ISSUE # 61

CIC Info Bytes 03/16/23

CIC Info Bytes are frequent, succinct updates providing educational and engagement opportunities that help your community thrive!  Please forward and share this newsletter with your peers, neighbors and colleagues so they can connect and join.  Our goal is to curate content that provides a robust basis for contextual understanding to support practical takeaways for you and your association.  Please consider following us on Twitter and Reddit. 

READ the full newsletter with graphics in the embedded document below.

All issues of CIC Info Bytes are available online and indexed from the omnibox search.

Americans’ Outlook for Personal Finances Is Getting Gloomier

— Alexandre Tanzi | Bloomberg | 03/07/23

Cashing In

• In 2023, cash is far from trash — that’s the verdict of the 404 professional and retail investors who took part in the latest MLIV Pulse survey.  Against a backdrop of uncertainty over continued Fed rate hikes and a looming recession, cash looks like a safe haven — particularly with yields on short-term Treasury bills high enough to beat the classic 60/40 portfolio of stocks and bonds for the first time since 2001. “We’re encouraging people that it’s okay to hold cash, that it’s not just a lead weight on your ankle weighing you down,” said Leo Kelly, chief executive officer at Verdence Capital Advisors. — Kristine Aquino | Bloomberg 5 Things to Start Your Day | 03/06/23

Holding Cash Will Be a Winning Strategy in 2023, Investors Say — Suzanne Woolley | Bloomberg | 03/05/23

Cashing Out

• Sovereign debt is paying handsomely, but it isn’t beating inflation.  

• Junior debt issued by banks, normally one of the riskiest types of fixed-income in the US and Europe, has become a haven to some investors.

• Its short duration is seen as a way to avoid losses suffered in longer-term bonds as the surge in rates erodes the value of the future income.

• Preferred securities sold predominantly by US banks have returned 5.2% so far this year, while European banks’ own version is up 2.8%, according to ICE BofA indexes. Global investment-grade bonds, meanwhile, have almost erased all gains.

Risky Is Now Safe in Bond Market Upset by Soaring Inflation — Tasos Vossos | Bloomberg | 03/07/23

Missing Out - Trois

• US banks are being forced to do something they haven’t done for 15 years: fight for your money.  After years of earning next to nothing, depositors are discovering a trove of higher-yielding options like Treasury bills and money market funds as the Federal Reserve ratchets up benchmark interest rates. The shift has been so pronounced that deposits at commercial banks fell last year for the first time since 1948, with net withdrawals hitting $278 billion. So in a bid to stem those outflows to better paying options, banks are grudgingly lifting their rates from rock-bottom levels, particularly when it comes to certificates of deposit. More than a dozen US lenders including Capital One are now offering an annual percentage yield of 5% on one-year CDs, a rate that would have been unspeakably high two years ago. Even the big banks are feeling the heat: At Wells Fargo, 11-month CDs now pay 4%. — Natasha Solo-Lyons | Bloomberg Evening Briefing | 03/06/23

US Banks Are Finally Being Forced to Raise Rates on Deposits — Alex Harris, David Caleb Mutua and Paige Smith | Bloomberg | 03/06/23

Inflation and Monetary Policy

• The ECB raised rates another 50bps to a 3% target.

European Central Bank hikes rates despite market mayhem, pledges support if needed — Silvia Amaro | CNBC | 03/16/23

• Inflation is still a thing and rate hikes are up in the air.

  • Core CPI, which excludes food and energy, increased 5.5% last month from a year ago. Prices overall are up 6% from last year.

Fed Rate Pause Is a Tough Call After Inflation Reaccelerates — Steve Matthews | Bloomberg | 03/14/23

Will the Federal Reserve’s attempts to protect small U.S. banks mean it holds back on raising rates at the next meeting?...Goldman Sachs economists said on Sunday night they no longer expected the Fed to increase rates on March 22, its next meeting. They had previously expected a quarter-point increase. The economists said they still expected rate hikes in May, June and July, ultimately pushing U.S. interest rates to 5.25% to 5.5%. — Matthew Thomas | WSJ | 03/12/23

Jerome Powell told lawmakers this week that the central bank was ready to speed up the pace of monetary tightening should inflation keep running hot. The US job market is too strong for the Fed Chair’s taste, keeping wage-growth elevated.

