Author: phoffman@channelchek.com

Will the Fed Tighten in May and Walk Away?

Posted on by phoffman@channelchek.com
Image Credit: Focal Foto

A Bull Market Across Sectors May Come Out of the Next FOMC Meeting?

As U.S. GDP for the first quarter of 2023 showed a significant slowdown, expectations that the Federal Open Market Committee (FOMC) is near the end of the tightening cycle have increased among investors. The Fed announcement after the May 2-3 meeting could change the mindset of the stock, bond, and real estate markets. While a strong consumer is still fueling economic growth, as indicated by the most recent Consumer Spending numbers, government spending is also high and less related to economic momentum, yet it helped support the declining Gross Domestic Product figure.

The U.S. economy slowed at the start of 2023, which implies that the bold Fed moves have worked to cool business activity. During this same period, stock market values have risen after a dismal 2022, bonds have become stronger, and housing prices have shown signs of life.

Background

U.S. Gross Domestic Product grew by a 1.1% annualized rate during the first three months of the year. This is less than half the pace of the 2.6% growth reported for the previous quarter – which was slower than the previous quarter. The slowing trend is certainly expected and undoubtedly being monitored by FOMC members.

The slowdown from the previous quarter was largely the result of a decline in business investment and residential fixed investment, which includes money spent on home buying and construction, according to the data set. While layoffs made headlines, the job market remained strong during the first quarter.

The banking system showed weakness as asset values plummeted and deposit levels decreased. Also impacting banks is commercial real estate. The risk of default in the commercial real estate market has grown as office and retail property valuations are seen as headed lower by as much as 40%, with nearly $1.5 trillion in debt due for repayment by the end of 2025.

Could a Full-Fledged Bull Market Follow?

While there is a Wall Street adage that says, “sell in May and walk away.” A post-meeting announcement that suggests the Fed is finished taking shots at the economy could cause a relief rally as worry about increasingly expensive capital abates. Unless this worry is replaced by a new one, a broad-based upward trend may develop.

The trend in economic growth is slowing, perhaps even headed for a recession, but markets are no longer expecting a hard landing. Ashard-landing expectations work their way even further out of the market psyche, more willingness to buy should lead to higher stock prices.

Bond markets and real estate have also been positive recently. The direction in interest rates, when the Fed does indicate it is done hiking Fed Funds levels, would either fall because of knowledge that the Fed is done, or generate inflation fears which cause concern that would be reflected as higher rates along the curve. Real Estate values are tightly linked to interest rates and could take its direction from the bond market direction.  

Take Away

We’re in the part of the economic cycle where bad news (lower GDP) is seen as good news. The economy has been slumping for a few quarters, and the markets are continually forward-looking. This slump may be cause for the Fed to suggest an end to its relentless tightening phase. Equity markets could rid themselves of a year-long worry.

Nothing is certain; however, the markets that have already been rising this year in anticipation of an end to the Fed moves could make an even more decisive move upward.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://fred.stlouisfed.org/series/CPIAUCNS

https://ycharts.com/indicators/10_year_treasury_rate_h15

https://www.google.com/search?q=are+commercial+real+estate+defaults+rising&rlz=1C1CHZN_enUS934US934&oq=are+commercial+real+estate+defaults+rising&aqs=chrome..69i57j33i160l2.10358j1j15&sourceid=chrome&ie=UTF-8

Hedge Funds 101: What They Are and How They Work in Investing

Posted on by phoffman@channelchek.com

Developing a Deeper Understanding of Hedge Fund Investments

Hedge funds have become a buzzword in the world of investing, it’s one of those investment instruments that people think they can explain until they’re asked to – not everyone understands what they are or how they work. In simple terms, a hedge fund is a private investment vehicle that is managed by a professional investment manager or team. The primary goal of the fund is to generate above market returns for its investors by using various investment strategies that are often more complex and riskier than traditional investment vehicles like managed mutual funds or index funds. The following should help fill many of the gaps in investors understanding of these funds, including their legal structure, investment strategies, and how they differ from other types of investment vehicles.

Structure of a Hedge Fund

Hedge funds are formed as limited partnerships. This makes investors in the fund limited partners. The investment manager is the general partner of the fund and is responsible for making investment decisions on behalf of the limited partners. The general partner is also responsible for raising capital for the fund, safekeeping, and negotiating fees with investors.

Hedge funds are typically only available to accredited investors, which requires that they meet SEC wealth, income, or financial sophistication thresholds. This is because hedge funds are considered to be high-risk investments and are not subject to the same regulations as other types of investment vehicles. Accredited investors are assumed to have the financial sophistication and resources to handle the risks associated with hedge fund investments.

Investment Strategies

Hedge funds use a wide variety of investment strategies to generate returns for their investors. These strategies can range from relatively simple, such as long/short equity, to highly complex, such as quantitative trading or event-driven investing. Some of the most common investment strategies used by hedge funds include:

Long/Short Equity – This strategy involves buying stocks that are expected to increase in value (long) and shorting stocks that are expected to decrease in value (short).

Event-Driven – This strategy involves investing in stocks that are likely to be impacted by specific events, such as mergers, acquisitions, or bankruptcies.

Quantitative Trading – This strategy involves using mathematical models to identify trading opportunities based on patterns in historical data.

Distressed Investing – This strategy involves investing in companies that are in financial distress or undergoing restructuring.

Global Macro – This strategy involves investing in currencies, commodities, and other assets based on macroeconomic trends.

Valuing a Stock

One of the key skills required to be a successful hedge fund manager is the ability to value a stock or other opportunity. This involves analyzing a company’s financial statements, industry trends, and other relevant factors to determine the intrinsic value of the company’s worth. If the stock is undervalued, the hedge fund may decide to invest in it in the hopes that its value will increase over time. Conversely, if the stock is overvalued, the hedge fund may decide to create a short position in it in the hopes that its value will decrease.

Compared to Other Investment Vehicles

Hedge funds differ from other types of investment vehicles in several ways. First, hedge funds are not subject to the same regulations as other types of investment vehicles, which means that they have more flexibility to use complex investment strategies and take on higher levels of risk. Second, as mentioned above, hedge funds are typically only available to accredited investors, whereas more traditional types of investments like mutual funds or index funds are available to the general public.  Finally, hedge funds typically charge higher fees than other types of investment vehicles, which can include both management fees and performance fees.

