Weekly eLetter 12/9/2022 – ‘Banking on it’ Is Worth a Second Thought

It is a widely known fact that your friendly neighborhood bank is quite unfriendly when it comes to paying interest on your savings accounts. Just as widely known is that ‘The Fed’, in its ‘war on inflation’, has been pushing rates higher, higher, and even higher. And the aforementioned banks have taken this opportunity to push loan rates up (especially credit card rates). Banks, like lots of businesses, can benefit by government action that gives them a cloak of innocence for raising costs/prices: they just point and say “Not our fault. We’re just keeping up with our increased costs.” Maybe that argument is stretching the truth a bit. If the banks really believed the ‘rising cost/rates’ thing were fully true then, logically speaking, those savings accounts rates being paid to the bank’s customers should also be rising, no?

We should point out that some banks actually have improved what they pay out — but mostly to customers who have a ‘High-Yield’ account. If you don’t have one of those accounts, you are probably still getting peanuts.

In an article by Wall Street Journal reporter Dion Rabouin a surprising fact is revealed:

“In theory, savers could have earned $42 billion more in interest in the third quarter if they moved their money out of the five largest U.S. banks by deposits to the five highest-yield savings accounts—none of which are offered by the big banks—according to a Wall Street Journal analysis of S&P Global Market Intelligence data.”

 “Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co.—paid an average of 0.4% interest on consumer deposits in savings and money-market accounts during the quarter, according to S&P Global. The five highest-yielding savings accounts paid an average of 2.14% during the same period, according to data from Bankrate.com.”

(Source: https://www.wsj.com/articles/the-42-billion-question-why-arent-americans-ditching-big-banks-11670472623?mod=djemMoneyBeat_us)

According to data from the FDIC, about $425 billion flowed into money-market and savings accounts at U.S. commercial banks between the first quarter of 2020 and the third quarter of 2022. Not surprisingly, more than 95% of that went to the five largest banks. However, more and more savers are also understanding the benefits of being investors. A major difference between the two is having a sensitivity to the idea of ROI: Return on Investment. Lots of people with savings accounts at the friendly local bank are not too concerned with their account improving in value; what they are concerned about is having it not disappear. But, as we said, lots of folks are now looking for greener pastures. We see evidence of that as record amounts of cash are pouring into higher-yielding vehicles such as bonds and Treasury bills. Also, we are happy to report that more people are also turning to a Registered Investment Advisor for advice and guidance. That’s a decision our clients have made. We appreciate their confidence, and we appreciate the opportunity to be working on their behalf. Leave the peanuts to the circus.


Ron’s Market Minute — The Question of the Hour

Now that the market in general has managed a gain for two months (in a row!), the big question is this ‘Is this the start of a new bull market- or just another oversold bounce?’

It is the time of the year when stocks typically move upwards. There is really no way to be able to answer that question without the benefit of hindsight.

Let me note that the overall market action has definitely improved since the middle of October, and that some of our buy signals have been triggered.

However, although the short and intermediate signals are promising, the long-term trend still favors the bear.

Have a look at this chart of the S&P Index showing weekly closing prices. In particular, note the yellow line I’ve added from the peak of the markets toward the end of 2021. It’s pretty clear that the longer-term action is in a downward slope. It’s also pretty clear that the trend over the recent past has been up, and a BULL market has to start somewhere.

(Source: Stockcharts.com)

Remember that I am firmly in the glass-is-half-full camp but am NOT suggesting that it’s clear sailing ahead. It is completely NORMAL to see strong rallies in this type of bear market — and note that we’ve already seen a couple of those impressive rallies this year. That means that a healthy dose of skepticism is not a bad idea. So, given that we’ve had a decent bounce since the October lows, it’s possible the expected year-end rally may run out of steam.

And so? While I’d love to say with certainty (after all, the ‘financial media’ seem to be sure!) whether it’s a new BULL, or just a bear-market bounce, the truth is…unknown and based on events and measures that have not yet been seen.

It seems prudent to tread carefully — and keep a finger on the sell button, which is exactly what we are doing.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite D406A
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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