Tuesday, January 31, 2023

California Reparations For Descendants Of US Slaves -- January 31, 2023

The effort continues to advance. 

In a not-ready-for-prime-time reply to a reader: 

The California reparations issue will be interesting to follow.

My hunch: the Asians will be most upset.

Asians, as a group, are probably the most successful (non-Hollywood) ethnic group. They, along with the Jewish population (Hollywood) will fund this $1 million to every slave descendant.

But having said that, it's a huge boon to the California economy and it very likely could happen.

All other efforts to tax wealth (as opposed to income) have failed. This might be one way California gets it done. It won't be an income tax, and they won't call it a wealth tax. They will call it a fairness fee or something that effect and financial holdings greater than $1 billion wil l be subject to a several hundred million one-time fee.

California has already figured out how to tax residents even after the residents leave the state.

Billionaires having to give up $100 million won't feel the loss (they will write part of it off on their federal tax) but the recipients (who will be highly represented in a few cities / suburbs) will make a huge difference on the local economy.

It will be fascinating to see if the Hollywood and professional athletes come out in favor of this.

If it works in California, expect to see if roll out nationwide.

Saturday, January 28, 2023

Would This Be A Goldilocks Economy? January 28, 2023

 If:

  • inflation: 3%
  • Fed rate: 4.5%
  • mortgage rate: 6%
  • unemployment: 3%
  • WTI: $65
  • interest payment on national debt as percent of tax receipts: 3%
  • new cars: prices trending down

Friday, January 27, 2023

More And More I Find The GOP Leaving Me Outside The Tent -- January 27, 2023

Guns: link here

Taxes

  • Guys like Trump paid $0 in federal taxes. I don't care if it was based on real estate losses. 

The $600 IRS Form 1099-K

  • Conspiracy theorists working overtime. I've received 1099s less than $2,000 over the years and it wasn't the end of the world.

Women's rights.

  • I don't agree with some of the extreme "things," but the GOP simply can't manage the optics.

Debt ceiling.

Ukraine. He just doesn't get it

Covid.

  • GOP unhappy with Biden's decision to delay "end of emergency declarations" from "immediately / now" to May 11, 2023. We're talking four months to allow national agencies and bureaucracies to prepare for the surge.

Immigration / southern surge

January 6https://twitter.com/bistrib/status/1619103717785059330

  • The GOP seems unable to accept the gravity of the attack on the Capitol / capital.

Rush Limbaugh, Bill Barr, and John Durham. Why did this story gradually, and then suddenly, disappear? Vox.



Thursday, January 26, 2023

Parting Shots -- January 26, 2023

Random comment:

At our monthly Schwab luncheon today I saw a lot of financial slides. 

It seemed every slide had at least one item that caught my eye but an item which the speaker did not address.

The question on everyone's mind was the question of "recession": are we already in a recession? If not, what is the likelihood of a recession? And when? And how severe? And how long?

The last recession was 2Q20 and lasted one month (various sources; here's one source). 

Looking at all the graphs today, one thing jumped out at me. It certainly appears that the average  American consumer is a) a whole lot better off; and, b) a whole lot better prepared going into 2023 than when that same average American consumer woke up on March 13, 2020.

One example: even when the "emergencies" were declared in early 2020, it took a long time to get stimulus money distributed, and the stimulus money fell well short of what was needed, and the stimulus money ended before the need for the aid ended. On the other hand, just as one example, pay for military retirees and social security recipients jumped 8.7% -- which will continue "forever," and likely increase again in 2024.

Another example, Americans placed a lot of cash in their savings accounts during the lock down. They are going into 2023 with a huge amount of cash in savings and already prices are coming down.

I think it's pretty much agreed that the Fed is more likely to overshoot than undershoot its target. But unlike what was going on in late 2019 / early 2020, the American consumer and the entire American economic system is so much better prepared for what comes next. Way better. 

Postage stamps

The one-ounce Forever stamp jumped from 60 cents to 63 cents on January 22, 2023 -- just four days ago. For the archives.  The news was so inconsequential, I don't recall seeing even one news story on same.

Apple

It looks like all the new Apple products are now available at Costco. One Apple purchase at Costco should justify one's annual Costco membership.

Auto Loan Defaults -- Automobile Repossessions -- January 26, 2023

Link here.