Take Away

Hedge funds are complex investment vehicles that can use a variety of riskier methods in an attempt to generate high returns for their investors by using a wide variety of investment strategies. These strategies can range from relatively simple to highly complex and are often more risky than other types of investments. Hedge funds are structured as limited partnerships and are typically only available to accredited investors. They differ from other types of investment vehicles in their lack of regulatory oversight, and known to charge higher fees.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor

Bed Bath and Beyond, Why Companies Delist, and Investor Impact  

Posted on by phoffman@channelchek.com

Do Investors Take a Bath When Stocks Delist?

One popular meme stock, Bed Bath & Beyond (BBBY) is being delisted from the Nasdaq exchange, according to a company announcement. There are a number of reasons a public company can delist from an exchange. In BBBY’s case it is related to their recent bankruptcy filing, according to management. Below are examples of the many reasons a company would delist, what happened in BBBY’s case, and what delisting means for investors.

Many Reasons to Delist

Delisting from the stock exchange refers to the removal of a company’s shares from public trading on a particular exchange. It occurs by management choice or at the exchange’s request. The process can happen for various reasons, such as regulatory violations, bankruptcy, or a company’s decision to go private. Delisting can have significant consequences for the corporation and its investors, including decreased liquidity and visibility in the market.

A common reason for delisting is regulatory violations. For example, if a company fails to comply with the reporting requirements of the Securities and Exchange Commission (SEC), it may face delisting from the stock exchange. This was the case with Chinese tech giant Alibaba, which was delisted from the Hong Kong Stock Exchange in 2020 because of regulatory violations.

Sometimes, companies have a reason to take themselves private and delist as part of that process. Going private means that a corporation’s shares are no longer traded on public stock exchanges. In 2013, computer maker Dell was taken private in a deal worth $24.9 billion. The company’s delisted its shares from the NASDAQ exchange. Twitter was recently purchased and taken private.

As is the case with Bed Bath and Beyond, bankruptcy often causes shares not to meet the exchange’s criteria, forcing a delisting. Another retailing example is Toys R Us in 2018. It filed for bankruptcy and was subsequently delisted from the New York Stock Exchange (NYSE).

Delisting can have significant implications for a company and its shareholders. One of the main consequences is a decrease in liquidity. When a company is delisted, its shares are no longer traded on public stock exchanges, which means that investors may have a harder time finding buyers or sellers for their shares.

Additionally, delisting can impact a company’s visibility in the market. Without a public listing, a company may find it more difficult to attract investors and raise capital. This can be particularly challenging for small and mid-sized companies that rely on the stock market to raise funds.

Bed Bath and Beyond’s Delisting

Trading in BBBY common stock will cease at the opening of the trading day on May 3 – according to a filing with the Securities and Exchange Commission (SEC).

In its bankruptcy announcement, the company said trading of shares would halt on the Nasdaq exchange. Nasdaq and the NYSE have standards companies need to meet for their stocks to be listed and stay listed. This includes minimum levels of liquidity, market value, or price level.

Back in January, Nasdaq warned the company its shares would be delisted after it failed to report quarterly results in a timely manner. The company eventually filed the report and returned to compliance. This time Bed Bath and Beyond said it doesn’t intend to appeal.

Shareholders will still own the stock and fractional shares of the company after May 3. However, without the help of a major exchange, trading between stockholders and speculators is usually much more difficult. Some bankrupt companies’ stocks continues to trade in over-the-counter markets (OTC). They typically have the letter “Q” at the end of their stock symbol. It isn’t yet clear if BBBY will trade as BBBYQ.

After a company files for Chapter 11, unsecured creditors—including suppliers and leaseholders—line up in an attempt to get repaid. How much creditors get paid back depends on how much money Bed Bath and Beyond can raise from the sale of either parts of its business or the chain itself.

Take Away

Delisting from major stock exchanges can happen for various reasons and can have significant consequences for investors. While regulatory violations and bankruptcy can lead to forced delisting, companies may choose to delist voluntarily to go private or for other strategic reasons. Regardless of the reason, delisting can impact a company’s liquidity and visibility in the market, making it important for investors to carefully consider the implications before investing in delisted companies or those facing delisting.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.sec.gov/edgar/browse/?CIK=0000886158

https://www.investopedia.com/ask/answers/10/stock-holder-lose-equity-chapter-11.asp

https://bedbathandbeyond.gcs-web.com/news-releases/news-release-details/bed-bath-beyond-inc-receives-nasdaq-delisting-notice

https://bedbathandbeyond.gcs-web.com/news-releases/news-release-details/bed-bath-beyond-inc-files-voluntary-chapter-11-petitions

If Bad Expectations are Fully Priced Into Stocks, Which Ones Could Outperform This Year 

Posted on by phoffman@channelchek.com
Image Credit:Maarten Takens (Flickr)

Highly Regarded Analyst Tells Investors How to Position for the Upturn   

Are recession worries fully baked into stock prices? At least one Wall Street analyst has publicly made her case this may be accurate. And she offers tips on what sectors may have more upside and on those that have factors working against them. While a recession still may occur before year-end, forward-looking stock investors may have fully priced that risk in – forward-looking investors may also be the reason the overall market is up on the year despite greater expectations of a recession. They are looking past any slowdown.

Stock market participants, many still down on last year’s price moves, have been extremely cautious in front of a Fed that is playing catch up in a fight against inflation. The rapid Fed Funds rate increases that began in March 2022, coupled with quantitative tightening, sank stocks, bonds, and even cryptocurrency holdings. While the economy did shrink for two consecutive quarters last year, there are many that expect a mild recession will begin at some point this year.

Those that do expect a bumpy economic ride and a rough landing point to high-interest rates, a weakening dollar, tech industry layoffs, and a Federal Reserve that is resolved to get inflation down as soon as possible.

Savita Subramanian, equity and quant strategist at Bank of America Securities, proposed to investors in a research note published on April 24, that these fears and recession worries have been in place for a while and may be largely baked into the market. She says, barring a sudden shock to the economy, it makes sense for investors to reintroduce riskier assets into their portfolios.

Her guidance on finding value is well thought out. Subramanian, proposes investors own stocks over bonds and cyclical stocks over defensive names. The reason given is that hedge funds and long-only funds are near maximum exposure in defensive industries such as health care, utilities, and consumer staples. The suggestion here is that the probabilities would lean toward a better risk-reward payoff for cyclical names.

Ms. Subramanian does not say an economic slowdown won’t occur; instead, her thinking seems to be that after raising the Federal Funds rate from near-zero to a range of 4.75% to 5%, there is more control should a downturn need to be dealt with by easing. When rates are at or near zero percent, there is less the Fed can do to stimulate growth. So far, we’ve made it through the first quarter, and now April with only a few disruptions in the banking sector.

