A lethal combination of rising property taxes and stagnant incomes has forced many Illinoisans to rethink their relationship with their state. More than 1.5 million net residentshave already fled the state since 2000 – and you can’t blame others for thinking about joining them.
Property taxes have become punitive in Illinois. We’ve written about how these taxes have destroyed the equity in people’s homes across the state. Many familieshave done the math, and whether they’re in thestruggling south suburbsof Chicago or theaffluent North Shore, they’ve decided to leave Illinois behind.
The traditional method for measuring the burden of property taxes is to look at a household’s property tax bill and compare it to a home’s value. Under this method, Illinoisans pay the highest property taxes in the nation.At 2.7 percent, Illinoisans pay far more than residents in neighboring states – twice more than those in Missouri and three times more than residents in Indiana.
That fact is outrageous on its own.
But to really understand the pain that these taxes inflict on Illinoisans, it’s important to compare property tax bills to household incomes. After all, those bills are paid straight from people’s earnings.
The unfortunate reality is that Illinois incomes have been stagnant for years – and falling when you consider the impact of inflation.
Between 2000 and 2017, Illinois median household incomes increased just 34 percent, far short of inflation. In contrast, household property tax bills are up 105 percent,according toIllinois Department of Revenue data.
The net result: Property tax bills per household have grown three times faster than household incomes since 2000.
That means more of Illinoisans’ hard-earned incomes are going toward property taxes and less towards groceries, college tuition, and retirement savings. In 2017, 6.73 percent of household incomes went toward property taxes, up from 4.3 percent in 2000.
That’s a 55 percent increase in the effective tax rate.
The detailed data is below:
Property taxes, county by county
Residents of Lake County pay the highest property taxes in Illinois when measured as a percentage of household incomes. In 2000, Lake County residents paid 6.5 percent of their household incomes toward property taxes. Today, residents pay 9.1 percent. That’s a 40 percent increase. The average Lake County property tax bill is now over $7,500 per household.
Meanwhile the residents of the other collar counties and Cook pay more than 7 percent of their incomes to property taxes, with average bills ranging from $4,500 to $6,200 a year.
Overall, the collar counties pay the highest taxes as a percent of income in the state. But it’s not just the Chicago suburbs that are taking a hit. Taxpayers statewide have seen their taxes rise.
In fact, most of the counties that have had the biggest tax growth, in percentage terms, are found downstate. Hardin County residents, though they pay low rates, have seen them jump 97 percent since 2000. Residents in Pulaski County, have seen their rates go up by 78 percent.
Cook County comes next at 75 percent, but after that it’s all deep downstate again: Calhoun (70 percent), Greene (66 percent), Jersey (65 percent), and Pope County (62 percent).
Taxes too high
Any way you cut it, Illinoisans are being punished by property taxes.
That’s prompted some, including new Gov. J.B. Pritzker, to propose a reduction in property taxes by increasing income taxes.
But that would do Illinoisans no good. Illinoisansalready paythe nation’s 6th-highest rates when you lump all state and local taxes together.
Shifting them around won’t help when the total tax bill is too high to begin with. What Illinoisans need is tax cut, not a tax shift.
Trade is a fundamental element of human survival. No one person can produce every single product or service necessary for a comfortable life, no matter how Spartan their attitude. Unless your goal is to desperately scratch an existence from your local terrain with no chance of progress in the future, you are going to need a network of other producers. For most of the history of human civilization, production was the basis for economy. All other elements were secondary.
At some point, as trade grows and thrives, a society is going to start looking for a store of value; something that represents the man-hours and effort and ingenuity a person put into their day. Something that is universally accepted within barter networks, something highly prized, that is tangible, that can be held in our hands and is impossible to replicate artificially. Enter precious metals.
Thus, the concept of “money” was born, and for the most part it functioned quite well for thousands of years. Unfortunately, there are people in our world that see economy as a tool for control rather than a vital process that should be left alone to develop naturally.
The idea of “fiat money”, money which has no tangibility and that can be created on a whim by a central source or authority, is rather new in the grand scheme of things. It is a bastardization of the original and much more stable money system that existed before that was anchored in hard commodities. While it claims to offer a more “liquid” store of value, the truth is that it is no store of value at all.
