APRIL 3. 2023
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FDIC FINANCES
As of December 31, 2022, the Deposit Insurance Fund held $128.2 billion, a reserve ratio of 1.27% of all FDIC-insured deposits. As recently as the fourth quarter of 2010, the fund had a negative balance due to bailouts during the 2008/09 recession. In 2019, the fund’s reserve ratio was 1.375% but has since declined due to massive Covid-induced savings (source: Brookings).
BOUNTEOUS BANKS
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In 1921, the number of U.S. banks peaked at 30,456. In 1929, on the eve of the Depression, there were 24,970. By 1934, the Depression had reduced that number to 14,146; fifty years later, there were 14,260. Since then, the decline has been relentless. In 2004, there were 7,569, and in 2021 just 4,237 (source: FDIC).
LESS LENDING
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In 23Q3, 22Q4, and 23Q1, the percentage of banks tightening lending standards for residential mortgages was low and flat at about 2%. Auto loans are a different story. After holding at 2% in 22Q3 and 22Q4, the percentage tightening jumped to 18% in 23Q1. For credit cards, 19% were tightening lending standards in 22Q4; the percentage is now 28% (source: Refinitive). 4
INCREDIBLE INCOME
From about 1990 until Covid, the top 0.01% of all personal income tax filers captured a stunning 5% of all personal income. During Covid, the percentage skyrocketed to 7.5%. This extraordinary boost came from surging capital gains in 2020 and 2021. Even excluding capital gains, the share rose from 3.25% of personal income pre-Covid to 4% (source: U.C. Berkeley).
Your weekly commentary on the economy, markets, and other financial topics.
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HAPPY HOLDING
On any trading day, the chances of the S&P 500 index falling is 46%. Over a month, that percentage declines to 38%, and it’s 32% over a quarter. Holding the S&P 500 index for six months reduces it to 26%; if held for a year, the probability is 21%. Over five years, it’s 12%; over a decade, it’s just 6% (source: Plancorp).
PROFIT PERFORMANCE
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In 1990, the average return on equity (ROE) for public firms in Europe and the U.S. with less than $1 billion in sales/year was 8%; for firms with $1-$10 billion in sales, it was 11%, and for firms with over $10 billion it was 12%. In 2021, the average ROEs were 4%, 10.5%, and 18%, respectively (source: The Economist)!
CASH CONSUMMATION
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In the first quarter of 2013, the percentage of residential home cash buyers peaked at about 37.5%. In the first quarter of 2020, the percentage was 27.5%. It then quickly plummeted to 20% in the second quarter of 2020 but has increased since. In the first quarter of this year, cash buyers totaled 32%, their highest level since the second quarter of 2014 (source: Redfin).
MORTGAGE MOVES
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Since the end of the 2008/09 recession, the interest rate spread between 10-year Treasuries and 30-year mortgages has been about 175bps. Recently, the spread jumped to 366bps, suggesting that mortgage rates are likely to fall even if 10-year Treasury rates don’t (source: Yardeni Research). 9
NUCLEAR NUMBERS
The estimated size of the U.S. nuclear warhead stockpile peaked in 1966 at about 31,000, while the Soviet/Russian cache was about 8,000. The U.S. stockpile has steadily declined since 1966, while Soviet/Russian reserves have fallen since 1986. Both are currently around 4,000 (source: Statista). 10
PASSPORT PERCENTAGE
In 1992, three million U.S. passports were issued, and 18 million Americans, 7% of the population, had one. In 2006, 12 million were issued, and 23% or 70 million persons owned one. In 2019, 21 million passports were issued, but in 2020 just 12 million were. In 2022, however, a record 22 million were issued, 152 million existed, and 46% of the population had one (source: chartr). 11
LIFE LESSONS
In 1970, Japanese life expectancy was average among wealthy nations. Then they began to eat more meat. Vegetarians, it seems, have little heart disease but are prone to strokes. Between 1960 and 2013, Japanese meat consumption rose to 52kg/person, 45% of U.S. consumption, and their cerebrovascular death rate plummeted by 80%, and they now are the longest-lived (source: Economist).
RESPONSE RATES
Monthly job creation numbers are based on surveys that generated 80% response rates in 2013. Before the pandemic, the response rate was in the mid-70s, and during the worst of Covid, it was in the low 60s. The Bureau of Labor Statistics follows up twice with non-respondents, and then the response rates approach 95%. This leads to revisions that currently average 60,000/month, 50% higher than pre-Covid (source: BLS).
WORKING WOMEN
In 2010, women were 50.15% of U.S. employed persons, primarily because the Housing Bust reduced opportunities for men in construction and manufacturing. As the economy recovered, women’s share of employment declined, bottoming in 2015 at 49.33%. It rose, peaking at 50.08% in December of 2019, only to sink as female employment was particularly hard hit by Covid. As of January 2023, it’s 49.82% and rising (source: Department of Labor).
OREO OUTCOMES
The Fun Finale: To improve the odds of having the interior Oreo cream glom onto both the top and bottom biscuit when twisted, researchers at MIT used a rheometer to squish and twist the biscuits in opposite directions. After over 1,000 attempts using different flavors, twisting speeds, and amounts of pressure, they found the cream is stronger than sticky and thus sticks to one side 80% of the time (source: MIT)!