“Even if a recession is imminent, the Fed has latitude to soften the impact after pushing rates up by 5%. And after the fastest hiking cycle ever, the only thing to ‘break’ so far is SVB,” Subramanian wrote.

In an article published in Barron’s this week the investment news publication wrote, “Some corners of Wall Street are feeling confident that there will be no recession and that the very things that make a recession appear likely–the inverted yield curve, inflation, and the recent banking crisis–actually guarantee that one won’t happen.”

This could be good news for investors that have been nervous about having money in a market that has been given much to be concerned about, and ver little to be jubilant about.

On Thursday, GDP (Gross Domestic Product) for the first quarter will be released. No one expects this to indicate a recession began then. Forecasters expect that the economy will show 2% growth, following growth of 3.2% and 2.6% in the third and fourth quarters of 2022. This is one of the cases where if the number surprises much higher, the market may expect the Fed to make bigger rate moves. If it surprises on the low side, markets may see it as a sign of an approaching recession.

Take Away

A highly regarded analyst joins others with thoughts that the market could be priced for a recession; this could be good for stocks. If true, investors may want to start looking past a recession. Those she is most positive on are riskier names. While funds and other investors are near maxed out in lower-risk holdings, there is far less upside for them. The bigger upswings can occur in the industries, market-cap sectors, and companies that have been given less attention due to recession fears.

Paul Hoffman

Managing Editor, Channelchek

U.S. Money Supply, Here’s Why it’s Critical for Inflation Forecasts

Posted on by phoffman@channelchek.com
Image Credit: Pictures of Money (Flickr)

M2 is Fuel for Inflation, How Much Money Must the Fed Drain to Achieve 2 Percent?

U.S. Money Supply, measured as M2, is an important consideration when forecasting inflation. A decline in immediately available cash in the economy has a downward effect on price levels. At the same time, less cash available to consumers also cools economic growth. With the Federal Open Market Committee’s (FOMC) interest rate decision coming the first week in May, the updated report this week (for March) will give investors a look see at how successful the Fed has been draining funds from the system while trying to maintain some growth.

M2 Shrinking

The Federal Reserve will update stock and bond markets Tuesday afternoon on the total amount of currency, coins, bank savings deposits, and money-market funds held in March. This broader measure, officially M2SL, referred to as M2, gained renewed focus after contracting for the first time ever in December 2022, then contracting even further in January and February. January’s 1.75% decline and February’s 2.4% drop to $21.1 trillion, are the steepest drops so far in M2.  

Image: M2 levels ramped up starting in 2020 in response to pandemic economic efforts

A fourth consecutive decline in M2 would provide more evidence that inflation can be expected to continue to come down and weigh into the FOMC decision when the Fed meets to adjust monetary policy at its May 2-3 meeting. While the chart above shows the recent declines are significant, it is still far higher than the trend line that was established decades ago. So while a decline of similar magnitude as the first two months would be welcome by inflation hawks, there is still a great deal more cash in the system than there was pre-pandemic. But it would be a huge positive and may cause the Fed to pause or slow draining money from the system.

Inflation

Consumer price inflation is well off its 8.6% average for all of 2022. Inflation since rose 5% in March 2023 (annual basis), decelerating from February’s 6% pace. While this slowdown in price increases is substantial, the Fed doesn’t want to declare “mission accomplished” until it is ranging near 2%. Its work is not yet finished.

How close is the Fed from finished is what investors will try to discern from M2. Highly regarded analysts and Fed watchers anticipate that there is a lag of about a year when the money supply shrinks. However, as indicated above, it has never come down on an annualized basis, and January and February were the largest declines to date. So even the best analysts have little history to point to.

Financial Sector

The data is for March, so it is the first look at M2 since the banking sector showed trouble early that month. A part of the difficulty banks are currently experiencing is that the reduction in cash has caused a need for them to liquidate U.S. Treasuries and other bonds to fund withdrawals. A further huge reduction in M2 could be shown to be challenging more banks as bonds and other interest rate-sensitive assets had lost considerable value as rates rose dramatically over the past year.

Using the most recent data, the Federal Reserve reported bank deposits were down 6% for the week ending April 12 versus a year ago. Deposits have been falling year-over-year since November, off slightly at $17.2 trillion compared to the highest-ever $18.2 trillion level seen in April last year.

Further declines in deposits should lead to fewer loans written, fewer loans slows economic growth. This in part, accounts for why there is a lag between when the Fed drains and when it has an impact on inflationary pressures.

Take Away

M2 is an important gauge of future inflation. Because of this, the release of data may cause economists to change their May FOMC meeting forecast. A large decline may cause the Fed to pause, if M2 resumed its path upward the Fed may become more hawkish. Efforts to help the banking system last month, may have reinflated money supply, this will be a very interesting report.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20230322.pdf

https://fred.stlouisfed.org/series/M2SL#

https://rationalreasoning.substack.com/p/on-the-feds-discontinuation-of-the

https://www.barrons.com/articles/fundamental-reason-interest-rates-will-come-down-444ab9c

https://www.investopedia.com/terms/m/m2.asp#:~:text=M2%20is%20seen%20as%20a,even%20better%20predictor%20of%20inflation.

The Coming War Between AI Generated Spam and Junk Mail Filters

Posted on by phoffman@channelchek.com
Image Credit: This is Engineering (Pexels)

AI-Generated Spam May Soon Be Flooding Your Inbox – It Will Be Personalized to Be Especially Persuasive

Each day, messages from Nigerian princes, peddlers of wonder drugs and promoters of can’t-miss investments choke email inboxes. Improvements to spam filters only seem to inspire new techniques to break through the protections.

Now, the arms race between spam blockers and spam senders is about to escalate with the emergence of a new weapon: generative artificial intelligence. With recent advances in AI made famous by ChatGPT, spammers could have new tools to evade filters, grab people’s attention and convince them to click, buy or give up personal information.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of John Licato, Assistant Professor of Computer Science and Director of AMHR Lab, University of South Florida.

As director of the Advancing Human and Machine Reasoning lab at the University of South Florida, I research the intersection of artificial intelligence, natural language processing and human reasoning. I have studied how AI can learn the individual preferences, beliefs and personality quirks of people.

This can be used to better understand how to interact with people, help them learn or provide them with helpful suggestions. But this also means you should brace for smarter spam that knows your weak spots – and can use them against you.