As I noted after their July meeting, the Federal Open Market Committee has moved the target rate more in the past two months than at any point since 1981, and they are not done yet. The Fed’s aggressive stance on tackling inflation has resulted in increased borrowing rates that will likely move to 3.5% or higher by year-end. The higher rates are designed to cool the hot economy, and there are signs that is happening. That’s the good news.

The bad news? High inflation in the U.S. economy is impacting lower-income households the most, as those households are least likely to be able to absorb the higher cost of energy, food, and shelter. For example, households in the lowest income quintile spend about half of their monthly expenses on energy, food, and shelter. While overall inflation was at a 41-year high of 9.1% year over year in June according to the CPI, the inflation rate for energy, food, and shelter was 11.7%.

With stressed household finances, many industry watchers are looking for a rapid increase in loan defaults and an increase in vehicle repossessions that would be of crisis proportions. Fortunately, so far, that is not what we are seeing on the ground. In fact, the data clearly show both defaults and repos are currently well below historical averages.  

Unfortunately, there is no government or third-party source that officially and accurately tallies repossession volumes. As the country’s largest auto auction, Manheim repossession volume trends serve as one proxy for the overall market. Working with Equifax data, Cox Automotive has also established a view of auto loan defaults to track the basis for repossessions. We define defaults as auto loans that are beyond 120 days past due but exclude loan accounts in bankruptcy proceedings.

Historically, the default volume is larger than the actual repo volume, as approximately 20% of auto loans in default never become a repossession. There are many reasons for this, including situation when the lender chooses not to pursue a repossession, such as when the vehicle value or default amount may not be worth the effort or when the consumer and lender work out some other plan.

To put current loan default and repossession volume in perspective, consider calendar year 2019, the last “normal” year before the global COVID-19 pandemic. In 2019, our estimates indicate there was a decade-high 2.1 million auto loan defaults, pushing the loan default rate to 2.9% of all loans. In 2020, thanks partly to loan accommodation and government stimulus, auto loan defaults dropped to 1.6 million, or 2.2% of loans. Last year, the loan default rate was less than 2%, the lowest in at least 16 years. Default volume was near 1.5 million.

Cox Automotive estimates that the share of defaults ending up as repossessions declined from the more typical 80% in 2020 to below 78% in 2021. As a result, 2021 likely saw approximately 1.1 million repos, down from an estimated 1.3 million in 2020 and 1.7 million in 2019.

Historical Repossession Volume and Auto Loan Default Rate

We believe that in 2021, and continuing in 2022, a larger share of auto loans in default are not producing repossessions. Therefore, due to a very low default rate and a smaller share of defaults turning into repossessions, the likely repossession rate in 2022 is currently, and will likely remain, very low by historical standards.

In 2020, Manheim observed a 22% decline in repossession volumes at wholesale auction sites across the U.S. That is consistent with the 24% loan default decline observed in Equifax data in 2020 and the 24% decline in estimated repossessions. Last year, repossession volumes at auction fell another 7%, while we estimate the U.S. saw a decrease of 12% in total repossession volumes to 1.1 million.

At 1.98%, the loan default rate in 2021 was particularly low – far from the more historically normal level of 2.9% seen in 2019. In the first quarter of 2022, the loan default rate jumped up to 2.27%, higher than in 2021 but still below historic norms. The rate declined in the second quarter, averaging 2.02%. With high used-vehicle values, low unemployment, historically high wage and income gains, and a still-elevated level of loan accommodations, the loan default rate year to date in 2022 remains very low at 2.14%.

We expect the default rate to increase through the remainder of 2022 and reach 2.3% for the year, thanks to 42-year high inflation and growing concerns about recession. An auto loan default rate of 2.3% would be a 16% increase from 2021 but would still be among the lowest levels in the past 15 years.

Leading credit indicators point to higher-than-normal delinquency rates but still low default rates. Cox Automotive analysis of Equifax data indicates that in June 2022, 1.49% of auto loans were severely delinquent. That was an increase from May’s 1.40% rate. Subprime loan severe delinquencies were at 5.75% in June, which was also an increase for the month, up from 5.36% in May 2022. For comparison: The aggregate severe delinquency rate was 1.32% in June 2019, and the subprime rate was 4.58%.

Importantly, even with higher delinquencies, default rates in 2022 remain well below 2019 levels. The June 2022 aggregate annualized default rate was 1.87%, and the subprime rate was 6.52%, compared to an aggregate rate of 2.48% and a subprime rate of 7.93% in June 2019.

