Category: Financial Services

Bit Digital, Inc. (BTBT) – Increasing Hash Rate Means Increasing Production

Posted on by cpereira@noblefcm.com


Wednesday, September 06, 2023

Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

August Production. Bit Digital produced 139.9 BTC, a 5% increase compared to the prior month’s 133.0 BTC. The increase was due to a higher average active hash rate, partially offset by an increase in network difficulty. The active hash rate was approximately 2.03 EH/s as of August 31, 2023 compared to 1.78 EH/s last month.

Staking. Bit Digital had approximately 13,188 ETH actively staked in native and liquid staking protocols as of August 31, 2023, up from 12,708 last month. Approximately 10,784 were natively staked and 2,404 ETH were deployed in liquid staking protocols as of that date, with 416 ETH deposited but in queue to be activated on the Ethereum staking network, which are estimated to come online by the end of September 2023. The blended APY the Company earned was 4.4% on its staked ETH position for the month of August 2023.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Do Regional Federal Reserve Branches Put Banks in Their Region at Risk?

Posted on by phoffman@channelchek.com

The Fed Is Losing Tens of Billions: How Are Individual Federal Reserve Banks Doing?

The Federal Reserve System as of the end of July 2023 has accumulated operating losses of $83 billion and, with proper, generally accepted accounting principles applied, its consolidated retained earnings are negative $76 billion, and its total capital negative $40 billion. But the System is made up of 12 individual Federal Reserve Banks (FRBs). Each is a separate corporation with its own shareholders, board of directors, management and financial statements. The commercial banks that are the shareholders of the Fed actually own shares in the particular FRB of which they are a member, and receive dividends from that FRB. As the System in total puts up shockingly bad numbers, the financial situations of the individual FRBs are seldom, if ever, mentioned. In this article we explore how the individual FRBs are doing.

All 12 FRBs have net accumulated operating losses, but the individual FRB losses range from huge in New York and really big in Richmond and Chicago to almost breakeven in Atlanta. Seven FRBs have accumulated losses of more than $1 billion. The accumulated losses of each FRB as of July 26, 2023 are shown in Table 1.

Table 1: Accumulated Operating Losses of Individual Federal Reserve Banks

New York ($55.5 billion)

Richmond ($11.2 billion )

Chicago ( $6.6 billion )

San Francisco ( $2.6 billion )

Cleveland ( $2.5 billion )

Boston ( $1.6 billion )

Dallas ( $1.4 billion )

Philadelphia ($688 million)

Kansas City ($295 million )

Minneapolis ($151 million )

St. Louis ($109 million )

Atlanta ($ 13 million )

The FRBs are of very different sizes. The FRB of New York, for example, has total assets of about half of the entire Federal Reserve System. In other words, it is as big as the other 11 FRBs put together, by far first among equals. The smallest FRB, Minneapolis, has assets of less than 2% of New York. To adjust for the differences in size, Table 2 shows the accumulated losses as a percent of the total capital of each FRB, answering the question, “What percent of its capital has each FRB lost through July 2023?” There is wide variation among the FRBs. It can be seen that New York is also first, the booby prize, in this measure, while Chicago is a notable second, both having already lost more than three times their capital. Two additional FRBs have lost more than 100% of their capital, four others more than half their capital so far, and two nearly half. Two remain relatively untouched.

Table 2: Accumulated Losses as a Percent of Total Capital of Individual FRBs

New York 373%

Chicago 327%

Dallas 159%

Richmond 133%

Boston 87%

Kansas City 64%

Cleveland 56%

Minneapolis 56%

San Francisco 48%

Philadelphia 46%

St. Louis 11%

Atlanta 1%

Thanks to statutory formulas written by a Congress unable to imagine that the Federal Reserve could ever lose money, let alone lose massive amounts of money, the FRBs maintained only small amounts of retained earnings, only about 16% of their total capital. From the percentages in Table 2 compared to 16%, it may be readily observed that the losses have consumed far more than the retained earnings in all but two FRBs. The GAAP accounting principle to be applied is that operating losses are a subtraction from retained earnings. Unbelievably, the Federal Reserve claims that its losses are instead an intangible asset. But keeping books of the Federal Reserve properly, 10 of the FRBs now have negative retained earnings, so nothing left to pay out in dividends.

On orthodox principles, then, 10 of the 12 FRBs would not be paying dividends to their shareholders. But they continue to do so. Should they?