Spam, Spam, Spam

So, what is spam?

Spam is defined as unsolicited commercial emails sent by an unknown entity. The term is sometimes extended to text messages, direct messages on social media and fake reviews on products. Spammers want to nudge you toward action: buying something, clicking on phishing links, installing malware or changing views.

Spam is profitable. One email blast can make US$1,000 in only a few hours, costing spammers only a few dollars – excluding initial setup. An online pharmaceutical spam campaign might generate around $7,000 per day.

Legitimate advertisers also want to nudge you to action – buying their products, taking their surveys, signing up for newsletters – but whereas a marketer email may link to an established company website and contain an unsubscribe option in accordance with federal regulations, a spam email may not.

Spammers also lack access to mailing lists that users signed up for. Instead, spammers utilize counter-intuitive strategies such as the “Nigerian prince” scam, in which a Nigerian prince claims to need your help to unlock an absurd amount of money, promising to reward you nicely. Savvy digital natives immediately dismiss such pleas, but the absurdity of the request may actually select for naïveté or advanced age, filtering for those most likely to fall for the scams.

Advances in AI, however, mean spammers might not have to rely on such hit-or-miss approaches. AI could allow them to target individuals and make their messages more persuasive based on easily accessible information, such as social media posts.

Future of Spam

Chances are you’ve heard about the advances in generative large language models like ChatGPT. The task these generative LLMs perform is deceptively simple: given a text sequence, predict which token – think of this as a part of a word – comes next. Then, predict which token comes after that. And so on, over and over.

Somehow, training on that task alone, when done with enough text on a large enough LLM, seems to be enough to imbue these models with the ability to perform surprisingly well on a lot of other tasks.

Multiple ways to use the technology have already emerged, showcasing the technology’s ability to quickly adapt to, and learn about, individuals. For example, LLMs can write full emails in your writing style, given only a few examples of how you write. And there’s the classic example – now over a decade old – of Target figuring out a customer was pregnant before her father knew.

Spammers and marketers alike would benefit from being able to predict more about individuals with less data. Given your LinkedIn page, a few posts and a profile image or two, LLM-armed spammers might make reasonably accurate guesses about your political leanings, marital status or life priorities.

Our research showed that LLMs could be used to predict which word an individual will say next with a degree of accuracy far surpassing other AI approaches, in a word-generation task called the semantic fluency task. We also showed that LLMs can take certain types of questions from tests of reasoning abilities and predict how people will respond to that question. This suggests that LLMs already have some knowledge of what typical human reasoning ability looks like.

If spammers make it past initial filters and get you to read an email, click a link or even engage in conversation, their ability to apply customized persuasion increases dramatically. Here again, LLMs can change the game. Early results suggest that LLMs can be used to argue persuasively on topics ranging from politics to public health policy.

Good for the Gander

AI, however, doesn’t favor one side or the other. Spam filters also should benefit from advances in AI, allowing them to erect new barriers to unwanted emails.

Spammers often try to trick filters with special characters, misspelled words or hidden text, relying on the human propensity to forgive small text anomalies – for example, “c1îck h.ere n0w.” But as AI gets better at understanding spam messages, filters could get better at identifying and blocking unwanted spam – and maybe even letting through wanted spam, such as marketing email you’ve explicitly signed up for. Imagine a filter that predicts whether you’d want to read an email before you even read it.

Despite growing concerns about AI – as evidenced by Tesla, SpaceX and Twitter CEO Elon Musk, Apple founder Steve Wozniak and other tech leaders calling for a pause in AI development – a lot of good could come from advances in the technology. AI can help us understand how weaknesses in human reasoning might be exploited by bad actors and come up with ways to counter malevolent activities.

All new technologies can result in both wonder and danger. The difference lies in who creates and controls the tools, and how they are used.

Why the IPO Market is Picking Up

Posted on by phoffman@channelchek.com
Image Credit: Steve Jurvetson (Flickr)

IPO Market Accelerating – Especially Overseas

The amount of investment in initial public offerings (IPOs) during March-April has jumped from January-February levels. Globally, the pick-up in IPOs is linked to the uptick in stock prices, which has allowed companies to tap into investor appetite for newer listings. A sizeable percentage of the offerings are in Asia, but Europe and the U.S. have experienced a surge as well. Activity during the first two months of 2023 had ground to a halt; new data compiled by Bloomberg demonstrates a much faster trend.

To date, there has been $25 billion worth of IPOs worldwide in March and April; this is nearly twice the amount transacted during the prior two months of the year. Companies headquartered from Hong Kong to Milan have put up their “Going Public”  signs up as market volatility declined. The uptick in IPOs in Asia substantially moved the needle as non-U.S. exchanges accounted for nearly 80% of new share sales during April.

The uptick in Europe can’t be ignored either; European listings are higher by a wide margin compared to earlier in the year. The activity in the U.S. is not as robust but also noteworthy, as concern about a recession had been creating caution among potential U.S. issuers.

In a quote published by Bloomberg News, Jason Manketo global co-head of the law firm Linklaters’ equities practice said, “We are beginning to see green shoots of activity with companies restarting processes that were on hold, but there is still a fair degree of uncertainty in the market.” Mankel added, “The buy side is keen to see results for a couple of quarters before committing to an IPO. This means the potential pipeline of some 2023 deals has been moved out to 2024.”

Leaders

Statistically, Asia is where a great deal of the action is in the world today. But the activity is different, perhaps more appealing, than last year. In 2022 the vast majority of large deals were concentrated in mainland China; over the past two months, issuance is coming from a broader representation of Asia.

“The IPO market is coming back gradually and slowly. It is not 100% back yet, but there are signs of life and renewed vigor,” said James Wang, co-head of equity capital markets at Goldman Sachs Group Inc. in Asia ex-Japan.

A couple of nickel producers from Indonesia surged as they went public. And in Japan, as part of the country’s largest IPO since 2018,  Rakuten Bank Ltd. soared after it raised 83.3 billion yen ($623 million). And KKR & Co.-backed Chinese liquor company ZJLD Group Inc. as recently as April 20th, priced Hong Kong’s largest offering in 2023.

Europe Wakes Up

Europe’s IPO market had been dragging, with activity in 2023 down about 12% from the same period last year as Russia’s invasion of Ukraine brought new listings to a screeching halt.

Also weighing on the market, poor IPO returns have been a deterrent for investors. Portfolio managers had been in the drivers seat insisting on bargains for less proven companies. In  March the sudden meltdown of financial firm Credit Suisse, ignited a global market rout, this added to investor worries about interest rates and inflation; the event also made it less attractive for companies to try and attract a favorable price.