High used-vehicle values provide more options for consumers who have fallen behind. Limited supply, higher prices, and lower rates also limit alternatives for consumers who go into default. As a result, consumers are likely to prioritize auto credit payments over other forms of credit. Finally, defaults and repossessions are heavily influenced by the share of subprime in the loan pool, as subprime accounts are responsible for more than 60% of defaults even though historically, they represent about 20% of auto loans. With fewer subprime originations since the pandemic started, the subprime share of the loan base has fallen to a low of 18%.

Unemployment Rate, Income Growth and Default Rate

When analyzing and forecasting auto loan defaults and repossessions, it is important to consider the unemployment rate and change in household incomes. During the Great Recession, when unemployment grew, incomes fell, and loan defaults increased to the highest point in the data series.

By contrast, the sudden rise in unemployment during early months of the pandemic coincided with large gains in income and a decline in the auto loan default rate.

Most recently, the default rate remains historically low as is the unemployment rate, while incomes are now transitioning into steady year-over-year gains.

These factors suggest that loan defaults and repossessions are likely to remain well below historic norms, even though volumes are growing as we see some attributes of the auto market normalize. Bottom line, there is no repo crisis. Repo volumes will likely be below normal for the next several years, contributing to a very supply-constrained wholesale vehicle market.

Tuesday, January 17, 2023

Count Your Blessings -- January 17, 2023


There's a simple, partial solution to this problem but the US Congress won't go there. Why?

  • every member in the US Congress is in the top 10% of richest Americans
  • there is not much separation between being in the top 10% and the top 1%
  • every member in the US Congress wants to move up
  • any "income policy" affecting the top 1% will affect the top 10% and no one in the US Congress will go there

 *****************************
The Other Side of the Story

Long essay on poverty in California. Link here


Michael Tubbs writes in his notebook and stars a word in black pen for importance: “agony.”

It’s impossible to wholly describe what he has learned about Californians living in poverty during his tour across the state, but that word seems to wrap it up.

The former mayor of Stockton, now the “economic mobility and opportunity” advisor to Gov. Gavin Newsom, has carried a gray notebook to 10 counties — and plans to visit the remaining 48 — as part of his work for his new nonprofit, End Poverty in California.

 

His mission: to listen to Californians describe their struggles, defeats and hopes and actually hear them — to end poverty “by elevating the voices of people experiencing it.”

Tubbs, 32, is revered as a national expert on guaranteed income programs for the poor. Raised by a single mother, he grew up in a low-income household in Stockton, once the largest U.S. city to declare bankruptcy, a place often judged for high crime and low literacy rates.

So what does he have to learn about poverty?

It turns out, a lot.

Along with “agony,” he has scribbled down broad thoughts and directives like “shelter is foundational” and “rewrite history.”

One note reads simply, “everyone is maxed out.”

He has had emotional epiphanies. He draws an arrow to how one woman describes her life — “living just to die”— and adds his own reaction beside it: “OMG!”

::

Outwardly, there’s nothing remarkable about Tubbs’ notebook. There’s no title, no decoration. But for people like Carmen Sierra, it holds a lot of power. 

In August, Sierra joins nearly 30 of her neighbors in a circle of folding chairs at the Antioch Senior Center, across from which a steady stream of ships pass through the San Joaquin-Sacramento River Delta to bigger cities.

Switching between English and Spanish, with her white hair pinned back, she is there to plead for help from the state with skyrocketing rent costs. She worries that she will never have grandchildren because her kids say they can’t afford it.

Longtime residents like Sierra are being priced out, they tell Tubbs, as landlords try to seize on those willing and able to pay more to live in California.

 

“There are 800 evictions in the pipeline,” a local official says. At one nearby apartment complex alone, there are eviction notices on 18 doors, an activist adds.

Newsom isn’t here, but this could be Sierra’s only chance to get his ear — through Tubbs.

“He promised us that if one day he became governor, he would work for our community as much as he can,” she says. “I understand it’s difficult now that he is at that table signing all the papers and new legislation, but he has to keep his promises. If you can bring the message, I’ll be so happy. We’re still waiting.”

 

Tubbs makes a note. He and Sierra agree that most of the folks in Sacramento writing legislation and creating policy don’t get it — and the notebook can help them understand.

