Top 10 Predictions of 2017

Back in January of this year, I made some bold predictions about the changing landscape of banking for 2016. I am humbled and pleased to know that my accuracy was above 70%.

Here are my top 10 predictions for 2017:

 Top 10 Predictions of 2017

1.) The U.S. will see economic growth of over 3%, with the largest increases appearing in the second half of the year.

2.) Pressure on U.S. treasuries will come from overseas selling, from foreign, (i.e. China and Saudi Arabia). I see this paired with greater domestic buying of treasuries due to the repatriation of corporate dollars that will make their way back to the States.

3.) Short-term interest rates will increase by 50 basis points with action taken by the Fed of 25 basis points each in Q2 and Q4.

4.) The Dodd-Frank book will be closed for new regulations, but will remain open for revisions. Don’t expect this law to be repealed.

5) Bank profitability will improve and greater attention will be paid to the public and higher education sectors.

6.) Public entities will see stronger bottom lines due to improving economic conditions, while Higher Ed institutions will face stiff headwinds due to demo- graphic changes and fewer foreign-student enrollments.

7.) Liquidity analysis and operating cash focus will take center stage as higher short-term rates will present opportunities for new sources of income.

8.) The U.S. trade deficit will shrink by at least 50%.

9.) The number of bank branches to close will exceed the 2016 level of 1,600. On the plus side, there will continue to be a greater push toward direct online-banking technology.

10.) Average short-term banking deposit rates will lag behind the rise in interest rates; U.S. treasuries will significantly exceed deposits rates throughout 2017.

At three+one we can help you prepare for the coming year and experience an increase of income and savings to your bottom line. Our liquidity analyses enable public entities and Higher Ed institutions to be proactive in working with their financial institutions and secure higher deposit rates. Our proprietary “time/value and marketplace-worth” analyses help our clients realize, on average, tens to hundreds of thousands of dollars in new income on low- and non-performing cash.

If you are not yet prepared to take full advantage of the higher interest outlined above, call us today so we can help you get set for 2017’s many opportunities.


Happy New Year!


Up, Up, and…

During 2015’s fourth quarter, the Federal Reserve increased Fed fund rates by 25 basis points. That same action was just mirrored in this fourth quarter.

Up, Up, and...

Based on the latest comments from Fed chair Janet Yellen, the next three years should bring another 75 basis point increase per year to achieve a short-term rate of 2.75% to 3.00%. If only half of those estimates actually happen, short-term rates could hover around 1.50%.

Compared to rates over the last decade, this would be a big increase. However, these levels would still be an historic average that is considered healthy in controlling inflation and economic growth.

The difference between now and the last 10 years is that rates are on the way “UP”—to what degree will depend on the rate of economic growth in the U.S. and overseas. Clearly, there is plenty that is very much “up in the air.

What should one consider as next steps under these circumstances? Are your instincts to be proactive or have a sense of urgency? In my view, you should be both. As mentioned in past blogs, the markets are already reflecting the Fed’s action well in advance. Bank deposit rates will lag, while short-term Treasuries are earning close to 1.00% or more.

Up, Up, and...

Every dollar of cash you hold has both a time value and worth. Now is the time to capture the opportunity of new income for your entity. It is real!

At three+one we can help by analyzing every dollar that comes into and goes out from your unit, department, organization, or institution—and place a time value and worth on those funds. The results can add tens to hundreds of thousands of dollars to your fiscal year’s bottom line.

Our proprietary work can produce a sizable “gift” to your taxpayers or customers that will keep on giving for many years to come.

What’s The Fed Up To?

As the Federal Reserve is widely expected to raise the federal funds target rate (the rate banks charge each other for short-term loans) up 0.25% (25 basis points), you can expect nearly every asset class globally to be affected. But while asset prices adjust globally, the US Federal Reserve has a unique advantage in the global financial system – growing influence over monetary policy worldwide, increasing income generating muscle, and a progressively stronger dollar. Some may call it, “The Fed Factor.”


