April 1, 2023 | Consumer Confidence, Apple & Disney, Binance and California Down Payment Assistance Program

Smart Investing with Brent & Chase Wilsey

Consumer Confidence
I was happy to see the consumer confidence number come in today at 104.2 for March which was up from February’s 103.4. For me this is another positive sign that we will not have a major recession, and that consumers will continue to spend on goods and services. I want to emphasize this is a good number not a great number. The reason I say that was from 2008 to 2012 the confidence number was below 60 but in 2019 it rose to nearly 140. So, I am happy with the current number for now.

Apple and Disney
There is talk today, that Apple may be buying Disney. No numbers have been released yet but I do not believe this will take place or that it would make any sense for Apple. Apple may be looking for the media side to help grow Apple TV but if you buy Disney, you also must take care of the theme parks and the cruise lines which Apple has no experience or I feel no desire to do. They could spin those off, but I think if they are going down that path, they would be far better to buy either a Warner Bros. or Paramount, which are pure media plays. Also keep in mind Apple has not done any major purchases in recent years and its largest came in 2014 when it bought Beats for $3 billion. To buy Disney the current market cap is nearly $180 billion, versus Warner Bros. at nearly $37 billion and Paramount is just over $14 billion.

Binance
This has been quite the week for Binance which is the world’s largest crypto exchange. You wouldn’t know it from the price of Bitcoin, which has now climbed to over $28,000. It defies logic, and I’m sure more people will get burned once again. The CFTC known as the Commodity Futures Trading Commission has charged Binance with operating illegally in the US and violating rules to prevent illicit financial activity. Billions of dollars have been walking out the door from the company, and as I said months ago, Binance would be the next crypto company to fall. As these crypto companies continue to fall, I don’t know how Bitcoin can stay at these levels.

Money Market Funds
I was surprised to learn that roughly $120 billion flowed into money market funds in mid-March bringing the total assets to $5 trillion. The reason I was surprised is that money market funds are not insured, and if consumers were leaving the bank for safety the money was insured at the bank. Sometimes fear causes consumers to do silly things. One should stop and think before making financial moves.

Banking Industry
Our banking industry has gone through major changes compared to just 15 years ago when the big banks were viewed as bad. They have now become the safest place to keep your money, or so people feel. In 2008 the feeling was we don’t want big banks, but that has shifted as the share of total banking assets controlled by the 25 largest banks is now at 68% which is more than double what it was 30 years ago. The number of US banks hit an all-time high of 30,456 banks in 1921 and as of 2021 there were just 4,236 FDIC insured banks. There is an ongoing consolidation of banks and I believe it will continue going forward.

LA Real Estate Tax
Starting April 1st, LA will begin implementing a large tax on real estate valued over $5 million. I think this is a terrible idea especially since it applies to not just mansions, but multifamily and commercial property as well. Sellers of property will have to pay 4% of the total sales price for properties between $5 and $10 million and for properties over $10 million the tax will be 5.5%. The tax is on top of the current 0.45% transfer tax. I don't know who in their right mind would buy in LA when you can buy in surrounding markets and avoid the tax. I believe this will make the supply problem even worse and reduce demand in the higher market in LA. Unfortunately, I don't believe this will fix the affordable housing/homeless problem in LA like the bill was intended.

Pending Home Sales
Pending home sales showed a small month over month increase of 0.8% in the month of February, but compared to last year sales were 21.1% lower. Pending home sales look at contracts that were signed in the month. I believe these sales will continue to have difficult year-over-year comparisons. There has been a slight increase in mortgage demand from recent weeks as rates have fluctuated, but compared to last year the demand for purchase applications was 35% lower. As for prices we did get data from the S&P CoreLogic Case-Shiller U.S. National Home Price index, and it marked the 7th straight month of declines. In January prices fell 0.5% compared to the prior month. They were still 3.8% higher than the previous year. Here in San Diego though prices were 1.4% lower compared to January 2022. I will say, be careful comparing this index against other ones as it does lag by a month. We are now getting data for the month of February in many cases, but this index is for the month of January. My expectation is that this index will turn negative on an annual basis in the coming months.

Buy Now Pay Later
Apple has entered the buy now pay later arena, which I believe will put a lot of downward pressure on the stock prices of some of those companies like PayPal. It makes it very convenient for consumers who use apple since it’s already on their phone. It is a simple concept, buy now up to $1000 and make four easy payments with no interest or fees. I do always worry about consumers loading themselves buy now pay later debt and becoming over extended, but for Apple, this is just another service that they provide to their customers for convenience.

Global Trade
In a recent trade agreement with China and Brazil, the deal was done using China’s currency the Yuan. You may be hearing that the dollar is not the strong currency any longer that is used in trade deals, but that is still far from true. Currently when it comes to global trade, the Yuan accounts for 3% of trade deals and the United States dollar accounts for 87%. We still have a very comfortable lead, but you must be aware that China is doing everything it can to get rid of using the dollar. Currently one Yuan trades for $.15.

Store Pricing
I’ve always been a little suspect of going up to the checkout register as a person scans very quickly multiple items, wondering am I really getting the right price? Unfortunately, my fears have been verified from multiple states that retailer Dollar General is charging a higher price at the checkout register than the advertised price. Examples include a six pack of soda and a frozen pizza which were $1.25 higher than the shelf price, disposable cups were $1.70 higher and chicken strips were $2.80 higher. I was also disappointed to learn that state regulators on average allow up to a 2% failure rate on pricing. Dollar General has the highest penalties in states for over pricing the items, but it does happen at Walmart and even Circle K but to a lower degree. What I also thought was concerning was all the miss priced items that I read about were always priced higher, not one was priced lower. I guess this would be a good argument for self-scanning so you can verify the price, but now I’m thinking the price is not even listed on the item and you would have to write down each price you saw on the shelf for the product. Sometimes technology has its downfall.