Much more striking than negative retained earnings is negative total capital. As stated above, properly accounted for, the Federal Reserve in the aggregate has negative capital of $40 billion as of July 2023. This capital deficit is growing at the rate of about $ 2 billion a week, or over $100 billion a year. The Fed urgently wants you to believe that its negative capital does not matter. Whether it does or what negative capital means to the credibility of a central bank can be debated, but the big negative number is there. It is unevenly divided among the individual FRBs, however.

With proper accounting, as is also apparent from Table 2, four of the FRBs already have negative total capital. Their negative capital in dollars shown in Table 3.

Table 3: Federal Reserve Banks with Negative Capital as of July 2023

New York ($40.7 billion)

Chicago ($ 4.6 billion )

Richmond ($ 2.8 billion )

Dallas ($514 million )

In these cases, we may even more pointedly ask: With negative capital, why are these banks paying dividends?

In six other FRBs, their already shrunken capital keeps on being depleted by continuing losses. At the current rate, they will have negative capital within a year, and in 2024 will face the same fundamental question.

What explains the notable differences among the various FRBs in the extent of their losses and the damage to their capital? The answer is the large difference in the advantage the various FRBs enjoy by issuing paper currency or dollar bills, formally called “Federal Reserve Notes.” Every dollar bill is issued by and is a liability of a particular FRB, and the FRBs differ widely in the proportion of their balance sheets funded by paper currency.

The zero-interest cost funding provided by Federal Reserve Notes reduces the need for interest-bearing funding. All FRBs are invested in billions of long-term fixed-rate bonds and mortgage securities yielding approximately 2%, while they all pay over 5% for their deposits and borrowed funds—a surefire formula for losing money. But they pay 5% on smaller amounts if they have more zero-cost paper money funding their bank. In general, more paper currency financing reduces an FRB’s operating loss, and a smaller proportion of Federal Reserve Notes in its balance sheet increases its loss. The wide range of Federal Reserve Notes as a percent of various FRBs’ total liabilities, a key factor in Atlanta’s small accumulated losses and New York’s huge ones, is shown in Table 4.

Table 4: Federal Reserve Notes Outstanding as a Percent of Total Liabilities

Atlanta 64%

St. Louis 60%

Minneapolis 58%

Dallas 51%

Kansas City 50%

Boston 45%

Philadelphia 44%

San Francisco 39%

Cleveland 38%

Chicago 26%

Richmond 23%

New York 17%

The Federal Reserve System was originally conceived not as a unitary central bank, but as 12 regional reserve banks. It has evolved a long way toward being a unitary organization since then, but there are still 12 different banks, with different balance sheets, different shareholders, different losses, and different depletion or exhaustion of their capital. Should it make a difference to a member bank shareholder which particular FRB it owns stock in? The authors of the Federal Reserve Act thought so.

About the Author

Alex J. Pollock is a Senior Fellow at the Mises Institute, and is the co-author of Surprised Again! — The Covid Crisis and the New Market Bubble (2022). Previously he served as the Principal Deputy Director of the Office of Financial Research in the U.S. Treasury Department (2019-2021), Distinguished Senior Fellow at the R Street Institute (2015-2019 and 2021), Resident Fellow at the American Enterprise Institute (2004-2015), and President and CEO, Federal Home Loan Bank of Chicago (1991-2004). He is the author of Finance and Philosophy—Why We’re Always Surprised (2018).

Bit Digital, Inc. (BTBT) – A Transitional Quarter

Posted on by cpereira@noblefcm.com


Friday, August 18, 2023

Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Transitional Quarter. The second quarter 2023 was a transitional quarter for Bit Digital, with the Company entering new strategic partnerships, exiting certain legacy hosting relationships, diversifying the geographic presence, and executing on growth strategies. The new hosting relationships add approximately 35 MW of additional mining capacity, which Bit Digital will fill with announced new miner purchases.

2Q23 Operating Results. Revenue improved to $9.0 million from $8.2 million in 1Q23 and $6.8 million in the year ago period. Bit Digital reported a net loss of $2.4 million, or a loss of $0.03/sh, compared to a loss of $17.8 million, or a loss of $0.22/sh last year. Adjusted EBITDA was $1.9 million compared to a loss of $12 million in 2Q22. We had projected revenue of $10.8 million, a net loss of $5.0 million, or a loss of $0.06/sh, and breakeven adjusted EBITDA. 


