July 27, 2024
Your Ratings Called the 'Cash Sorting' Crisis
Dear Subscriber,
 |
| By Jim Nelson |
We focus so much on what stocks are hot, but less on those that are not. Yet, that’s often where the biggest lessons come from.
When something isn’t working, you need to change it. Unfortunately, for many companies, that’s much harder than they’d like.
Here’s a perfect example — Charles Schwab (SCHW).
You probably know this financial giant. It’s one part brokerage, one part bank and one part investment adviser. In truth, I could add 10 or 20 more parts because it really does everything.
Unfortunately, it has been operating on a “banking-centric” model for the past several years.
Investors found out earlier this month what a mistake that was:
This cliff came when the financial giant reported its earnings on July 16. It finally admitted that it had a problem.
You see, banking as a business only works if people continue depositing money with you. If deposits dry up, you risk what happened to Silicon Valley Bank early last year.
Let me be clear. Schwab is not the next SVB. But this second image doesn’t look great:
The problem isn’t necessarily that the money is leaving Schwab’s ecosystem. It just isn’t staying in the place that profits the company the most.
Charles Schwab is typically able to take money deposited in accounts and “sweep” them into special low-paying accounts, where the company can earn a profit.
But when rates started rising in 2022, Schwab’s customers removed that option by actively switching to high-yield accounts, which Schwab doesn’t make much on.
This is called “cash sorting.” And it’s been painful for Schwab.
Of course, if you followed Weiss Bank Safety Ratings, you’d have had a clue way ahead of time … right around the time this cash sorting problem began in 2022.
Our ratings downgraded Charles Schwab Bank (not to be confused by its stock rating) from “good” to “fair” in Q4 2022. It has since been stuck there, even falling from a “C” to a “C-” rating last year.
To be fair to Schwab, management learned its lesson. It’s going to actively move to a hybrid model that might take some time … but will help in the long run.
Still that’s one advantage you have with our ratings … to be able to get out ahead of trouble.
Another is how your editors are able to take those and make them work for you. Here’s what they are up to …
We Dance on a Banana Peel
Gavin Magor realized this week that Fed Chairman Jerome Powell and he have similar jobs. And they both are dancing on a banana peel. The difference is that Gavin has some serious help.
Startups Prioritize the Halt of Misinformation
With wild advancements in AI technology, there’s a real worry about how to handle those using it for more sinister reasons. Chris Graebe is specifically looking at AI used in misinformation campaigns. Fortunately, he’s identified several startups that are actively fighting against these bad actors.
Why Uranium Is Going to Go BOOM!
If you didn’t just read this headline, you might not have any idea that the best-performing metal over the past five years was uranium. But Sean Brodrick did. And he says it isn’t done yet. He even has a way to play it now.
Buy AI’s Picks & Shovels
AI has other problems beyond just those looking to use it for misinformation. Jurica Dujmovic fills us in on the biggest problem AI faces, the solutions to that problem … and six companies set to benefit as AI picks and shovels.
How to Play the New Sea-Born Space Race
Your tech guru, Michael A. Robinson, has the latest on the “New Space Race.” And it’s entering unchartered territory. Plus, he has the perfect way to play all of it — plus the boom in air travel — in one company.
Have a great weekend!
Jim Nelson,
Managing Editor, Weiss Ratings Daily
Tidak ada komentar:
Posting Komentar