Purveyors of fiat, central banks and globalists, use ever increasing debt as a means to feed fiat, not to mention the hidden tax of price inflation. When central bankers get a hold of money, it is no longer a representation of work or value, but a system of enslavement that crushes our ability to produce effectively and to receive fair returns for our labor.
There are many people today in the liberty movement that understand this dynamic, but even in alternative economic circles there are some that do not understand the full picture when it comes to central banks and fiat mechanisms. There is a false notion that paper currencies are the life blood of the establishment and that they will seek to protect these currencies at all costs. This might have been true 20 years ago or more, but it is not true today. Things change.
The king of this delusion is the US dollar. As the world reserve currency it is thought by some to be “untouchable”, a pillar of the globalist structure that will be defended for many decades to come. The reality, however, is that the dollar is nothing more than another con game on paper to the globalists; a farce that they are happy to sacrifice in order to further their goals of complete centralization of world trade and therefore the complete centralization of control over human survival.
That is to say, the dollar is a stepping stone for them, nothing more.
The real goal of the globalists is an economic system in which they can monitor every transaction no matter how small; a system in which there is eventually only one currency, a currency that can be tracked, granted or taken away at a moment’s notice. Imagine a world in which your “store of value” is subject to constant scrutiny by a bureaucratic monstrosity, and there is no way to hide from them by using private trade as a backstop. Imagine a world in which you cannot hold your money in your hand, and access to your money can be denied with the push of a button if you step out of line. This is what the globalists really desire.
Some people might claim that this kind of system already exists, but they would be fooling themselves. Even though fiat currencies like the dollar are a cancer on free markets and true production, they still offer privacy to a point, and they can still be physically allocated and held in your hand making them harder to confiscate. The globalists want to take a bad thing and make it even worse.
So, the question arises – How do they plan to make the shift from the current fiat paper system to their “new world order” economy?
First and foremost, they will seek a controlled demolition of the dollar as the world reserve currency. They have accomplished this in the past with other reserve currencies, such as the Pound Sterling, which was carefully diminished over a period of two decades just after WWII through the use of treasury bond dumps by France and the US, as well as the forced removal of the sterling as the petro-currency. This was done to make way for the US dollar as a replacement after the Bretton Woods agreement in 1944.
The dollar did not achieve true world reserve status, though, until after the gold standard was completely abandoned by Nixon in the early 1970’s, at which point a deal was struck with Saudi Arabia making the dollar the petro-currency. Once the dollar was no longer anchored to gold and the world’s energy market was made dependent on it, the fate of the US economy was sealed.
Unlike Britain and the sterling, the US economy is hyper-dependent on the dollar’s world reserve status. While Britain suffered declining conditions for decades after the loss, including inflation and high interest rates, the US will experience far more acute pain. A complete lack of adequate manufacturing capability within US borders has turned our nation into a consumer based society rather than a society of producers. Meaning, we are dependent on the demand for our currency as a reserve in order to enjoy affordable goods from outside sources (i.e. other manufacturing based countries).
Add to this lack of production ability the fact that for the past decade the Federal Reserve has been pumping trillions of dollars into financial markets around the globe. This means trillions of dollar held overseas only on the promise that those dollars will be accepted by major exporters as a universal store of value. If faith in that promise is lost, those trillions could come flooding back into the US through various channels, and the buying power of the currency would crumble.
There is a delusion within the American mainstream that even if such an event were to occur, the transition could be handled with ease. It’s fantastical, I know, but never underestimate the cognitive dissonance of people blinded by bias.
The rebuilding of a production base within the US to offset the crisis of losing the world reserve currency would take many years; perhaps decades. And this is in the best case scenario. With a plummeting currency and extreme price inflation, the cost of establishing new production on a large scale would be immense. While local labor might become cheap (in comparison with inflation), all other elements of the economy would become very expensive.
In the worst case scenario there would be complete societal breakdown likely followed by an attempted totalitarian response by government. In which case, forget any domestically funded economic recovery. Any future recovery would have to be funded and managed from outside the US. And here is where we see the globalist plan taking shape.
