This Week’s Economic Update, March 22, 2021

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My grandfather was a subsistence farmer in Central Minnesota.  He did the best could on 200 acres, of which about 5 acres was a family garden plot that in a good year would support the family with vegetables.  As a very young boy I would visit, often helping out where ever instructed.  Something I never really thought of at the time was that the house had no inside plumbing nor central heat.  Water was carried in from the pump house and the outhouse was where we did our business no matter the time nor the weather.  Heating in the house was a fuel oil burner in the living room.  The smell of heating oil always brings back great memories.  My grandparents never considered themselves poor by any means.  Their needs were met.  They worked hard every day and expected nothing from anyone else.  They may have accepted handouts, but only if refusing to accept one would insult the giver. 

This time of year I think of my grandparents often.  The reason is an old saying grandpa always had.  He claimed that the first frost would come 6 months after the first thunderstorm.  He would work back from that expected first frost to make sure his crops were planted in time not to be killed prematurely.  This year the first Thunderstorm here was March 10.  More often than not my grandfather was off by at least a week or two or three in my record keeping.  However, it was a reflection of an earlier time when planning was critical to success. His diligence, perseverance even in the hard times and ingenuity helped his family survive through many ups and downs even though they had none of the advantages we have today.

This past week there were two stories that point to the future of banking.  First was the Morgan Stanley report on offering their wealthy clients access to bitcoin funds.  The three funds that are available to their clients include two from Galaxy Digital and a third that is a joint effort through FS Investments and NYDIG.  In February I had shared about a new bank charter approved by the Fed for a firm located in South Dakota.  Anchorage was the first federally chartered crypto bank.  The plan with Anchorage is to allow smaller banks access to custodial fund investments in Crypto to pass along to their clients.  Morgan Stanley is the first of what is to be an expanding universe of access for investors to purchase and hold crypto as an investment.  Crypto currency is highly risky as an investment.  The wide variation in pricing on a daily basis is evidence enough that placement within a portfolio needs to be fully understood ahead of time. 

The second story is about a topic equally as risky for banks, marijuana related banking.  Live Life Federal Credit Union was slapped with an enforcement action to stop opening new marijuana related accounts. They also failed to file missing suspicious activity reports on the funds they have been receiving into the accounts.  The issue in banking pot related companies is currently the contradiction of laws surrounding pot between the State levels and the Federal Levels.  Federally insured financial institutions must adhere to Federal Laws, which outlaw possession of marijuana.  The Live Life FCU case was quite clear, they were opening accounts for firms selling recreational cannabis.  There is a gray area surrounding CBD’s.  These firms are restricted to marketing only product that does not contain THC. The problem is that suppliers to the CBD’s are not always consistent in their product in terms of outlawed substances.  This has led to many legal issues where inventory was seized and found to contain levels of THC beyond the limits.  If a bank were involved with that firm, either on the depository level or lending level, they could suffer a loss when assets are taken and the CBD shut down.  The Michigan Credit Union is fighting the enforcement action.  The President of the Credit Union is stating they may lose this battle but intend on winning the war. 

Live Life Credit Union will lose the battle as they were very lax in their compliance of money laundering identification.  There was quite a bit of suspicious activity in the over 150 pot industry accounts.  They relied on “manual” compliance instead of adhering to clear money laundering compliance regulations that exist for a very good reason.

Not unexpectedly, retail sales fell off the table in February.  There are three blatant reasons.  First was a really strong January where retail sales climbed 7.6%.  This set the bar pretty high to beat in February.  Mother Nature had a say in the numbers by shoving a record breaking cold wave that covered most of the central part of the country for over a week.  Hard to go out shopping when you are trying to keep your pipes from freezing.  Lastly was the supply chain issues.  You can’t buy what is not on the shelf. 

For the same three reasons the US Industrial production fell by 2.2% in February.  Internally in the report was information on just how hard the severe cold impacted firms.  Petroleum refineries, petrochemical facilities and plastic resin plants among others, suffered damage due to broken pipes.  This curtailed production for an extended time, in some cases into March. 

Have a great week.

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