But there are growing signs of fear lifting. Most notably, Lottomatica SpA, the Italian gambling company backed by Apollo Global Management Inc., opened the books last week for a €600 million ($657 million) IPO, becoming the third large firm to tap European exchanges this year. Additionally, German web-hosting company Ionos SE and electric motor component maker EuroGroup Laminations SpA have managed to raise more than $400 million in the region, though both stocks have struggled after debuting.

U.S. Uptick

While IPO activity in the U.S. is not as robust, there has been a huge uptick as well. The IPO calendar for U.S. exchanges shows 20 priced deals totalling $751.5 billion, and 29 new filings. This is an acceleration after only $4.1 billion had been raised for companies listing on U.S. exchanges during the first two months of 2023.

Take Away

Globally companies are finding it more worthwhile to tap capital from the equity markets via IPO. While the most growth is greater Asia, Europe and the U.S. see a significant uptick as well. Whether this trend continues and represents, a buying opportunity seems to hinge on recession concerns. Many forecasters are now calling for a much more mild recession than previously expected.

Paul Hoffman

Managing Editor, Channelchek

Sources:

https://www.bloomberg.com/news/articles/2023-04-23/ipo-market-shows-signs-of-life-even-as-recession-fears-persist?srnd=markets-vp&sref=8GWybyo5&leadSource=uverify%20wall

https://www.nasdaq.com/market-activity/ipos

https://www.bloomberg.com/profile/company/LTT:IM

Regulate AI?  Elon Musk Thinks it’s an Intelligent Idea

Posted on by phoffman@channelchek.com
Image Credit: Steve Jurvetson (Flickr)

Elon Musk Unveils How He Expects to Approach Artificial Intelligence

The CEO of SpaceX, Twitter, Tesla, as well as the founder of The Boring Company , and Neuralink, says he wants to do something to serve humanity. Elon Musk has been concerned that artificial intelligence may have the propensity to turn against mankind. He said the best way to avoid the problem is to make artificial intelligence curious. “I’m going to start something which I call ‘TruthGPT’ or a maximum truth-seeking AI that tries to understand the nature of the universe,” Musk said in an interview with Tucker Carlson. The billionaire thinks that an AI that cares about understanding the universe is “unlikely to annihilate humans” as we’re an “interesting part of the universe, hopefully.” During the discussion, he emphasized the project will differ from competitors, such as OpenAI’s ChatGPT and Google’s Bard, by caring about understanding the universe.

This ambitious new goal of Musk’s was introduced with few details about the project, so it remains unclear how, exactly a machine becomes curious. He did repeat that he considers AI dangerous if mismanaged, with a “potential for civilizational destruction.” In fact, he called for some level of government oversight over AI projects. Musk isn’t new to the technology; he is actually one of the co-founders of OpenAI, the company that has been making headlines with its AI chatbot named ChatGPT.

The new technology would likely compete with AI efforts by Sam Altman-led OpenAI, which as mentioned was initially funded by Musk, Google’s DeepMind, and other AI initiatives around the world.

Regulating A.I.

Musk told Carlson he envisions a regulatory agency that “initially seeks insight into AI, then solicits opinion from industry, and then has proposed rule-making,” something like the Federal Aviation Administration and how it interacts with aviation and aerospace companies. Once agency and industry-accepted rules in place, “I think we’ll have a better chance of advanced AI being beneficial to humanity,” Musk said. Musk signed a letter calling for a pause on advanced AI research because he is part of a group of signers that believe it can potentially harm society.

“Contemporary AI systems are now becoming human-competitive at general tasks, and we must ask ourselves: Should we let machines flood our information channels with propaganda and untruth?” the letter stated.

Part two of the interview is scheduled to air at 8 PM ET April 18 on Fox News.

Paul Hoffman

Managing Editor, Channelchek

https://www.foxnews.com/media/elon-musk-develop-truthgpt-warns-civilizational-destruction-ai

https://www.cnbc.com/2023/04/18/musk-calls-plans-truthgpt-ai-to-rival-openai-deepmind.html

Are Select Biotech Stocks on the Launchpad?

Posted on by phoffman@channelchek.com
Image Credit: Hagerstown CC (Flickr)

Why Biotech Stocks Experience Significant Price Moves

Has biotech reached the tipping point? Shares of PromethiusBiosciences (RXDX) are up 70% this week after Merck (MRK) announced on Sunday it will pay a 75% premium for the clinical-stage biotech company. This follows last month’s big news when Pfizer announced its intention to acquire Seagen (SGEN), on the same day Sanofi (SNY) announced plans to buy Provention Bio (PRVB). This sent PRVB shares skyrocketing 258%. The question for biotech investors now is, who’s next?

Drug discovery and development is a long, uncertain path that often takes 10–15 years, and costs that could exceed $1–2 billion for any new drug ultimately approved for clinical use. Unlike unregulated products, it’s a significant achievement for a candidate to get as far as clinical trials. Promethius and Provention are both clinical-stage biotech companies. Fortunately for investors, each step along the path to success, whether or not it leads to a product going to market, can cause a significant swing in the stock’s price.

Small-cap biotech stocks can experience these significant price jumps from a variety of events. During the period of research and development, a drug on the path toward success or failure will have other significant events both positive and negative, that will impact the stock price in ways not found in other industry sectors. Here are some examples:

Positive clinical trial results: When a small-cap biotech company releases positive clinical trial results, it can generate significant investor interest and drive up the stock price.

Acquisition rumors or deals: When rumors or announcements of an acquisition by a larger company circulate, it can cause a small-cap biotech stock to rise as investors anticipate a potential buyout premium.

FDA approvals: FDA approvals of drugs or medical devices can significantly boost a small-cap biotech company’s stock price, as it can open up a new revenue stream for the company.

Partnerships and collaborations: Partnerships and collaborations with larger companies can also cause a small-cap biotech stock to rise as it indicates a level of validation for the company’s technology or products.

Analyst upgrades: If an influential analyst upgrades their rating on a small-cap biotech stock, it can increase investor interest and drive up the stock price.

Companies You May Want to Watch

There is information on well-over 200 small-cap biotech companies on Channelchek. Below is a select group that investors may want to follow.  

Cocrystal (COCP): Cocrystal Pharma, Inc. is a clinical-stage biotechnology company discovering and developing novel antiviral therapeutics that target the replication process of influenza viruses, coronaviruses, hepatitis C viruses and noroviruses.