Everywhere he goes, people ask him for help. But he asks for their help, too, leaning on the grassroots, community-driven style that got him elected mayor of Stockton in 2016 at age 26 — America’s youngest mayor at the time. Among those cheering his rise were Barack Obama and Oprah Winfrey.

“I have to put a report together for the governor, and I need you guys’ help,” Tubbs says in Antioch, casual in jeans and sneakers. “Sometimes people think I just be talking, and it’s not really rooted in what’s actually happening. So we’re spending this whole year going throughout the state and actually hearing from people about solutions people have.”

He promises that he is a thorn in the side of officials and gives Newsom “earfuls” on behalf of people across the state, but that’s not enough.

“The answers can come on high, but really it’s in communities organizing and building power,” Tubbs says. “I’m happy to use my little bit of influence and political capital to annoy people and have conversations, but I need you to push with me.”

Some people are willing and interested in doing something to make change. Others don’t believe that change is up to them, and it’s on people like Tubbs and Newsom. Who has time to agitate and lobby? For those dedicated to simply surviving, activism is a far-off luxury.

An Amazon warehouse worker in Fresno who is struggling to support her children and elderly mother says she has stopped going to City Council meetings because she doesn’t see the point. They aren’t listening, she tells Tubbs.

“All I do is pray and pray and pray. I’m tired,” she says. “When is it going to be enough, you know? We’re just pretty much working, working, working, working.”

::

Tubbs’ own story connects him with the people he meets on his tour. His mother was 16 when he was born. His father has been serving a life sentence since 1996. He has lost friends and family to gang and gun violence.

On the tour, he talks less about his personal life than he did when he campaigned for mayor, when he told his story over and over again. But the same thing happens: A recognizable stillness comes over his audience when they realize he is one of them.

His life was not supposed to go this way — to success, he says. His options should have been “prison or death.”

A question he has been asking since he was a preteen lies at the heart of the purpose of this statewide voyage.

“How in the world did I make it? And how do I empower other people from backgrounds like mine to upset the setup?”

::

According to the U.S. Census Bureau, 11.6% of Americans live in poverty. In California, it’s slightly more: 12.3%. In Tubbs’ hometown of Stockton: 16.3%.

In Fresno, a woman clutching a purse that has an image of Frida Kahlo sobs about losing her house because she and her husband, a farmworker, could no longer pay the mortgage.

“My American dream is over,” she says through a translator.

In Los Angeles, women recount how poverty landed them in jail and how poverty was waiting for them when they got out — an endless cycle of suffering.

“The moment you come up, you get set back,” one says.

In Oakland, fast-food workers allege wage theft and dangerous conditions. One woman says she’s afraid to go back to work — a co-worker’s face was cut by an angry customer who said his order was wrong — but needs the job.

Another group knowingly nods and applauds when a mother details avoiding a second job because a dollar more of income will kick her off much-needed housing aid.

Each stop on the so-called poverty tour is different, but common themes emerge.

Poor people aren’t lazy, they are exhausted; being poor is often a full-time job, where one miscalculation can lead to homelessness in an instant. Navigating the state’s support systems is confusing, and eligibility is precarious. In California, the line between the haves and have-nots is vast, while the line between needing help and qualifying for it can be razor-thin.

At nearly every stop Tubbs makes, there are desperation and tears. And everyone has questions.

“Do I have to be out on the streets to get help?”

“How can you leave the permanence of poverty?”

“What do I do now?”

With a furrowed brow, Tubbs offers up answers.

He directs people to existing programs, like legal aid for tenants fighting landlords. He promises to push for a solution to barriers to public assistance.

“What is working?” he asks.

Sometimes he can’t hide his shock.

“That’s wild to me,” he says when someone shares that they got only a three-day notice before being evicted.

Sometimes he needs a break.

“I’m sorry, could you just rewind?” he says. “Let me just pause and sort of reflect back what I’m hearing so that I make sure I leave here with an accurate understanding.”

Other times, he has nothing to say. Too often there are no answers.

“I’m enjoying not talking right now.”

A woman who tapped her 401(k) to pay rent says she plunged into a never-ending loop of referrals when she tried to get financial assistance to avoid eviction. They led nowhere.

To illustrate the disconnect separating people like her from the politicians claiming to tackle poverty, she points out that when she recently sought housing assistance, she was offered a free backpack for her child.

“How can a kid go to school with a backpack [but] without a roof over their head?” she asks, dumbfounded.

