cards at this point.  

 

RIP Overdraft Fees

In about six months, overdraft fees have been disappearing left and right. Zions Bank is the latest bank to reduce or eliminate overdraft fees.

Eliminate the Continuing Overdraft Fee (previously a $30 fee was charged when an account remained overdrawn more than $5 for seven consecutive days);

• Eliminate NSF fees for items that are returned unpaid because of non-sufficient funds;

• Reduce the fee by more than 20% for an NSF item that is paid; and

• Increase the “overdraft cushion” amount from $5 to $30. Previously, no fees were charged if an account was overdrawn $5 or less at the end of the day. Going forward, accounts will not be assessed an NSF fee when overdrawn $30 or less.

These updated overdraft practices will have many advantages for clients. It is estimated that Zions Bank will save its clients nearly $7.4 million in fees annually, while helping them better manage their overdraft experiences. It is estimated that more than 60,000 Zions Bank client accounts will benefit from these changes.

So, Zions isn’t eliminating them completely, but an underreported story is how much the CFPB has pressured and forced banks to reduce and eliminate overdraft and NSF fees.    Banks and credit unions that have eliminated overdraft fees and NSF fees include Alliant Credit Union, Ally Bank, Capital One, Citibank, and Truist Bank.    In 2019, banks collectively charged $15.5 billion in overdraft and NSF fees.  

Banks Drag Feet on Zelle Issues

While Zelle is far more secure than Venmo, it has not been easy for fraud victims to get their money back from banks, according to a story from the New York Times.

In recent years, payment apps like Zelle, Venmo and Cash App have become the preferred way for millions of customers to transfer money from one person to another. Last year, people sent $490 billion on Zelle, the country’s most popular payments app, and $230 billion through Venmo, its closest rival.

But the same reasons that have drawn customers to these apps — they are free, fast and convenient — have made them easy targets for scammers and thieves. While banks argue that they shouldn’t have to refund customers who inadvertently granted a scammer permission to use their accounts, they have also often been reluctant to refund customers like Mr. Oriach whose money was stolen. That could be a potential violation of the law.

Under a 1978 federal rule called Regulation E, banks are required to make clients whole if their money is stolen from a consumer account through an electronic payment initiated by another person, as in Mr. Oriach’s case.

Since Reg E was written well before payment apps existed, the Consumer Financial Protection Bureau last year issued guidelines saying that the law covered all person-to-person online payments. The bureau clarified that all unauthorized online money transfers — meaning any payment initiated by someone other than the customer and done without the customer’s permission — were the bank’s liability.

“When a consumer provides notice to a financial institution that money was stolen from the consumer’s account, the burden is on the institution to show that the transfer of funds out of the consumer’s account was authorized by the consumer,” said Raul Cisneros, a spokesman for the bureau.

But despite the updated guidance, banks in many cases are refusing to refund customers who claim — often with supporting documentation — that money was stolen from their accounts. The banks rarely provide clear explanations for their decisions, leaving victimized customers with little recourse.

Zelle, which is increasingly looking to compete with Visa and Mastercard, is owned by seven banks, Bank of America, Capital One, JP Morgan Chase, PNC, Truist, US Bank and Wells Fargo.   Clearly, banks need to do a better job at investigating and resolving fraud complaints.  

How to Lose $20 Billion

Tiger Global, which had managed $125 billion at one point, has suffered staggering losses in the past year and has now lost more money than any other investment vehicle of all time. And, all of this has basically happened in the past year. 

At the end of last year, Tiger Global had become one of the biggest firms of its kind — it operates a hedge fund, a long-only fund, and several venture-capital funds — in the world. Including the debt it employed, it was managing about $125 billion with an investment staff of 52 people, according to a filing with the Securities and Exchange Commission. (Excluding debt, it had $95 billion.) A year earlier, Tiger Global’s hedge fund had topped a widely followed industry performance list — making some $10.4 billion for investors during the pandemic year of 2020, when its tech bets skyrocketed. By almost any metric, it was one of the most successful players in an extremely crowded and competitive global industry. At the time, Coleman was only 45, the youngest hedge-fund manager to ever make the list. His net worth would soon hit an estimated $10 billion.

The glory days ended over the past six months, though, with the ongoing collapse of high-flying growth stocks — eerily reminiscent of the bursting of the dot-com bubble shortly after Robertson threw up his hands and called it quits.

But what happened to Robertson’s fund and what happened to Coleman’s are almost mirror opposites. Robertson lost money because he refused to invest in the bubble — the old-economy stocks he prized were out of favor, while speculative technology companies soared in value. Coleman has lost money in 2022 because Tiger Global investments were key to making speculative tech stocks go up, and the firm got hurt badly when those same positions started going down. “Tiger Global is the center of the growth bubble,” says a hedge-fund manager who has ties to the Tiger clan. Like many others interviewed for this article, he requested anonymity because he feared repercussions from the firm. Several others call Tiger Global “the poster child” of the tech meltdown, both because of its own role and because its success engendered a lot of imitators. Well-known Tiger investments such as Peloton, Roblox, Uber, Robinhood, Warby Parker, and Carvana have been among the biggest losers in U.S. markets — in some cases down more than 90 percent.

This year, Tiger Global’s hedge fund fell an astonishing 52 percent through May, according to an investor letter – much more than the overall market (down 20 percent) or the tech-heavy Nasdaq (down 33 percent). Its long-only fund has fallen even more — some 60 percent this year. That means Tiger Global has lost about three-quarters of the gains made for investors since launching the hedge fund in 2001, according to calculations from data provided by Rick Sopher, chairman of LCH Investments in London. The total combined losses in the hedge fund and long-only fund based on Sopher’s analysis are about $19.7 billion.

The stunning reversal shows how hard the technology stocks have fallen in the past year.    

OSU Trademarks THE?

The US patent office has approved Ohio States University’s request to trademark the word “THE.”

Ohio State University has settled a rivalry that has spanned nearly three years. Only this time it wasn’t with another Big Ten School, it was with the U.S. Patent and Trademark Office.

Ohio State has officially registered a trademark for the most common word in the English language: “THE.”

Trademark attorney Josh Gerben first broke the news on Twitter.

Ohio State began to pursue a trademark in August 2019, after fashion retailer Marc Jacobs filed an application for the word a few months earlier.

Initial trademark applications by OSU were rejected by the patent office on the basis of the word being “ornamental,” and because Marc Jacobs' prior filing, which OSU challenged.

Marc Jacobs and OSU reached an agreement in August 2021 that would allow both parties to use the branding. Marc Jacobs is primarily high-end fashion, while Ohio State's focus is on athletic and casual wear.

The trademark approval now gives Ohio State permission to use THE for “clothing, namely, t-shirts, baseball caps and hats; all of the foregoing being promoted, distributed, and sold through channels customary to the field of sports and collegiate athletics.”

While I bleed blue, kudos to Ohio State’s attorneys for trademarking a derivation of the most common word in the English language. And this may be another example of a patent and trademark system gone amok.