Tuesday, August 08, 2017
What about the Fed Balance Sheet should concern you?
I learned about supply and Demand the hard way. When I was in college, my tuition was paid by the profits of feeding Cattle in feedlots. Along comes inflation and the Nixon administration decided the best way to stop inflation is for the government to say you can’t raise prices anymore. Welcome in price controls! The price controls were in for 60 days as I remember. We had just put a very large lot of cattle into a feedlot. The futures price of feeder steers went up as ranchers held cattle off of the market. After all prices would go up after the freezes were gone, right? My dad knew what was going to happen so he asked the banker to let him sell the cattle in the futures market. The banker refused because everybody knew the price would go up more than what the futures market had gone up. Well the cattle had not been in the feedlot long enough to sell before the freeze went away and the price fell five cents a pound when the freeze expired and all the ranchers and feeders started unloading their cattle. We lost a fortune.
Thursday, January 12, 2017
I remember my first real job like it was yesterday. My boss gave me a raise and I couldn’t wait to see that next paycheck! Wow, look at all that extra money I got to take home! Well to tell the truth, it wasn’t that much extra, because 5% of not much was even less, but in those days I was rich. Everything was paid for and my share of the rent and utilities was just about $125 a month. Boy was I rich and boy was that a long time ago!
Well, the Federal Open Market Committee (FOMC) has given each of you a raise in the interest rates you charge or have they? Many bankers, I know, put in a floor in their variable rate loans when rates started getting so low. Does that sound familiar? So the prime rate will have to get to the 5.0% area before most variable rate loans become variable again. That could be over a year from now, maybe even two years. So what does that mean, you ask. That means you really didn’t get a raise even though your customers think you did and they expect you to pass that on in higher interest rates on deposits. Some of the big boys will be raising their rates, but many of them were so low to begin with, that you still can compete with them very effectively. Your staff will be getting a lot of calls right now shopping rates, so be prepared to hear from some big depositors. They want a raise too.
Thursday, June 04, 2015
When you were a kid did you pick up coke bottles to take to the store for their deposit? This practice went away many years ago except for a few states like California and Michigan. When you bought a Coke, you paid the price for the Coke plus a nickel for deposit. They collected the old bottles and reused them. You could look on the bottom and see where the bottle originally came from. It was one of my favorite memories, because I got to see where all the bottles came from and after saving up a while I got a bonus when I took them to the grocery store.
Are your employees waiting around for their bonus and then moving on to the next job or bank? Do you have more turnover in January than the rest of the year? And have you noticed it is always the one employee you really want to keep that is moving on? I have seen great employees escape right after they got their annual bonus, but I seldom see the employee you wouldn’t mind moving on give their letter of resignation especially in January! Why is this happening? Have you done this yourself? Psychologically, an employee does not want to give up that bonus that they deserve. They also want to collect on those vacation days. They don’t see anything else coming their way for another twelve months! They might as well leave now.