— Victoria Cavaliere and Ian Fisher | Bloomberg Weekend Reading | 03/11/23

After Fed Chair Powell’s testimony to US lawmakers roiled markets globally, investors are taking stock of the fallout. There’s “a reasonable chance” the US central bank will have to raise its key rate to 6% and keep it there for some time, Rick Rieder, chief investment officer for global fixed income at BlackRock said. Meanwhile, Ken Griffin, the billionaire founder of Citadel and Citadel Securities, said the setup for a US recession is unfolding and that the Fed needs to raise rates further to combat “traumatic” levels of inflation.

— Kristine Aquino | Bloomberg 5 Things to Start Your Day | 03/08/23

America’s $52 Billion Plan to Make Chips at Home Faces a Labor Shortage — Shawn Donnan | Bloomberg | 03/08/23

On day two of his testimony to lawmakers, Jerome Powell stressed that no decision has been made on the size of this month’s Fed rate increase. Still, Citi joined the institutions upping bets on a 50 bps boost.

• The policy decision will hinge on incoming jobs and inflation reports, Powell told a House committee.

• Hotter data = hotter action: “We’d be prepared to increase the pace of rate hikes,” he said, but cautioned that’s a big, data-dependent “if.”

• Today’s labor data came in strong ahead of Friday’s payrolls report, with more workers added in February than expected and job vacancies falling less than forecast. One for the hiking hawks.

• Also taking to flight: construction workers. One Montana firm said it now has to jet in staff by private plane.

• The undercurrent remains the same: The Fed is likely to take rates higher than previously anticipated. Stocks wobbled but ended higher.

Bloomberg The Close | 03/08/23

Powell Softens Tone and Says March Rate Hike Size Is Not Yet Decided — Jonnelle Marte | Bloomberg | 03/08/23

How are your Investments Insured?

• The full faith and credit of the United States of America guarantees you’ll get your principal and interest on all Treasury Bills, Notes and Bonds (US government debt).

• N.B.  The full faith and credit of the United States of America is UNLIMITED.  

  • The US government guarantees trillions of dollars of debt obligations.

• FDIC insurance guarantees you’ll get your deposits back, up to $250,000 per financial institution account (unless the US Federal Government fails – unlikely).

• SIPC coverage is offered AND funded by member institutions.

• SIPC protects brokerage accounts of each customer up to $500,000 in securities, including a limit of $250,000 on claims for cash awaiting reinvestment. Money market funds held in a brokerage account are considered securities.

• While it is highly unlikely that major banks and brokerages will become insolvent, there are still pending SIPC claims from Bernie Madoff’s 2008 ponzi scheme.  

• Excess of SIPC coverage is provided by major brokerages like Fidelity Investments.

• Excess of SIPC coverage is only used when SIPC coverage is exhausted.

  •  Excess of SIPC protection does not cover 

    • investment losses in customer accounts due to market fluctuation

    • other claims for losses incurred while broker-dealers remain in business. 

  • Total aggregate excess of SIPC coverage available from Fidelity's is $1 billion.

    • There is no per-account dollar limit on coverage of securities, but there is a per-account limit of $1.9 million on coverage of cash awaiting investment. This is the maximum excess of SIPC protection currently available in the brokerage industry.

Invest Wisely

• Investing wisely requires attention to various forms of risk.  Operating a common interest community (CIC) necessitates a keen awareness of cash flow needs.  Investing is never “safe” if you don’t have access to cash when you need it.  

Selling principal-guaranteed securities before their maturity date is often subject to penalties and/or principal loss (or gain).  Warren Buffett’s latest Berkshire Hathaway shareholder letter advises investors to “avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics.”

If you want to learn about interest rate risk, look no further than SVB.  California regulators made the decision last Friday, March 10, to shutter the bank and transfer its assets to the FDIC.  What was the problem?   SVB’s sale of $21B of principal-guaranteed long-term US Treasury bonds (at a loss of $1.8B) triggered doubts about its ability to satisfy redemptions.   Those doubts manifested into a self-fulfilling prophecy as a “run on the bank” (an avalanche of $42B in redemption requests on March 9) overwhelmed SVB’s ability to operate.