What's The Fed Up To?


While the Bank of England has historically moved their rates in tandem with the Federal Reserve, political divergence and growing inflation in the UK will most likely grieve any plans the Bank of England had to raise interest rates. With the Bank of England, Bank of Japan, European Central Bank, and the Swiss National Bank all either practicing a negative or near zero interest-rate policy, investors around the world will likely line up to take advantage of the world’s safest securities – U.S. Treasuries. Though many journalists, academics, and financial gurus are frothing to tell you what impact this will have on YOU, we thought of it a different way – what impact does this have on the Federal Reserve?

Since 2010, the Fed’s balance sheet shows an 80% increase in accrued interest receivables, up to $25.6B in 2014 alone. In May of 2010, the Fed reestablished liquidity swap lines with foreign central banks in order to supply short-term funding to central banks worldwide. The Feds latest report (Nov. 2016) shows one liquidity swap equaled $3.5B with the European Central Bank, loaned at a “market-based interest rate” of 0.91% (91 basis points) for a 7-day term. While depository institutions borrow from the Fed at the federal funds rate to meet demand, it isn’t the only place to go for short-term loans. Banks that operate overseas can also trade Eurodollars at the London Interbank Offered Rate (LIBOR), but with LIBOR double the effective federal funds rate, it is not a likely source of cash for U.S. banks.

In addition, undoubtedly more cash will flow into financial institutions denominated in U.S. dollars because of the higher income generating potential those funds will have in the U.S., but because of capital requirements on U.S. banks, more liquidity will need to be kept with the U.S. Federal Reserve. The Fed will use that liquidity to potentially further increase interest receivables, and elevate the amount of U.S. dollar financing through liquidity swap lines with foreign central banks at favorable rates to the Fed. Although the Fed may raise the federal funds rate further, it will likely remain at historic lows in order to further capitalize on the Feds growing global financial sway.

However inadvertent the Fed was in orchestrating their influence, it will be difficult to unwind. Their large balance sheet, sizable accrued interest receivables, high liquidity swap rates, and intensifying regulatory authority on U.S. banks, make the Fed an ever more dominant part of the global financial system. With 2-year Treasury rates inching above 1.11%, the highest levels in 6 years, and LIBOR above 1.60%, U.S. banks will likely turn to the Fed for short-term lending, which will centrally position the Fed further into the global financial system.

What the Public Expects

As a business owner, treasurer of a public authority, and a trustee of a University, I have written blogs, articles and editorials around the changing landscape of banking for public and higher education institutions.

In today’s marketplace of divided politics, nationally or internationally, the public is unhappy – one way or another.

It is apparent that the public is expecting more for what they receive in return. If they are feeling disillusioned, then expect the unexpected at the ballot box, through social media or on the streets.

Given the fast pace of technology and rapid flows of communication, what was accepted in the past can no longer be accepted as a common practice.

This is what the public expects:

1.) Accountability

2.) Performance

3.) Money In My Pocket Results

4.) Us First

5.) Protection

6.) Accessibility

7.) Ease

8.) Global Outlook

9.) Straight Talk

10.) Peace of Mind

Each of these represent a strong feeling throughout America and if you are not hearing these words, then the words “anger & frustration” will surface.

The public is expecting more through a “loud and clear” voice. Those who serve the public and higher ed sectors, internally or externally, need to be cognizant of the public’s sentiment, while operating in more challenging financial times.

Government and higher ed tend to move slowly due to process or bureaucracy. Please know that while it may have been acceptable in the past, it is not today. The public’s patience and nerves are “shot”, and they are not bashful in voicing their displeasure over higher taxes or tuition hikes without added value.

For those officials  that are proactively pushing for change and innovation in managing public funds- the public thanks you, For those officials that are locked into the “status quo”, then it’s time to reflect and embrace what the public expects. If you do not, be prepared for the unexpected.