Time for Some Dumb Questions
Yes. It is that time of year again where things perplex me. No, it’s not about Joe Biden and his reelection. I get that, sort of.
My questions, because it’s Monday, are business related. I know I have some pretty smart readers out there so please help me.
My first question is this: Why would you have more than 25 dollars let alone 250,000 dollars in a bank savings account? The ones that are insured by the FDIC. When the bank you have your deposit in pays you .00025% interest compounded yearly, why would you keep any money in that institution? Why, because it is insured to 250,000 dollars?
Seems dumb if you ask me. You have that much available cash you obviously can do better in some T Bills or some other tax exempt product. They are fairly liquid and let’s be honest, the US Government is not going to default and there is an extremely small likelihood that your state tax exempt bonds will fail as well. You want liquidity? OK but how much liquidity do you actually need?
Years ago, the NYPost ran a story about some guy in East Hampton,NY going up to an ATM machine at a Chase branch and finding an ATM reciept for something like 90 million dollars. Rumors abounded and some genius concluded it was David Tepper’s receipt. Interesting because Tepper is really one of the smartest guys in the hedge fund world and he also owns the Carolina Panthers (maybe he isn’t as smart as all think). Why would he have 90 million in a checking or savings account getting zero interest basically?
Did he need to keep that much free cash available? Seriously, those guys have financial apparatus in place so that they can dip into some structured product and buy a 50 million dollar home while eating lunch. These are sophisticated chaps, they have means and they don’t put those means in zero interest earning products.
It just boggles my mind that all these rich Silicon Valley types keep any large sums of money on deposit in a commercial bank, no matter how solid. Why would I give JPMorgan 100 million dollars and not have that money work very very hard? So, my dumb question is this; When Republic National Bank says that they lost over 100 billion dollars in deposits where did those deposit sit? Not in a savings account.
Yes, I do know that big deposits get invested in various instruments and thats where these banks got into trouble, not realizing that rising interest rates make those funds less valuable. My question is why would you, as a rich tech guy drop 100 million off at some branch of a bank. There are a zillion places to deposit money and every wealth manager in the country knows where.
If you have that kind of money why not invest it in something where there is a reward greater than some minuscule interest baring account? Why not accept some risk?
Yes, I do understand a lot of those deposit are corporate accounts and I get that part of the equation but Republic always has catered to the very rich. Maybe they aren’t as smart as they think they are.
My next dumb question is why do we actually believe the various inflation numbers we kept being fed? The honest truth is that prices are still rising and no matter what the current inflation report says, I believe the grass roots inflation number is much higher than 4.9%. Go to the super market and you tell me if things are stabilizing. They aren’t.
The load of BS we heard about the price of eggs really sticks out. They first said it was an Avian flu situation and millions of hens had to be culled. Then it was supply chain garbage that was so far from the truth it made me ill. Then it’s some other nonsense about farmers reacting to higher grain prices? Huh? Grain prices have fallen in the last six months. Yet, Cal-Maine, the largest egg producer in the country by a large margin, just announced their record profits, which were on top of record profits. HMMM.
As I said from the very beginning of this inflation cycle, the producers are taking full advantage and they aren’t letting up. Everything that producers are doing is to their advantage finacially with no regard to the impact they cause. Yes, I know I sound like a liberal here but trust me I am not.
I am all for capitalism. I believe every company should be allowed to make as much money as they can given the normal economic environment.
During a normal economic environment, producer competition generally levels off price hikes. For example: Producer A makes a good widget and charges 15 dollars per widget. Producer B and C enter the marketplace with a decent widget and charge 13.50 per widget. Producer A will either reduce his price to stay competitive or reposition his product to keep that 12% pricing premium in place. Good chance he will lower his price and try to become more efficient thus continuing the same profitability will less overhead. It’s economics in the normal world.
No No, not anymore. Producer A raises his price to 17.50 because he can and those two competitors say “Hey, lets follow the leader and price ours at 17.00-17.50 and increase profits. The consumer loses.
Thats where we are now. That dynamic does not allow for price contraction. that dynamic does nothing to reduce inflation.
The Fed has been aggressive and it is kind of working but the only cure for this producer price exploitation is when the consumer says “No Mas” and truly pulls back.
Hey, that is a recession, no?
I have many more dumb questions but that’s it for now. Please email me and help me set my mind at ease.