Stories From Pricing Data

A year of dramatic changes to our economy and of course interest rates has passed. We are just starting to look for the stories in all the historical data we maintain in our iPrice system.

Here is a picture of what has happened to MMDA rates by tier. This graph shows median rates by tier as they changed during 2008. Each group of bars is a time series over 2008 of the median rates for that tier. We calculate these by looking at all the retail rates in our database for each month.

What this demonstrates most dramatically is the compression of tiers. In January 2008 the difference between the median rate for highest vs. lowest tier MMDA accounts was 2.31%, or 231 basis points. In December, that difference was exactly 100 basis points.

With a 131 basis point drop in the premium paid to high tier MMDA customers, I wonder what the industry is going to do to segment rate sensitive customers in 2009? Hmmm, maybe I'll go back and take my chances in the stock market again.

Bad News, Better Headline

My brother pointed out that you do not see headlines with the phrase “massive hirings” very often. But massive layoffs are pretty common today. At least they are quite common when a current article is discussing our economy affecting Fortune 500 sized companies. After all, how massive can your layoffs really be if you are a small retailer who terminates the jobs of half a dozen employees when you close up shop?

When our economy turns around, and the measured unemployment rate starts to decrease, where will the massive hirings be taking place? And they will be massive because a 1% drop in U.S. unemployment represents about 1.5 million jobs. When these hirings do take place, what will they be called? I can’t remember what words were used during that last documented rapid expansion of our workforce, which occurred during the dot com boom of the late 1990’s. We do know that many of those jobs quickly went bust, and that many a web graphic designer moved on to become a mortgage loan broker or sales representative.

I was having this discussion with my brother because he had just been laid off from his long term marketing position at a large company. It was a typical slash and burn approach to cost cutting, though I do find it quite curious that a company who will clearly be doing marketing in 2009 finds it more cost effective to do most it with non staffers. When he is re-hired, which he is confident will happen soon enough to save him from the unemployment statistics, how will that be documented?

We know from past experience that many people will probably be hiring themselves. The number of available freelancers jumped dramatically during the dot com bust. We also know that there is constant re-tooling of the workforce, and a large economic downturn is probably going to accelerate this trend since presumably the least economically viable positions are the ones being eliminated.

Thomas Friedman (The World is Flat), Fast Company magazine, and many others will lead you to believe that our future workforce is more likely to be housed in office space condos with 1 to 5 person companies. Isn’t it interesting that a new age information worker factory, Satyam Computer Services, is not quite as viable as investors were lead to believe. I wonder how massive their layoffs will be?

Anchor Sells a Big CD

I read Saturday's news on Sundays. I see "Anchor to get federal cash" (WSJ Jan 10) and realize we have a TARP participant in our back yard. It might be interesting and fun to watch this closely and see how a large local institution behaves with government funding.

Did you see the terms? 110 million in preferred stock at 5%. It is likely convertible to common stock, though CFO Ringgenberg did not disclose what those terms are in the article. This will presumably let Anchor expand credit to "qualified consumer and residential loan customers." How many qualified customers can't get loans in our market today? GM says you now only need a FICO of 620 to get a car loan.

What was more interesting was the statement that it will provide "greater latitude in its efforts to work with troubled but qualified borrowers." Think carefully about that statement. It says that government ownership of stock corporations based on artificial terms and rates will allow an institution to better work with troubled borrowers.

What I see is a partnership forming between federal politicians and financial institutions that may redefine how an institution is valued. When does the Treasury convert the stock if Anchor cannot perform at a level that satisfies its owners? How does the Treasury vote its stock?

Is someone willing to model the possible outcomes with Foresight? Do we have enough public data to build a simple model, and then compare results we see down the road?