Category: Business

2023 Week 14

Notes, thoughts and observations - Compiled weekly

Are we going to see the first layoffless recession? Similar to stagflation, we could go into a recession while there is a worker shortage because due to an aging labor force due to a lack of immigration

We technically go into a recession but there are plenty of jobs - Kim Khan

We technically go into a recession but there are plenty of jobs - Kim Khan



OBSERVATION - Market betting on future banking troubles

  • (biancoresearch)
    • The bank stocks continue to sink. Regional banks (orange) are now at a new closing low since the bank failures a month ago. Good thing the banking crisis has stabilized. Otherwise, the bank stocks might be in trouble … oh, wait! Seriously, I would argue the issue is profitability, they have to raise deposit rates to stop the outflows, and not solvency fears of more failures.

OPINION - Watch for price discovery on commercial real estate (office buildings and retail) to establish how underwater small bank balance sheets are.

  • (EPB Research)
    • Why the 2023 Banking Crisis is Just Getting Started
      • US banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity.
        • Not a problem, unless customers pull their deposits
        • If held to maturity, banks recoup their losses; only a problem if they have to sell now to create liquidity
    • Fed opend the Bank Term Funding (BFT) and the Discound Window to help meet liquidity needs
      • Rising interest rates put treasuries underwater, this mechanism allows banks to take a loan to pay back depositors
      • Catch is that bank deposits were paying 1% interest, the BFT and Discount Window is 5%
        • Interest paid will sky rocket, making them a zombie bank
    • Small banks vs large banks
      • Large banks are too big to fail, backstopped by the government
      • Large banks are heavily regulated
      • Small banks loans make up 65% of assets (vs 51% at large banks)
        • Loans lean heavily toward commerical real estate

Real Estate

OBSERVATION - Smaller banks hold more commercial real estate loans

  • (Clips that Matter)
    • Offices are mostly empty space these days.
      • It’s reasonable to think companies whose workers aren’t regularly in the office will probably reduce their office footprints
      • This is bad news for the commercial real estate industry and, crucially, its lenders and investors.
    • (rex_woodbury) - This is such a fascinating chart to me—looks like office occupancy is plateauing at ~50%. Interesting to think through the ripple effects on real estate, politics, and the types of jobs workers choose.

OPINION - Don’t expect residential real estate prices to ease due to low supply

  • (Mauldin Economics)
    • Banking System at Risk? Housing Expert Barry Habib on the Return of MBS
    • An outlook on 2023 housing prices and mortgage rates
      • If prices fall to 5% it will cause price increases due to low inventory and high demand.
    • Whether there’s any relief for homebuyers coming on the supply side
      • Spike in birth rate 30 years ago leads to 2 million in home demand
      • 1.4 built in next year, 100k homes retireed due to aging

Labor Market

OPINION - So similiar to the post dot-com era, tech shedding jobs but folks finding work in other sectors, for now

  • (TKER)
    • Elevated hiring activity explains why layoffs haven’t led to higher unemployment.
      • The numbers help explain why, despite heavy news coverage of layoffs, the unemployment rate remains low and claims for unemployment insurance remain depressed.
      • As the economy cools, hiring activity will be a key metric to watch, because a hiring slowdown could force unemployment higher if laid-off workers are unable to land new jobs.

OPINION - Small cuts, probably Wall Street driven. Will have a psychological impact on consumer spending. Layoffs spreading to services industry, phase 2 of the downturn

  • (DiMartinoBooth)
    • Let’s bundle the headlines:
      • LendingTree to Cut 13% of Workforce; Sees $5.6M Charge
      • Electronic Arts Cuts 6% of Its Workforce in Video-Game Slump
      • Warner Music Group to Cut Headcount by ~270, or ~4%
      • IBM Spinoff Kyndryl Cuts ‘Small Percentage’ of 90k Workforce
  • (DiMartinoBooth)
    • Gotta love verbiage from @business reporter in a story about @salesforce gearing up for another round of layoffs “After years of hiring & big acquisitions, the software company is newly focused on profitability” We’re in a hot mess if firms have NOT been run to generate profits
  • (DiMartinoBooth)
    • Severance is expensive! @Accenture plans to cut about 19,000 jobs, ~2.5% of its workforce, over the next 18 months, according to a 10-Q filing. Sees $1.5 BILLION total business optimization costs, consisting of $1.2B in employee severance and other personnel costs.


OPINION - Charging EVs requires more power.. there more demand for natural gas as a bridge fuel

  • (BrianGitt)
    • Rapid electric vehicle growth could increase electricity use by up to 25%. “If most EVs continue to charge at night, then the state will need to build more generators, likely powered by natural gas, or invest in expensive energy storage.”
    • Stanford study warns against charging electric cars at home overnight
      • The study has recommended that the practice should change, with more EV owners charging their cars during the day at work or at public charging stations.
      • COUNTERPOINT - This energy still has to be generated, even with optimal solar and wind production