The banking elites have hinted in the past how they might try to “reset” the global economy. As I’ve mentioned in many articles, the globalist run magazine The Economist in 1988discussed the removal of the dollarto make way for a global currency, a currency which would be introduced to the masses by 2018. This introduction did in fact take place as The Economist declared it would. Blockchain and digital currency systems, the intended foundation of the next globalist monetary structure, received unprecedented coverage the past two years. They are now a part of the public consciousness.
Here is how Brandon Smith, Alt-Market believes the process will unfold:
The 2008 crash in credit and housing markets led to unprecedented stimulus by central banks, with the Federal Reserve leading the pack as the greatest source of inflation. This program of bailouts and QE stimulus conjured an even bigger bubble, which many alternative analysts have dubbed “the everything bubble”.
The growing “everything bubble” encompasses not just stock markets or housing, but auto markets, credit markets, bond markets, and the dollar itself. All of these elements are now tied directly to Fed policy. The US economy is not only addicted to stimulus measures and near-zero interest rates; it will die without them.
The Fed knows this well. Chairman Jerome Powell hinted at the crisis that would evolve if the Fed ever cut off stimulus, unwound its balance sheet and hiked rates in the October 2012 Fed minutes.
Without constant and ever expanding stimulus measures, the false economy will implode. We are already seeing the effects as the Fed cuts tens-of-billions per month in assets from its balance sheet and hikes interest rates to their “neutral rate of inflation”. Auto markets, housing markets, and credit markets are in reversal, and stocks are witnessing the most instability since the 2008 crash. All of this was triggered by the Fed simply exerting incremental rate hikes and balance sheet cuts.
It is also important to note that almost every US stock market rally the past several months has taken place while the Fed’s balance sheet cuts were frozen. For example, for the past two-and-a-half weeks the Fed’s assets have onlydropped by around $8 billion; this is basically a flat line in the balance sheet. It should not be surprising given this pause in cuts (in tandem with convenient stimulus measures by China) that stocks spiked through early to mid-January.
That said, Fed tightening will start again, either by rate hikes, asset cuts, or both at the same time. The Fed’s purpose is to create a crisis. The Fed’s goal is to cause a crash. The Fed is a suicide bomber that does not care what happens to the US system.
But what about the dollar, specifically?
The Fed’s tightening policies do not only translate to crisis for US stocks or other markets. I see three primary ways in which the dollar can be dethroned as the world reserve.
1) Emerging economies have become addicted to Fed liquidity over the past ten years. Without continued access to the Fed’s easy money, nations like China and India are beginning to seek out alternatives to the dollar as a world reserve. Contrary to the popular belief that these countries would “never” be able to decouple from the US, the process has already begun. And, it is the Fed that has actually created the necessity for emerging markets to seek out other sources of liquidity besides the dollar.
2) Donald Trump’s trade war is yet another cover event for the loss of reserve status. I would note that the primary rationale for tariffs was to balance the trade deficit. The trade deficit with China has done the opposite and is continually expanding each month. This suggests much higher tariffs on China would be required to reduce the imbalance.
It must also be understood that the trade deficit with China has long been part of a larger agreement. China is one of the largest buyers of US debt in the world and has continued to utilize the dollar as the world reserve currency. If the trade war continues through this year, it is only a matter of time before China, already seeking dollar alternatives as the Fed tightens liquidity, will start using its US treasury and dollar holdings as leverage against us.
Bilateral agreements between multiple nations that cut out the dollar are being established regularly today. If China, the largest exporter/importer in the world, stops accepting the dollar as the world reserve, or if they start accepting other currencies in competition, then numerous other nations will follow their lead.
3) Finally, if the war of words between Trump and the Fed becomes something more, then this could be used by the establishment to undermine faith in US credit. If Trump seeks to shut down the Fed entirely, the globalists are handed yet another perfect distraction for the death of the dollar. I can see the headlines now – The “reset” could then be painted as a “rescue” of the global economy after the “destructive actions of populists” who “bumbled into fiscal destruction” because they were blinded by an “obsession with sovereignty” in a world that “requires centralization to survive”.
The specifics of the shift to a global currency are less clear, but again, we have hints from the globalists. The Economist suggests that the US economy will have to be taken down a few pegs, and that the IMF would step in as the arbiter of Forex markets through its SDR basket system. This plan was echoed recently by globalist Mohamed El-Erian in an article he wrote titled “New Life For The SDR?”. El-Erian also suggests that a global currency would help to combat the “rise of populism”.