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

SPACtrac Report – FG Merger Corp. (FGMC) -Asymmetric Return Profile Acquisition To Unlock iCoreConnect SaaS Potential

Posted on by cpereira@noblefcm.com


Wednesday, August 16, 2023

iCoreConnect Inc. (ICCT)

Gregory Aurand, Senior Vice President, Equity Research Analyst, Healthcare Services & Medical Devices, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

An Asymmetric Return Profile SPAC. iCoreConnect Inc. (OTC; ICCT) will merge with FG Merger Sub Inc., a wholly owned subsidiary of FG Merger Corp. (Nasdaq; FGMC). In connection with this merger, FGMC will change its name to iCoreConnect Inc. Management believes this is a unique convertible preferred stock asymmetric return structure transaction for FGMC holders, as the preferred will pay a 12% dividend and offer downside protection. The merger is targeting unlocking value in ICCT, and seeking uplisting ICCT to Nasdaq to gain better access to capital. The merger is expected to close mid-to-late August 2023.

Secular Drivers of Growth. iCoreConnect’s target customers are healthcare providers, dental support organizations, hospitals, and payors. Customers are seeking to reduce costs, improve profitability, and achieve better compliance with regulatory mandates through cloud-based multi-solution SaaS (Software as a Service) applications. The SaaS market is estimated to grow nearly 18% annually through 2028, but iCoreConnect expects to grow substantially faster, with an increasing sales reach as the Company expands its commercial sales force. 


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

Bit Digital, Inc. (BTBT) – July Production Up Sequentially

Posted on by cpereira@noblefcm.com


Monday, August 07, 2023

Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

July Production. In July, Bit Digital produced 133.0 BTC, up 12% from 119.1 BTC in June. The increase in production was primarily driven by a higher average active hash rate and was partially offset by an increase in network difficulty. The active hash rate was approximately 1.78 EH/s as of the end of the month, flat with the end of June.

Ethereum. The Company had approximately 12,708 ETH actively staked in native and liquid staking protocols as of July 31, 2023, up from 11,716 at the end of the prior month. Approximately 10,304 were natively staked and 2,404 ETH were deployed in liquid staking protocols. Additionally, Bit Digital had 576 ETH deposited but in queue to be activated on the Ethereum staking network. Bit Digital earned a blended APY of approximately 4.5% on its staked ETH position for the month.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Bit Digital, Inc. (BTBT) – Momentum Continues in June

Posted on by cpereira@noblefcm.com


Friday, July 07, 2023

Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

June Production. For June, Bit Digital produced 119.1 BTC, a 5% increase compared to May. The increase in production was primarily driven by a higher average active hash rate and was partially offset by a decrease in transaction fees compared to the prior month. The active hash rate was approximately 1.78 EH/s as of the end of the month.

And Ethereum Too! The Company had approximately 11,716 ETH actively staked in native and liquid staking protocols as of June 30, 2023. Approximately 9,312 were natively staked and 2,404 ETH were deployed in liquid staking protocols. Additionally, Bit Digital had 960 ETH deposited but in queue to be activated on the Ethereum staking network. Bit Digital earned a blended APY of approximately 5% on its staked ETH position for the month.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

Will the AI Revolution Eliminate the Need for Wealth Managers?

Posted on by phoffman@channelchek.com

Can Investment Advisors and Artificial Intelligence Co-Exist

Are investment advisors going to be replaced by machine learning artificial intelligence?

Over the years, there have been inventions and technological advancements that we’ve been told will make investment advisors obsolete. This includes mutual funds, ETFs, robo-advisors, zero-commission trades, and trading apps that users sometimes play like a video game. Despite these creations designed to help more people successfully manage their finances and invest in the markets, demand for financial advisors has actually grown. Will AI be the technology that kills the profession? We explore this question below.

Increasing Need for Financial Professionals

According to the US Bureau of Labor Statistics (BLS), “Employment of personal financial advisors is projected to grow 15 percent from 2021 to 2031, much faster than the average for all occupations.” Some of the drivers of the increased need include longevity which is expanding the years and needs during retirement, uncertain Social Security, a better appreciation toward investing, and an expected wealth transfer estimated to be as high as $84 trillion to be inherited by younger investors. As birthrates have decreased over the decades in the US, the wealth that will be passed down to younger generations will be shared by fewer siblings, and for many beneficiaries, it may represent a sum far in excess of their current worth.

With more people living into their 90s and beyond, and Social Security being less certain, an understanding of the power of an investment plan, and a lot of newly wealthy young adults to occur over the next two decades, the BLS forecast that the financial advisor profession will grow faster than all other professions, is not surprising.

Will AI Replace Financial Planners?