Axcella (AXLA): Axcella is a clinical-stage biotechnology company pioneering a new approach to treat complex diseases using endogenous metabolic modulator compositions. The company’s product candidates are comprised of EMMs and derivatives that are engineered in distinct combinations and ratios to reset multiple biological pathways, improve cellular energetics, and restore homeostasis.

Tonix Pharmaceutical (TNXP): Tonix is a clinical-stage biopharmaceutical company focused on discovering, licensing, acquiring and developing therapeutics to treat and prevent human disease and alleviate suffering. Tonix’s portfolio is composed of central nervous system, rare disease, immunology and infectious disease product candidates.

Onconova Therapeutics (ONTX):   Onconova Therapeutics is a clinical-stage biopharmaceutical company focused on discovering and developing novel products for patients with cancer. The Company has proprietary targeted anti-cancer agents designed to disrupt specific cellular pathways that are important for cancer cell proliferation.

MAIA Biotechnology (MAIA):   MAIA is a targeted therapy, immuno-oncology company focused on the development and commercialization of potential first-in-class drugs with novel mechanisms of action that are intended to meaningfully improve and extend the lives of cancer patients.

PDS Biotechnology (PDSB):    PDS Biotech is a clinical-stage immunotherapy company developing a growing pipeline of targeted cancer and infectious disease immunotherapies based on proprietary T cell-activating technology platforms.

Ocugen (OCGN): Ocugen, Inc. is a biotechnology company focused on discovering, developing, and commercializing novel gene and cell therapies and vaccines that improve health and offer hope for patients across the globe. The company impacts patient’s lives through innovation that forge new scientific paths.

Take Away

Biotech stocks, especially small-caps have come well off the pandemic era, sky-high price levels they had attained. At the same time, large pharmaceutical companies that are still seeing sales from covid related products have ample cash and are faced with patents that are always inching closer to expiration. Acquisitions tend to cause huge price spikes in all industries, especially biotech.

While pharmaceutical companies will be picky as they may work to own patents on their next generation of product offerings, many other positive (and negative) occurrences could impact the stock price. Channelchek provides current information on small-cap biotech stocks so that investors can determine the likelihood of success and to help them steer from negative investment results.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.channelchek.com/search-new?search=biotech

https://www.fiercebiotech.com/biotech/big-pharma-resisting-temptation-biotech-ma-until-prices-drop-further

https://seekingalpha.com/article/4594550-catalyst-pharmaceuticals-a-one-hit-wonder-with-upside

Yellen is About to Know the Debt Ceiling Do or Die Date

Posted on by phoffman@channelchek.com
Image Credit: Federal Reserve (Flickr)

Tax Date Will Provide Timing on Critical Debt Ceiling Breach

While both stock and bond investors are focused on the Federal Reserve and how it will orchestrate lower inflation without crashing the economy, the debt limit time bomb hasn’t gotten much attention yet, this could quickly change. The U.S. mathematically hit its allowed debt ceiling on January 18, 2023. Treasury Secretary Janet Yellen has since been taking measures to avoid a U.S. default on the national debt. But she can only do this dance for so long. How long will become much clearer quite soon. April 18, 2023 is tax date; the U.S. Treasury will then have more precise revenue numbers. This will give the department a much better understanding of when the U.S. would default on its debt if Congress doesn’t allow a higher borrowing limit.

Congress tends to let these issues come down to the eleventh hour before acting. All parties involved know a default would be catastrophic, so the down-to-the-wire drama frustrates markets but tends to allow Congressional representatives to carve out deals on what is important to them. Some expect the actual deadline will be as early as mid-June, others forecast it to be just after summer. The answer will come into clearer focus as tax receipts are taken in over the coming week. Once the time-frame is more certain, the markets are likely to begin to then react as concern amps up.

The Treasury’s $31.4 trillion borrowing cap plus tax receipts will give a clearer idea of how much cash it will have available, which it can weigh against its spending rate. In a note to clients, Bank of America’s analysts, Mark Cabana and Katie Craig wrote “we maintain our current base case for a mid-August X-date but see risks skewed toward earlier.” This four-month or earlier period would end near the scheduled recess for both the House and Senate.

In the analysts view, an influx from taxes of more than $200 billion following tax day would be a relief, while a figure of less than $150 billion would be concerning. Meanwhile, U.S. House Speaker Kevin McCarthy is preparing to roll out his proposal this week for a one-year debt ceiling suspension, according to sources reported by Bloomberg. Republicans have long sought to make any deal contingent on spending cuts, while President Biden has insisted that budgetary needs and debt ceiling should be viewed separately. 

Over the coming months markets and US Treasury officials culd encounter:

T-Bill Yield Increases

Investors could expect higher yields on securities maturing in the very short end of the curve. The fear driving the rate increases is the knowledge that should the U.S. runs out of borrowing capacity, it may not be able to borrow to pay the maturing debt.

This could begin to create an unusual one-year and shorter yield curve as investors either want maturities well ahead of any possible default or well after to give the Congress time to act.

Insuring Against Default

A key market to watch is what happens in credit default swaps for U.S.-issued debt. There has been an increase in activity in recent months as pricing has moved past levels seen in previous debt-cap crunches; this is viewed as the market’s increased expectation of a higher probability of default.

Treasury Cash On-Hand

The measures Treasury Secretary Yellen deployed in late January to address the debt limit issue involve in part, spending cash it doesn’t need to borrow. Last week this cash dropped to $87 billion. This is the lowest level since December 2021 during the debt ceiling battle. However, with the tax payment infusion and other tax revenue, this amount is viewed as a safe cushion for the time being.

The amount of revenue received in taxes this week is critical in that market participants can gauge how far off the debt ceiling debate will be. The concern that the negotiations can cause short-term shifts in interest rates and impact the U.S. dollar and other markets generally has investors on edge.

The situation is not likely to be resolved until the eleventh hour with the current split Congress – when the peak period of drama occurs will be better known very soon.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.nab.org/documents/advocacy/2023CongressionalCalendar.pdf

https://www.bloomberg.com/news/articles/2023-04-17/tax-day-cash-will-indicate-just-how-close-the-us-is-to-default?srnd=premium#xj4y7vzkg

Higher Metals Prices May Escalate Mining M&A Activity

Posted on by phoffman@channelchek.com

Is This The Start Of A New Golden Age Of Gold Mining Deals?

We may be about to enter a new golden age of gold mining deals as explorers and producers seek to capitalize on higher metal prices and gain exposure to other key minerals, including copper, at a time when consolidation in the gold industry vastly trails that of other metals.

Last week, major U.S. gold producer Newmont raised its bid for Australian rival Newcrest Mining to $19.5 billion after its earlier bid of $17 billion was rejected. Due diligence is expected to take around four weeks, and if Newcrest’s board and shareholders accept the offer, the acquisition would represent one of the top 10 biggest metal deals ever and the single biggest gold mining takeover, nearly twice the value of last year’s merger between Kirkland Lake and Agnico Eagle.

(A note about the chart above: Just today, Teck Resources rejected Glencore’s $23 billion takeover bid, calling it “opportunistic and unrealistic.” Vancouver-based Teck says it will proceed with plans to spin off its steelmaking coal business, creating two new companies: Teck Metals and Elk Valley Resources. This separation “creates a significantly greater spectrum of opportunities to maximize value for Teck shareholders” compared to an acquisition by Glencore, says Teck’s Board of Directors Chair Sheila Murray.)

This article was republished with permission from Frank Talk, a CEO Blog by Frank Holmes

of U.S. Global Investors (GROW).

Time will tell if Newcrest approves of Newmont’s offer, but I believe this could be the start of a much-needed consolidation cycle in the gold industry, one that could potentially benefit shareholders.

Gold Is One Of The Most Fragmented Gold Mining Industries

Back in 2019, many analysts and market participants—myself included—heralded Newmont and Goldcorp’s $9.3 billion merger as the beginning of a new era of gold consolidation, and I believe the Newmont-Newcrest deal could serve as a (delayed) continuation of the trend.

The truth is that, compared to other important metals, gold is sorely in need of consolidation. The chart below, courtesy of metals and mining consultancy firm CRU Group, shows the global share of output from each metal’s top 10 producers. Gold is at the bottom, with its top 10 producers responsible for only 28% of global output. By comparison, the top 10 iron ore producers generate nearly 70% of the world’s supply.

Higher gold prices in recent years have not resulted in significantly increased exploration spending. In lieu of that, companies can expand and create shareholder value through mergers and acquisitions (M&A), which allow miners to “increase their production share, replenish depleting gold reserves and… lower production costs through relatively less risk,” writes CRU analysts.

Copper To Face Ongoing Supply Deficits

M&A can also result in metal diversification—one of Newmont’s stated goals in acquiring Newcrest. Copper currently accounts for roughly 25% of Newcrest’s total net revenue, and the company hopes to increase it to 50% of revenue by the end of the decade. As one of the key minerals in the global transition to renewable energy, copper is poised to surge in price in the coming years as demand far outpaces supply.

In fact, copper mining deals exceeded gold mining deals in total value last year, according to a new report by S&P Global. M&A work among copper companies in 2022 totaled more than $14 billion in value, a 103% jump over the previous year, while the combined value of gold deals stood at $9.8 billion, a 48% decrease from 2021.

US Global Investors Disclaimer

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE. Effective 8/31/2018, Frank Holmes serves as the interim executive chairman of HIVE.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2021): Torex Gold Resources Inc., Centerra Gold Inc., Gran Colombia Gold Corp., Dundee Precious Metals Inc., Pretium Resources Inc., Endeavour Mining PLC, Barrick Gold Corp., Eldorado Gold Corp., SSR Mining Inc., Silver Lake Resources Ltd., Karora Resources Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The Week Ahead –  It’s the Quiet Weeks You Have to Look Out For

Posted on by phoffman@channelchek.com

This Week Earnings Season Builds and the World’s Second Largest Economy Reports GDP

There are multiple real estate-related reports this week that are expected to conflict with one another. Otherwise, it is a slow week for economic numbers, but earnings season, with banks still in the spotlight, will begin to build. With few U.S. economic reports, an elevated amount of attention may be paid to a Tuesday release of Chinese GDP. Expectations are for 3.9% growth. The Beige Book on Wednesday sets the table for the May FOMC meeting; surprises will be magnified in a slow economic data week.

Monday 4/17

  • 10:00 AM ET, The Housing Market Index has been trending upward following a severe downward spiral throughout 2022. The April consensus is 45 which would add 1 point to March’s 7 point increase to 44. This reflects home builder assessments of housing across the U.S. It is used as not just a gauge of current demand for housing, but also economic momentum which spins off of home purchases. This seemingly unrelated data has an unmistakable multiplier effect on the economy, which impacts markets.
  • 12:00 PM ET, Richmond Fed President Thomas Barkin will be speaking. This has the potential for a market mood change as Barkin has been among the more hawkish of Fed district Presidents. After the last FOMC meeting in March, Barkin said he had no second thoughts on the Fed’s decision to raise rates at the meeting.

Tuesday 4/18

  • 6:00 AM ET, Housing Starts, in March is expected to decline a bit to a 1.40 million annualized rate. As reported for February Starts increased sharply to a 1.450 million annualized rate from January’s 1.321 million. Permits, at 1.524 million in February, also jumped sharply and are expected to fall back to 1.431 million in March.

Wednesday 4/19

  • 2:00 AM ET, The Beige Book is produced a couple of weeks before each FOMC meeting. The next meeting is May 2-3. Despite the name referring to it as a “book,” it is actually 12 individual reports of what each Federal Reserve district sees occurring economically in their region. It serves as the starting place of discussion at each of the ten annual FOMC meetings. For this reason, economists, investors, and Fed watchers pour over the details.

Thursday 4/20

  • 8:30 AM ET, Jobless Claims Jobless for the April 15 week are expected to come in at 245,000 versus 239,000 in the prior week. With a very light economic calendar, this may turn out to be the focus for the week. Better than expected could cause rate fears to grow in stock market participant’s psyche, a surprise on the low side will cause news reports and market pundits to declare the Fed is done tightening.
  • 10:00 AM ET, Existing Home Sales represents yet another real estate economic report this week. After February’s sharp jump to a 4.58 million annualized rate, existing home sales in March are expected to fall back to a 4.485 million rate.
  • 10:00 AM ET, the Index of Leading Economic Indicators is expected to drop again to 0.4 percent for March. The index has been in steady decline, signaling a pending recession. For investors, this index seldom surprises since it is comprised of ten preciously released components, the results of which are already known. The trend is important to investors, the number has low potential to move markets when released.
  • 4:30 AM ET, The Fed Balance Sheet is released at this time each Thursday. Investors are paying more attention so they can discern whether what the Fed says and what the Fed does are one in the same. Quantitative tightening is the Fed reducing the securities it owns on its balance sheet. It paid U.S. dollars for the securities. If it let’s them mature and does not repurchase securities, that money is taken out of the economy. Money is stimulative, reduced money in the system is a drag on growth.