The Economist notes that the SDR would only act as a “bridge” to the new global currency. Paper currencies would still exist for a time, but they would be pegged to the SDR exchange rates. Currently, the dollar is only worth around .71 SDR’s. In the event of the loss of world reserve status, expect this exchange rate to drop significantly.
As the global crisis deepens the IMF will suggest a “reset” to a more manageable monetary framework, and this framework will be basedon blockchain technology and a crypto currencywhich the IMF has likely already developed. The IMF hints at this outcome in at least two separate white papers recently published which herald a new age in which cryptoas the next phase of evolution for global trade.
I predict according to the current pace of the trade war, Fed liquidity tightening and de-dollarization that threats to the dollar’s world reserve status will hit the mainstream by 2020. The process of “resetting” the global monetary system would likely take at least another decade to complete. The globalist preoccupation with their “Agenda 2030” sustainable development initiatives suggests a decade long timeline.
Without ample resistance, the introduction of the cashless society will be presented as a natural and even “heroic” response by the globalists to save humanity from the “selfishness” of destructive nationalists. They will strut across the world stage as if they are saviors, rather than the villains they really are.
Although she has only been in Congress for less than a month, Alexandria Ocasio-Cortez is getting more attention than any other member of the U.S. House of Representatives. She has been setting social media ablaze with her posts about the inner workings of Congress, the mainstream media is constantly gushing about her, and now she has been tapped to teach her fellow Democrats“how to be good at Twitter”. She is getting rave reviews for taking on the corrupt establishment in both political parties, but the bad news is that she literally doesn’t know what she is talking about on virtually every single important issue. She is like a five-year-old kid that has been set free to run wild in a toy store, and her misdirected enthusiasm is bound to get her into all sorts of trouble.
It is a good thing to be idealistic, as long as you have the right ideals
Unfortunately for Ocasio-Cortez, her head has been filled with all sorts of socialist nonsense. During a recent interview with 60 Minutes, she proposed raising the top income tax rate to“as high as 60 or 70 percent”…
“You look at our tax rates back in the ’60s and when you have a progressive tax rate system, your tax rate, let’s say from zero to $75,000, may be 10 percent or 15 percent, etc. But once you get to the tippy-tops — on your 10 millionth dollar — sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder, you should be contributing more.”
Do you think that anyone is going to want to work hard to earn an extra dollar once their income reaches a level where each extra dollar is being taxed at 70 percent?
The truth is that socialism kills the incentive to work hard, and it is hard work that fuels economic growth.
If somebody works really hard to earn a dollar, it is immoral for somebody else to come in and grab 70 percent of that dollar just because they can. But an increasing percentage of Americans are fully embracing the idea of “radical wealth redistribution”, and a shocking new poll contains some numbers that are almost too crazy to believe.
According to this new survey, 59 percent of all Americans support raising the highest tax rateto 70 percent…
Rep. Alexandria Ocasio-Cortez(D-N.Y.) and her Republican critics have both called her proposal to dramatically increase America’s highest tax rate “radical” but a new poll released Tuesday indicates that a majority of Americans agrees with the idea.
In the latest The Hill-HarrisX survey — conducted Jan. 12 and 13 after the newly elected congresswoman called for the U.S. to raise its highest tax rate to 70 percent — a sizable majority of registered voters, 59 percent, supports the concept.
Even as I write this article, I am still having a hard time wrapping my head around the fact that most Americans want tax rates to be that high.
But this is the reality of the “Robin Hood mentality” that is sweeping the nation. Most people seem to think that we should “take from the rich” and “give to the poor”, and that even includes a lot of so-called “conservatives”.
In fact, that same survey found that 45 percent of Republicans actually support what Ocasio-Cortez is proposing…
Increasing the highest tax bracket to 70 percent garners a surprising amount of support among Republican voters. In the Hill-HarrisX poll, 45 percent of GOP voters say they favor it while 55 percent are opposed to it.
Independent voters who were contacted backed the tax idea by a 60 to 40 percent margin while Democratic ones favored it, 71 percent to 29 percent.
What in the world has happened to us?
