This 1st Week of April 2023 Thoughts
You Client Portal:
Desktop Site Client Log-on Desktop Mobile Site Client Logon via Mobile Phone My best Thoughts topics come from clients and this week I continue with more about where your cash is: in the higher-yielding Schwab Value Advantage Money Market Fund. Look for more in my Thoughts piece from two weeks ago about why I am confident in SWVXX. Why Julie Likes Schwab Value Advantage
Are you frustrated as I am with the Schwab AP log-in process? Once you navigate away for the code from your text, it takes you back to the login screen. I have a solution that will solve this: let’s talk about it! Take our Impact Assessment! Take our Risk Assessment! When shoes start dropping, there is nowhere to hide. JLS Last week the chatter was whether Schwab is too big to fail in a world where all it takes is a click of your mouse to move your cash to the highest yield. Schwab went to $0 commissions on stocks several years ago because they planned to make it up on YOUR sweep account. They are not primarily a bank so do not lend out deposits for mortgages or business loans and therefore, the paper losses from their bond portfolio pose little threat to you: they are not like Silicon Valley Bank.
Clients don’t have to run on the bank at Schwab, so Schwab does not have to take those “paper” losses. For clients who need cash, they can use margin if they don’t want to sell their stocks. Schwab is well collateralized by client holdings because if a margin loan blows up, Schwab will just sell enough to clear your margin. Incidentally, this is what created the crash of 1929: large margin balances where the brokerage firms sold holdings as the “piano” was falling. Meanwhile, Schwab will cheerfully collect the 11-13% they charge you for margin interest.
While there is not really a banking crisis here, Schwab, the company, is finding it harder to keep their crummy-sweep-cash-cow alive: I won’t accept the 0.4% they are paying as we can get 3%-4%. The cash sweep rate WILL have to increase to slow the outflow of cash assets: 20% of their cash has walked out the door. Schwab IS guilty of going into the well-known interest rate increase cycle with their bond portfolio holding long-term bonds paying 1.74%. As I say, I’m only a girl, but I knew better than to keep long term bonds in your portfolio during the 9th Inning. This is what drove Schwab’s stock down and this is what caused the banking headlines of the last month: Schwab is not the lone player here. The tide has gone out and we can now see who isn’t wearing a bathing suit.
Why does it matter to you? They tout the high-yield products they have to make up for the loss of income and curb deposit outflows and believe me, I will report back to you as this story unfolds. Any time I hear about high-yield or "enhanced" retail income products I have flashbacks to the post-2008 death of many firms.
If you want to worry about something, worry about Commercial Real Estate…CRE. Jones Lang LaSalle, which tracks about 470 million square feet of New York City offices, found a mere 4.6 million square feet of office space was not leased in the first quarter. That means that Manhattan’s office-vacancy rate was at a record high as new developments add even more space to the struggling market. 16.1% of space was empty as of the first quarter: leasing is at its lowest level since the second quarter of 2021. Other real estate companies found similar results: “You have this anemic leasing activity, more newly constructed or renovated space is being added and sublease space continues to pile up,” said Andrew Lim, director of research at JLL.
Why does it matter to you? This info graphic really says that banks once again will be the ultimate holder of risk. The increase in available space ramps up the pressure on property owners that own older buildings across the city. With the rise in remote work, tenants are more inclined to move to newer developments or towers that have been recently renovated, especially with the recent deluge of office space availability courtesy of the Hudson Yards project.
“We have to reinvent our office space,” New York Mayor Eric Adams said in an interview with Bloomberg Thursday, adding that empty spaces should be converted to housing. “We have a housing crisis. We already have structures that are built.”
While it is good news to think that empty space can be converted to housing, it will take time and money: the current owners will be under tremendous pressure to NOT be forced to give their properties back to the bank, who will find many loans under water. The bottom line is that it will take time for this to unfold and there will be more downward pressure on banks to keep their reserves and loan portfolios alive. Stay tuned for more on this.
What exactly is shareholder engagement and what happens at Corporate Annual meetings?
Below are some of the Annual Meetings in the 2023 Proxy Season, along with the issues my colleagues have filed. BUT, before the Annual Meeting, the most important work happens behind the scenes.
Why does it matter to you? For decades, shareholder activists have engaged in dialogue about changes we feel need to be made to ensure the company is meeting its obligations to employees, shareholders, our community, and our world. It is not an esoteric, academic progress…it is people on BOTH sides, who care about our future, working together. Presenting Shareholder Resolutions at Annual Meetings is the end result, and I’m proud to have been the face of helping corporate America change.