Friday 4/21

  • 9:45 PM ET, Purchasing Managers Index composite (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of 1,000 manufacturing and service sector companies. A number above 50 indicates shows rising output relative to the previous month. Services moved back to the 50 demarcation in February for the first time in eight months and improved further in March to 52.6; the consensus for April is 51.5.

What Else

Taxes are due April 18 this year. This typically creates a wave of new IRA deposits and the investments that follow.

The U.S. Supreme Court will hear arguments on Monday in Slack vs. Pirani, a complex securities law case that could set a precedent for how easy it will be for investors to sue companies over alleged misstatements or omissions in their registration statements during direct listings. The case may have major implications for direct listings—either making them a more attractive option or removing them as a viable option.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.richmondfed.org/conferences_and_events

https://www.reuters.com/markets/rates-bonds/feds-barkin-says-case-rate-increase-was-pretty-clear-2023-03-24/

https://us.econoday.com/

Will the IRS Accept Cash?

Posted on by phoffman@channelchek.com

I Tried to Pay My Taxes in Cash – Here’s What Happened

About two-thirds of all U.S. residents who file federal income taxes typically get a refund. Unfortunately, this year I am among the other third who owe the Internal Revenue Service money. So I tried something I’ve never done before and few people do: I wanted to pay my tax bill in cash – that is, with real paper currency.

In our nearly cashless society, this might sound like a hassle.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Jay L. Zagorsky, Clinical Associate Professor, Boston University.

Why Pay Taxes in Cash?

For one thing, I’m an economist writing a book explaining the advantages of using cash, and I was simply curious what might happen.

But beyond my own book-related interest in paying taxes in cash, I had other reasons for wanting to do so. For years while teaching students about money, I noted the front of every piece of U.S. currency declares: “This note is legal tender for all debts public and private.”

The statement seemed ironic since I couldn’t figure out how to pay income taxes, one of people’s most significant public debts, with currency.

I also wondered how difficult it is for the unbanked to pay taxes. Federal Deposit Insurance Corp. data shows about 6 million households have no connection to the formal banking system.

The IRS does not publish data on the methods people use to pay their taxes, but several IRS employees I spoke with told me almost no one pays the IRS in cash.

Every U.S. bill declares that it can be used to pay any debt.

How to Pay in Cash

The IRS certainly doesn’t make it easy to do so.

Recently, a student of mine pointed out where the instructions for paying the government with paper money are buried, so I gave it a try. The five-step set of instructions hinted that paying cash directly is a time-consuming process and that I needed to start a month or two before taxes are due.

Following the instructions, I completed my taxes early and learned I owed a bit more than US$1,000. Then I called on the phone to schedule a face-to-face appointment with the IRS to see when and where I could pay.

The operator, who told me her name was “Ms. Johnson,” was cheerful and helpful – but tried her very best to dissuade me from paying in cash. She offered to walk me through the steps on the phone so that I could pay online and not have to come into my local IRS office.

Alternative Ways to Pay ‘In Cash’

For example, the IRS suggests cash payers can “Buy a prepaid credit card and pay online.”

This sounds easy but turns out to be costly. For example, Walmart, one of the largest U.S. retailers, offers a reloadable basic debit card. The card costs $1 to buy, $6 per month in fees and $3 to load with cash. Once the card is loaded with money, the businesses the IRS uses to accept debit card payments charge around $2.50 for each payment, with payments limited to two per year.

The IRS also has partnered with national chains like CVS, Walgreens, 7-Eleven and Family Dollar to accept cash on its behalf. Their service fees are less, either $1.50 or $2.50 per payment. However, the steps needed to navigate the online program before you can show up at a retailer seemed almost as difficult as filling in the tax forms.

More importantly, this program has a $500 per payment limit and a $1,000 maximum amount accepted per year. This made the method impractical for me and for most people who owe the IRS money. The latest IRS figures show people who owe income taxes on average pay over $6,000.

Or, I could use a credit or debit card, but these methods charged around 2.5% more for the convenience.

After I declined all of Ms. Johnson’s alternative payment offers, she told me I was lucky. There was an appointment available at the downtown Boston taxpayer assistance center in a few days. Her schedule showed many other centers around the country were booked until May, long after taxes were due.

The author had to go to an IRS assistance center to try to pay his taxes in cash. Alpha Photo (Flickr)

The author had to go to an IRS assistance center to try to pay his taxes in cash. Alpha Photo (Flickr)

An Arduous Process – But a Successful One

I had cash at home, but not enough. I went to the bank and made sure I got exact change in crisp new bills to make the transaction as easy as possible.

My goal was not to cause pain like the Virginia man who used 300,000 coins to pay his motor vehicle bill or the California man who pushed in wheelbarrows filled with $1 coins to pay his $13,000 property tax bill. Nor was I interested in recreating the famous but fictional British case of Board of Inland Revenue v. Haddock, in which Haddock tried paying his tax bill by writing a check on the side of a cow. Although it never happened, the case is still cited in legal circles.

I made it to the IRS building, went through airport-style screening and checked in on time. The receptionist was polite and again told me all the ways to pay without cash. After I declined, he asked me to take a seat in the waiting area filled with people clutching paperwork. As I walked away, the receptionist did a facepalm while shaking his head, which was not a positive sign.

After a 30-minute wait, another polite IRS worker came out and told me they could not accept cash that day because no courier was scheduled. Current IRS rules require that a courier take all cash immediately to the bank because they said “holding cash was not safe.” This is surprising given the federal office building was swarming with armed guards and required screening to enter.

I came back a week later when another cash payer was showing up. This time I had more success. It took 30 minutes, but after completing a multipart carbon form by hand, I got a receipt that said my taxes were paid.

A Simple Solution

Paying the IRS with cash is possible, but it turned out to be onerous and time-consuming.

I believe there is a simple solution. The Code of Federal Regulations, which governs the IRS and other agencies, allows authorized banks to accept tax payments. The law doesn’t specify payment only by check or other methods. This means if procedures existed, taxpayers could walk into major banks, hand the teller cash and have the bank inform the IRS of the amount paid.

For people without bank accounts, their only option for paying taxes shouldn’t require paying fees to credit card processors or retailers – especially since they are likely among the poorest taxpayers.

If the government wants everyone to pay their taxes, why doesn’t it make it as easy as possible?