We have already traveled very far down the road toward socialism, and now key leaders on the left such as Ocasio-Cortez want to take us the rest of the way.
This is why we need a new generation of leaders in America that are willing to do more than just get elected to office. We need educators that are willing to work hard to win the battle for hearts and minds. We need men and women of character that will be able to communicate why the values that America was founded upon are so great and why we need to return to them. And we need fighters that have the courage to intellectually contend for the future of our nation while there is still time to do so.
Even though virtually everything that she believes is wrong, at least Alexandria Ocasio-Cortez has enough passion to stand up for what she believes. That is more than can be said for the soy latte drinking wimps on the right that never want to offend anyone so that they can extend their political careers for as long as possible.
At this point the left is rapidly taking control of the national conversation, and Rasmussen just released a national survey that shows that if Ocasio-Cortez ran for president in 2020she would almost have as much support as Trump…
A new Rasmussen Reports national telephone and online survey finds that, if the 2020 presidential race was between Trump and Ocasio-Cortez, 43% of Likely U.S. Voters would vote for Trump, while 40% would vote for Ocasio-Cortez. A sizable 17% are undecided.
Fortunately, Ocasio-Cortez is not old enough to run for president yet.
But someday she will be
We are in a tremendous amount of trouble as a nation, and we are rapidly running out of time to do anything about it.
Shock video shows staffers suffering cruel punishment
Workers from a Chinese beauty products company have been forced to crawl on the street after failing to reach their annual targets.
The staff were on all fours as they made their way through busy traffic in the Chinese city of Tengzhou, according to local reports.
Pedestrians of the city in eastern China were shocked by the scene as they stopped to watch as the employees moving forward on their hands and knees, videos show.
A customer shows his receipt for recreational marijuana in Berkeley (KTVU.com).
$1 billion: that’s how much California initially anticipated receiving in annual tax revenue by legalizing the sale of recreational marijuana. Here’s what actually happened:
CA will likely bring in just under $500 million in marijuana tax revenue this fiscal year.
That’s lower than the $630 million forecasted in former Governor Jerry Brown’s budget.
Current Governor Gavin Newsom’s new budget projects the state will generate $355 million in marijuana excise taxes by the end of June according to press accounts.
That is worse than underwhelming. Consider that Washington State received $319 million in legal marijuana taxes and license fees in fiscal year 2017, while Colorado collected $247 million in 2017. They have populations of just 7.5 million and 5.7 million respectively. California is the largest US state with nearly 40 million people.
Why is this important? There was a wave of Democratic gubernatorial candidates that ran on legalizing recreational marijuana to boost state tax revenue in the last midterm elections. Many of them won and are trying to pass a bill through their state legislatures as soon as this year. These include: New York, Illinois, Connecticut, Minnesota, New Mexico, and New Jersey.
If new states want to legalize retail cannabis sales and meet their respective tax revenue goals, they need to heed the lessons of California and public equity investors in the space likewise should understand the issue as they assess the size of the addressable market here. Marijuana legalization in the US is far more complex than either group likely realizes.
With that said, there’s three major issues at play in California:
#1 – The taxes are too high, allowing the black market to remain relevant. Fitch predicted this consequence in 2017: “California’s high cannabis taxes will encourage black market sales and limit potential local government revenues from this new market… Effective tax rates on nonmedical cannabis will be as high as 45% when accounting for both state and local levies… By comparison, Oregon taxes nonmedical cannabis at approximately 20% and Alaskan taxes range from 10% to 20%.”
The upshot: Colorado, Washington and Oregon all had to reduce their marijuana tax rates after legalization to better compete with the black market. California should follow suit, but other states should learn and get it right out of the gate.
#2 – California may have legalized the sale of retail cannabis, but most cities still prohibit it. Fewer than 20% of cities in the state allow stores to sell recreational marijuana (89 out of 482). For example, 93% of Los Angeles County’s 88 cities ban retail sales. One solution that’s supposed to go into effect: businesses will be allowed to deliver anywhere in the state aside from public land in the hopes that people use those services rather than buy from the black market in communities where they don’t have access to legal adult-use sales.
#3 – The regulations are too onerous and complicated. There are a lot of problems here, so we’ll just highlight a couple.