Tubbs doesn’t tell people to calm down or that things will be OK; he joins them in their anger.

“Your blood should be boiling, because we have all the tools we need to end poverty in California, yet we have so much of it,” he says at an event in Sacramento.

But sometimes, anger is pointed at him. At each stop, people want to know: Now what? What makes Tubbs different from the others?

“What are you going to do with the information that you’re taking away today? What exactly will be the end result of this?” a woman in San Bernardino County demands.

He has carved out a unique role. He’s no longer a politician, after losing reelection for Stockton mayor in 2020 to a Republican. But he has connections. He is invited to places that the people he’s trying to serve would never be. Still, he admits his limitations.

“If I was a governor, I could tell you what I’m going to do, but I’m not,” he says. “I advise the governor. So what we’re going to do is put together a summary for him and his economic staff.”

At EPIC, the nonprofit he founded in 2022, Tubbs has outlined an ambitious plan to end poverty in the state. Before he set out on the tour, his ideas included a reformed safety net that makes it easier for people to get the help they need, higher wages across the board and “housing as a human right.”

After his first year of listening sessions, he’s adding to the list.

His next big idea is a sort of sovereign wealth fund, “where we capture some of the wealth in California and make sure everyone gets a piece.” He knows that will drop jaws, but he maintains that it shouldn’t.

“We’re not asking for anything crazy. We’re not asking for anything radical. We’re not asking for anything more than what is our God-given right to just be able to live in this golden state with dignity, to live in this golden state and be able to provide for ourselves and our children,” he says.

The tour was necessary to give his bold plans texture — to make them real, Tubbs says.

“I wanted to make sure I knew what I was talking about and that it was rooted in people’s experiences actually living it today — not the poverty I was in 30 years ago,” he says. “My experience isn’t a moat but a bridge to other experiences; it gave me a willingness to listen.”

Even with his lived experience, he has been surprised by what he has heard on the road, calling it “heart-wrenching.”

Tubbs knows what it’s like to be poor as a Black man in Stockton. He doesn’t know what it’s like to be a young Latina juggling a job and child care in Fresno, or what it’s like to be denied help because of your immigration status in Los Angeles.

He was taken aback by how common it is for working people to be on the brink of homelessness.

“I learned so much, particularly in the way poverty intersects,” he says. “It was really jarring for me.”

But many of the stories he has heard are familiar.

“What I wasn’t surprised by was how intelligent and resilient and hardworking folks living in poverty are,” he says.

He knows what it’s like to worry about food. He remembers his mother crying, just like women he has met on the road, about how to make ends meet.

He knows how the sound of gun shots makes for bad sleep.

Reading through his notebook, Tubbs seems obsessed with the frustrating existence of “the two Californias,” and he has managed to live in both — from Stockton to Stanford, with stints at Google and the White House, back to Stockton again. From voter to mayor to special advisor to the governor.

He is frustrated by a troubling juxtaposition: the stories he has heard this past year, and the practices that even progressive state leaders herald as best-in-the-nation poverty policy.

“Folks complain about poverty all the time, even though they don’t use the word ‘poverty,’” he says. “Any community talking about housing security and homelessness, you’re talking about poverty. When you’re talking about violence, you’re talking about poverty. When you’re talking about educational attainment and reading scores, you’re talking about poverty. Many of the things that frustrate us about our communities — at its core, poverty is the issue.”

Jessica Nowlan, executive director of the Young Women’s Freedom Center, in June hosted the first stop on the tour and set the tone. Her California — where young people work in the “street economy,” selling drugs or sex to get by, is the real California, she says. There is no suitable policy without voices like hers, which focus on “community-based solutions.”

“The young people we work with are figuring out how to make money every night on the streets, because there’s no other options,” she says. “And you’re next to the Twitter headquarters, and everybody has iPhones and Teslas, and there’s absolutely no onramp. There’s no ability to get there.”

Nowlan wonders if Tubbs can help people get there.

Sometime after that first stop, Tubbs wrote in his notebook a question. From the wording, it’s hard to discern who posed it — if someone asked it, or if he was asking himself.

“If you give up, who is left?”

 

Keeping The Links -- January 17, 2023

South Texas: Mexico -- a global role for LNG?

Texas, more:

Forecast: really cold -- global warming --

777:

Twitter:

Peter Zeihan:

Investing, earnings:

Biden: