Financial planning in the era of hot takes
Cool takes, 90's bank carpet, hot chicken futures, the death of rewards, emoji customer support, cell phone human rights, bank memes, Patagonia-vested bankers pick through the wreckage
Hi there!
The big news this week is…the financial markets have calmed down a bit.
Last week really was wild wasn’t it? It felt like wherever you looked there was just wall to wall panic and really bad opinions. A few days pass and, like any socially driven trend, people have immediately moved on to something else. It turns out a bank run driven by ALL CAPS social media posts lasts about as long as a viral meme of people trying to drink Sprite really fast in a Honda Civic.
So - what did we all learn? Probably nothing, but let’s pretend otherwise! Here’s some ‘cool takes’ after too many recent ‘hot’ ones!
First, the era of low interest banking is clearly over. Apparently we - the users of the banks - knew this given the price of an underweight chicken was $20 and our mortgage had doubled - but the banks did not. One of the big reasons for the recent financial panic was certain banks setting up their deposits and lending for low interest rates. Those banks that felt they could ride out the recent rate rises long enough to see those rates return to the low rates of yesteryear are either no longer around, been bailed out, sold or have quietly (and quickly) changed strategy. So, as a knock-on effect, lending is probably going to get harder to access for those on the riskier end of things, and you can probably expect people like brokers to be asking for more what-do-you-mean-you-can’t-find-it-paperwork and $$$ deposits. Don’t be surprised if your mortgage provider suddenly decides that they can’t finance a house with a chimney or a roof or something equally ridiculous. If you’re a landlord, maybe expect some pain. Yes, we’re entering a golden period where insurers are going to be dominating the conversation with numbers, and everyone is, quite rightly, going to absolutely hate it.
Second, the freeballin’ neo-era of ‘niche and cool’ banking is probably facing a sunset moment. Businesses who had their money in a cool bank are probably thinking of moving it to a boring bank - if they haven’t done so already. The kind of bank whose website looks like what a fraudulent website looked like in the 90s. The kind of bank that has crazy things like actual branches which contain heavily aged carpet - that smells like the 90s. Sometimes having the cash you rely on to survive payroll, underwritten by a metric tonne of final-salary RSPs and AAA mortgages, isn’t such a bad thing. There’s a strong 90’s revival in fashion right now (and not in a good way for those with a hatred for low rise jeans) and likewise business owners will no doubt find themselves, once again, sat in a neon-lit branch filling in paper application forms for a credit card that will take 3 weeks to arrive by post. Neo banks will likely be looking to diversify their customer base in the near-term and this means attracting older people with actual cash - which means dialling down the super-cool-tech-wow and upping the trust factor by 10. In the US that is. Canada, as ever, will ride the storm comfortably given that its banks were never cool and still have wooden furniture, strip lighting, branded pens and a roped queuing system.
Third, and this seems to be a reoccurring issue - people on the internet are really bad at being experts on pretty much anything. You can be smart but you can’t be an expert on economics, viral epidemiology AND Russian-centric geopolitics all at the same time. Give it up and give space to those whose ‘hot take’ is peer-review based and the reputational foundation of their actual career. Sure, it’s true - finance experts missed a beat and finance journalists struggled to handle a social-media bubble banking crisis in under 24hrs - but it’s their job and they broadly know what they’re talking about, so let them get on with it. Oh, and don’t read the comments below that ALL CAPS garbled post - this feels like a broader life lesson for everyone.
Fourth, and again, another reoccurring issue - we all know by now that governments will always bail out the banks to some extent. But always to the extent where everyone gets their money back except some shareholders - where those shareholders are not actually the banks executive. Which sucks, but it also makes bank runs…low risk? I don’t know how we got here exactly, but ever since the Global Financial Crash in the crazy-fun YOLO noughties it became obvious that, public shareholding aside, the real money was always safe. So maybe we can all focus on removing the executive of a bank for bad performance, rather than enduring a performative yet heart-stopping bank run and ruining someones hard-earned pension plans.
Fifth, if governments are going to bail out even the small banks - then isn’t this basically quantitive easing in all but name? As inflation continues to drop and banks are seen as either too risky or too safe - and given that the stock markets are looking less volatile right now having survived a financial crisis - are we going to see a return to bull markets? Money likes to find returns, and if the banks aren’t offering those returns - then investing in Small Business becomes much more attractive that it was a year ago.
Sixth, banks are gonna bank in the worst possible way imaginable and social media is gonna be social in the worst possible way imaginable. So, sadly (and this isn’t really a shocker) - it will all, of course, happen again.
Don’t say we didn’t warn you!
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Top story this week☝️
The great bank scramble - a summary
Credit Suisse was in a tailspin last week, didn’t recover - and UBS went and bought them. Signature Bank fell on its sword and got snapped up by the New York Community Bank (who were smart enough to not buy Signature’s crypto holdings and left $60B USD worth of debt for the FDIC to sort out). Silicon Valley Bank in the UK sold to HSBC for one British Pound, while in the US regulators began hacking off it’s limbs one by one, and putting them up for open bid like some sort of high-net-worth eBay auction. Central banks globally scrambled to calm the markets and make their balance sheets look pretty. Governments made guarantees (though Tiff Macklem, sadly, wasn’t allowed out of his finance cave). Auditors and accountants took the heat for taking their eyes off the boil. Ultimately no-one called ‘fire’ in the theatre. Things calmed. People got bored and wandered off. Investors picked through the rubble quietly shaking their heads. Numerous deserted bank branches no doubt began being eyed up by fly-by-night Halloween retailers. Nature began to heal itself. Link
News 🗞️
Inflation cools, chicken stays hot
Canada’s inflation rate cooled down to 5.2% in February and it’s probably continued to drop since. Which is good, because the Bank of Canada’s goal is to hit 2%. Energy is down 0.6%, Gas down 4.7% (as you may have noticed). Yet, as you’d expect, food costs remain stubbornly high at 10.6% which is the seventh consecutive monthly increase. The argument around food prices continues of course - what is the root cause? There likely is some profiteering pushing that percentage, although exposing it is very difficult. The likely culprit is labour costs which have continued to increase post-pandemic through simple supply and demand. If you can’t find people to work in your abattoir - then the price of chicken is going to go up. Link
Air Miles faces an uncontrolled descent
While everyone was focused on bank runs, there was another kind of run happening over at Air Miles. A lot of Small Businesses buy into Air Miles or use the rewards programme to retain customers and / or buy gas. When Empire (owner of Sobeys and Safeway) decided to leave the Air Miles scheme last year to create their own version, something of an exodus began, and now the Air Miles parent company Loyalty Ventures is seeking bankruptcy protection in the US and Canada. The Bank of Montreal has indicated it’s interested in buying the rewards programme, but expect that exodus to quicken regardless. The big problem for Air Miles and its 10 million active accounts is - there’s just nowhere good to spend the miles you collect. So if you have some Air Miles hanging around - or if your business runs on Air Miles, now might be the time to consider cashing out. Link
And finally…
The new era of customer support. Link
The old era of customer support. Link
One year in the AI arms race summarized in one image. Link
Top squirrel tips. Link
The nightmare of machines in your Gmail. Link
A new record for Canadian banking complaints. Link
Build a website from a bad pencil sketch. Link
The Data Room 🤖
The Data Room provides some insight into Small Business data, and each month(ish) you’ll get a deeper dive in your inbox. Here’s this weeks quick insight:
Telcos and the battle for human rights
Canada has the highest telecom prices in the world. For no real reason other than (1) company profits and (2) shareholder profits. Given that access to the internet is now defined by the UN as a human rights issue - it’s no wonder the government has finally intervened.
Canada’s de facto telecom duopoly has been a major pain point for consumer advocates over the last few years. With the proposed Rogers & Shaw merger entering its final stages, Canadians are rightfully worried about increased market consolidation and what that will mean for telecom services that are… well, basically essential these days.
As of 2021, there were 33.6 million mobile phone subscriptions in Canada, and 84.4% of Canadians owned smartphones as of 2020. With such a huge grip on our population, it’s no wonder that 43% of Canadians self-report to check their phones every 30 minutes.
All that scrolling comes at a cost, though, mobile plans chipped away roughly 1.8% of the household budget with annual expenses averaging $6380. In 2019 the telecom industry’s gross value was responsible for about 1.2% of Canada’s GDP, and operating revenues shot up 2.7% in 2021 to a total of 65.6 billion. That’s some healthy growth for the sector, especially when we account for the massive drop in service prices.
Yeah, you read that right…a massive drop. In 2020 the Government of Canada pledged to reduce the cost of telecom services by 25%, and they’ve made good on that promise. From 2020 to 2021 cellular service consumer prices plunged 16.9% all while the CPI increased by 3.4%. As if the first drop didn’t sound too good to be true, between January 2022 - January 2023 there was another reduction of 7.9%.
Just in case you haven’t renegotiated your cell plan in a few years, it might be a good time to check on what else is out there. Not to burst any bubbles if this info has got you celebrating a new contract – Canada still has some of the very highest telecom prices on the planet, but it’s refreshing to see us bucking the trend for once.
The Balance Sheet 💬
The Balance Sheet provides Small Business opinion, voices and futures, and each month(ish) you’ll get a deeper dive in your inbox.
If you run a Small Business in Canada, the chances are your books (and therefore your taxes - and possibly payroll) touch one of three ‘cloud platforms’ - Xero, Quickbooks or Wave. So it makes sense to think about how these platforms operate, and how they intend to support Small Business owners (like yourself) moving forward.
The other week we sat down for a chat with Faye Pang, the leader of Xero Canada, to talk about the challenges of making change happen, data responsibility, building trust - and how technology can rewire things for Small Business owners.
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.70%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 5.9%
BOC $USD Exchange Rate (Link):
Low: 1.3493 CAD [0.7411 USD]
Average: 1.3609 CAD [0.7349 USD]
High: 1.3749 CAD [0.7273 USD]
Best GIC Rates (Link):
1-year GIC: 5.25%
3-year GIC: 4.95%
5-year GIC: 5.00%
Best 5Y Mortgage Rates (Link):
Variable: 5.45%
Fixed: 4.49%
Prime Rates (Link):
TD Bank: 6.70%
BMO: 6.70%
RBC: 6.70%
Scotiabank: 6.70%
CIBC: 6.70%
National Bank: 6.70%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link