The Bureau of Cannabis Control has issued about 550 temporary and annual licenses to marijuana retail stores compared to initial projections of upwards of 6,000 in the first few years. To put this in perspective, the Los Angeles Times reports that “some 1,790 stores and dispensaries were paying taxes on medicinal pot sales before licenses were required starting Jan. 1.”
Why haven’t they issued more licenses? Marijuana businesses need a local license before getting one from the state. That’s tough to do when retail sales are banned in most cities. Obviously, this is not an issue for the black market, which is not restricted by location or burdened by regulatory and compliance costs.
Moreover, California’s marijuana market is still governed by a slew of emergency regulations. The Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture have tweaked these regulatory provisions over the past year, and are still working on final non-emergency regulations to adopt. In the meantime, marijuana businesses have been left confused and forced to adapt to regulatory changes, such as different labeling requirements on marijuana products.
To sum up, we’ve covered the legal retail marijuana industry since its infancy five years ago and remain enthusiastic about its prospects. That said, California is a key example of how the same regulations that made the recreational cannabis market possible can also hurt its growth. The right deregulation will ultimately drive growth rates for the industry and valuations for public pot companies over time. This is why it is taking so long for New Jersey, for example, to legalize retail marijuana sales through its state legislature. Lawmakers have the benefit of learning from states like California that missed the mark, even with the tailwind of an entrenched medical market with existing infrastructure and a distribution pipeline.
The bottom line for investors in public pot stocks: pay attention to state and local tax rates and regulations as new markets open up because this under appreciated factor will profoundly affect the industry’s total addressable market.
(ZeroHedge) One week ago whenwe wrote that with PG&E facing a threat of an imminent bankruptcy (which we now know will soon be realized), the most bizarre development in this latest corporate fiasco was that until the first week of January, both S&P and Moody’s had rated the California utility with over $30 billion in debt as investment grade even as its bonds and stocks were cratering ahead of what investors deemed to be an imminent Chapter 11 filing.
And while we haveextensively discussedthe multi-trillion threat posed by “falling angel” companies, or those corporations rated BBB – the lowest investment grade equivalent rating – as they slide into junk territory, the recent events surrounding PG&E highlight an even greater blind spot in the corporate bond arsenal: that of the failing angel.
As Bank of America’s Hans Mikkelsen wrote in a recent research note, Investment Grade defaults – defined as defaults within one year of being rated IG – are “rare and unpredictable” (even if in the case of PG&E, itsdownfall was quite obvious to many) as globally in more than half of years historically there were no HG defaults at all.
As such, Monday’s pre-announcement by The Pacific Gas and Electric Company (PCG) that it intends to file Chapter 11 by January 29th…
… is a singular event and if the company follows through, it will become the third largest IG default since 1999, behind Lehman and Worldcom, with $17.5bn of index eligible debt.
The chart below lists all US index defaults since 1999 that occurred within one year of being included in ICE BofAML benchmark US high grade index. The three largest defaults in terms of index notional were Lehman ($34.9bn), WorldCom ($22.9bn) and CIT Group ($12.4bn).
In fact, as BofA adds, if PG&E does file before the end of the month the company will become a member of a much more exclusive group of “Failing Angel”, formerly-IG companies consisting of Enron, Lehman and MF Global that defaulted directly out of IG, before making it into the HY index as Fallen Angels.
Ironically, as Mikkelsen adds, until recently he had looked at PCG as set to become a large Fallen Angel from BBB accounting for 1.4% of the HY market. Now it appears the company plans to bypass the HY market, and proceed straight to default.
So as the world obsesses over the risk of “falling angels”, just how many other “failing angels” are hiding in the shadows, waiting for their moment to wipe out billions in stakeholder value as the economy continues to slowdown to what is now an inevitable recession, and just what will the knock-on effects of this “historic” default be? We will find out in less than two weeks.
(Wells Fargo Earnings Supplement) When ZeroHedge reported Wells Fargo’s Q3 earningsback in October, they drew readers’ attention to one specific line of business, the one they have repeatedly dubbed the bank’s “bread and butter“, namely mortgage lending, and which as they then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, sliding just shy of the post-crisis lows recorded in late 2013.”