SVB’s Silicon Valley Bank became the biggest US lender to fail in more than a decade following a run by depositors. California state watchdogs took possession of the bank and appointed the Federal Deposit Insurance Corp. as receiver. — Bloomberg Evening Briefing | 03/10/23

Why Did Silicon Valley Bank Collapse? — Andrew Ross Sorkin | NYT | 03/11/23

Regulators to Hold Auction for Silicon Valley Bank — Andrew Ackerman | WSJ | 03/12/23

Silicon Valley Bank Was Doomed by Smartphone Bank Run — Ben Foldy, Rachel Louise Ensign and Justin Baer | WSJ | 03/12/23

Treasury secretary rules out bailout for Silicon Valley Bank — Sam Fossum, Ramishah Maruf and Alayna Treene | CNN | 03/12/23

SVB Couldn’t Ignore Its Losses, But the Fed Can — Matt Levine | Money Stuff by Bloomberg | 03/13/23

WSJ Live Q&A About The Two Most Recent Bank Collapses | 03/13/23

The White House is avoiding one word when it comes to Silicon Valley Bank: “BAILOUT” — Bobby Allyn | NPR | 03/14/23

You could blame regulators or the auditors at KPMG, who gave SVB a clean bill of health when they looked into its portfolio just weeks before its historic collapse.

You could blame the phalanx of interests…who called to roll back midsize-bank regulations in 2018, potentially setting the stage for this catastrophic mismanagement…

Or you could blame venture capitalists. One week ago, SVB was technically insolvent but far from doomed. Without a massive run on its deposits, the bank likely would have puttered along as its long-term bonds matured. Surely, SVB had put itself in an awful position by tossing fresh cash into the Dumpster fire of the 2022 bond market. But actual bank death required one further step: Clients, led by the venture-capital community, had to turn on a trusted financial partner…

The End of Silicon Valley Bank—And a Silicon Valley Myth — Derek Thompson | The Atlantic | 03/13/23

[if you hit a paywall, try opening from Google News instead]

The Fed is said to be considering changes to its oversight of midsized banks and weighing rules that could bring capital and liquidity thresholds closer to strictures faced by the largest Wall Street firms.  — Bloomberg The Open | 03/15/23

Wrongful Removal

• In Boyle v. Huff, the  Superior Court of New Jersey, Appellate Division, found a wrongfully removed Board member was covered by the indemnification provision of his association’s governing documents.  The association was found solely liable to provide indemnification.

Good Deeds

• We recently discovered two different nonprofit organizations that are working to make positive changes for homeowners and common interest communities.  Please feel free to connect and support these causes!  Check our HOA Fightclub and HRLNG.

Don’t Discriminate!

• US vs. Dorchester Owners Association, is the latest in a long string of cases that have found associations across the US guilty of discrimination in violation of the HUD policies and the Fair Housing Act.

  • The United States alleged in this case that the DOA discriminated on the basis of disability by failing to grant a reasonable accommodation to its no-pets policy to a HUD complainant, and alleged that DOA engaged in a pattern or practice of discrimination and/or a denial of rights against a group of persons by adopting a discriminatory policy and refusing to grant reasonable accommodations to persons with disabilities who need assistance animals.  

  • The jury found that the Defendant had engaged in a pattern or practice of discrimination against persons with disabilities and had denied rights protected by the Fair Housing Act to a group of such persons…

Legislative Updates

• HB1054 - Occupancy by Unrelated Persons  will allow landlords in common interest communities to stuff up to 1 tenant per 50sqft.

  • Awaiting executive action by the Senate Law & Justice Committee.  This bill 

• HB1199 - Licensed Child Care in Common Interest Communities will allow licensed child care centers to operate from any residential unit and/or home.

  • Awaiting executive action (and hopefully an amendment) by the Senate Law & Justice Committee on March 22, 2023.

• HB1043 - Association Records in Common Interest Communities partially aligns records disclosure requirements for WA State CICs.

  • Awaiting public hearing on March 20 and executive action on March 22nd.

    1. REGISTER FOR REMOTE TESTIMONY

    2. SUBMIT WRITTEN TESTIMONY

    3. NOTE YOUR POSITION FOR THE RECORD

Please contact us if you’re aware of legislation to feature from YOUR state!