Well, unfortunately for Wells, despite the sharp drop in yields in Q4 which many had expected would boost mortgage lending or at least refi activity for the bank that was until recently America’s largest mortgage lender, the decline in mortgage activity has continued, because buried deep in its presentation accompanyingotherwise unremarkable Q4 results (modest EPS best; sizable revenue miss), Wells just reported that its ‘bread and butter’ is once again missing, and in Q4 2018 the amount in the all-important Wells Fargo Mortgage Application pipeline shrank again, dropping to $18 billion, the lowest level since the financial crisis.
Meanwhile, Wells’ mortgage originations number, which usually trails the pipeline by 3-4 quarters, was just as bad, dropping a whopping $12BN sequentially from $46 billion to just $38 billion, and effectively tied for the lowest print since the financial crisis. Putting this number in context, just six years ago, when the US housing market was actually solid, Wells was originating 4 times as many mortgages, or about $120 billion.
And since this number lags the mortgage applications, we expect it to continue posting fresh post-crisis lows in the coming quarter especially if rates resume their rise.
Going back to the headline numbers, here is a recap of the key metrics:
4Q adj. EPS $1.21, est. $1.19
4Q revenue $20.98 billion, Exp. $24.7BN
4Q net interest income $12.64 billion
4Q loans $953.11 billion vs. $942.3 billion q/q
4Q mortgage non-interest income $467 million
4Q residential mortgage originations $38 billion
4Q margin on residential held-for-sale mortgage originations 0.89%
4Q non- performing assets $6.95 billion
4Q net charge-offs $721 million, estimate $736.8 million (BD)
4Q total avg. deposits $1.27 trillion
There was more bad news for Wells. First, as the chart below shows, Noninterest Income has been a disaster and is only getting worse with virtually every revenue category posting Y/Y declines.
Things were not better on the interest income side where the bank’s Net Interest Margin managed ended its recent streak of increases, and was unchanged at 2.94% resulting in $12.644 billion in Net Interest Income, and missing expectations of an increase to 2.95%. This is what Wells said: “NIM of 2.94% stable LQ as a benefit from higher interest rates and favorable hedge ineffectiveness accounting results were offset by the impacts of all other balance sheet mix and lower variable income.“
While Wells loss provisions declined modestly in Q4, its actual charge-offs jumped from $680MM to $721MM, the highest since Q1.
There was another problem facing Buffett’s favorite bank: while NIM failed to increase, deposits costs are rising fast, and in Q4, the bank was charged an average deposit cost of 0.55% on $914.3MM in interest-bearing deposits, double what its deposit costs were a year ago.
There was a silver lining however: amid concerns over the ongoing slide in the scandal-plagued bank’s deposits, which declined 3% or $40.1BN in Q3 Y/Y (down $2.3BN Q/Q) to $1.27 trillion, in Q4 Wells finally succeeded in getting a modest increase in deposits, which rose to $1.286 trillion, if still down 4% Y/Y. This was driven by growth in Wealth & Investment Management deposits driven by higher retail brokerage sweep deposits, “partially reflecting a change in our customers’ risk appetite, as well as higher private banking deposits.” Offsetting this were declines in small business banking deposits, partially offset by growth in retail banking consumer deposits.
And some more good news: the recent ongoing shrinkage in the company’s balance sheet appears to have finally reversed, because one quarter after average loans declined from $944.3BN to $939.5BN, the lowest in years, and down $12.8 billion YoY, average loans outstanding increased fractionally to $946.3BN, up $6.8BN, or 1% Q/Q. This rebound was entirely due to commercial loans , which were up $7.7 billion LQ on higher commercial & industrial loans. Meanwhile, consumer loans continued to decline, and were down $835 million LQ as growth in nonconforming first mortgage loans and credit card loans was more than offset by declines in legacy consumer real estate portfolios including Pick-a-Pay and junior lien mortgage loans due to run-off and sales, as well as lower auto loans.
And finally, there was the chart showing the bank’s overall consumer loan trends: these reveal that the troubling broad decline in credit demand continues, as consumer loans were down a total of $13.7BN Y/Y across most product groups.
What these numbers reveal, is that the average US consumer can barely afford to take out a new mortgage even at a time when rates are once again sliding. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.