Being an investment advisor or other financial professional that helps with managing household finances is a service industry. It involves reviewing data, an immense number of options, scenario analysis, projections, and everything that machine learning is expected to excel at within a short time. Does this put the BLS forecast in question and wealth managers at risk of seeing their practice shrink?

For perspective, I reached out, Lucas Noble of Noble Financial Group, LLC (not affiliated with Noble Capital Markets, Inc. or Noble Financial Group, Inc. – creator of Channelchek). Mr. Noble is an Investment Advisor representative (IAR), a Certified Financial Planner (CFP), and holds the designations of Accredited Estate Planner (AEP), and Chartered Financial Consultant (ChFC). Noble believes that AI will change the financial planner’s business, and he has enthusiastically welcomed the technology.

On the business management side of running a successful financial advisory business, Noble says, “New artificial intelligence tools could help with discussions and check-ins so that clients are actually in closer touch with his office, so he becomes aware if they need anything.” He has found that it helps to remind clients of things like if they have a set schedule attached to their plan, he added, “the best plan in the world, if not implemented, leaves you with nothing.” AI as a communications tool could help achieve better results by keeping plans on track.

On the financial management side of his practice, he believes there will never be a replacement for human understanding of a household’s needs. While machine learning may be able to better characterize clients, there is a danger in pigeonholing a person’s financial needs too much, as every single household has different needs, and the dynamics and ongoing need changes, drawn against external economic variations, these nuances are not likely to be accessible to AI.

Additionally, he knows the value of trust to his business. People want to know what is behind the decision-making, and they need to develop a relationship with someone or a team they know is on their side. He knows AI could be a part of decision making and at times trust, but doesn’t expect the role of a human financial planner is going away. Lucas has seen that AI  instead adds a new level of value to the advisor’s services, giving them the power to provide even more insightful and personalized advice to help clients reach their financial goals. Embracing proven technology has only helped him better serve, and better retain clients.

AI Investing for IAs

Will AI ever be able to call the markets? Noble says, it’s “crazy to assume that it is impossible.” In light of the advisors’ role of meeting personally with clients, counseling them on their own finances, and plans, perhaps improving on budgets, and deciding where insurance is a preferred alternative, AI can’t be ignored in the role of a financial planner.

Picking stocks, or forecasting when the market may gain strength or weaken, doesn’t help without the knowledge to apply it to individuals whose situation, expectations, and needs are known to the advisor.

Take Away

Artificial intelligence technology has been finding its way into many professions. Businesses are finding new ways to streamline their work, answer customers’ questions, and even know when best to reach out to clients.

The business of financial planning and wealth management is expected to grow faster than any other profession in the coming decades. Adopting the technology for help in running the communications side of the business, and as new programs are developed, scenario analysis to better gauge possible outcomes of different plans, could make sense to some. But this is not expected to replace one-on-one relationships and the depth of human understanding of a household’s situation.

If you are a financial advisor, or a client of one that has had an experience you’d like to share, write to me by clicking on my name below. I always enjoy reader insight.

Paul Hoffman

Managing Editor, Channelchek

A special Thank you to Lucas J. Noble, CFP®, ChFC®, CASL®, AEP®, Noble Financial Group, Wakefield, MA.

Sources

https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm#:~:text=in%20May%202021.-,Job%20Outlook,on%20average%2C%20over%20the%20decade.

https://money.usnews.com/careers/best-jobs/financial-advisor#:~:text=with%20their%20clients.-,The%20Bureau%20of%20Labor%20Statistics%20projects%2015.4%25%20employment%20growth%20for,50%2C900%20jobs%20should%20open%20up.

https://www.forbes.com/sites/forbesfinancecouncil/2023/03/09/the-great-wealth-transfer-will-radically-change-financial-services/?sh=e7f9e7c53393

https://www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045

Bit Digital, Inc. (BTBT) – Into the Digital Mines

Posted on by cpereira@noblefcm.com


Thursday, June 15, 2023

Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.

Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Initiating Coverage. We are initiating research coverage on Bit Digital, Inc. with an Outperform rating and a $4.50 price target. Bit Digital is an asset-light, sustainability-focused digital asset mining company with mining and staking operations in the US, Canada, and Iceland. We believe the Company provides an opportunity for investors to invest in cryptocurrency mining and staking operations through two blue chip tokens in Bitcoin (BTC) and Ethereum (ETH).

Asset-Light Mining. Bit Digital’s primary revenue source is through BTC mining. The Company manages to keep an asset-light model through multi-year contracts with facilities to host the Company’s miners, enabling Bit Digital to exclusively focus on mining. The Company is currently at a hash rate of 1.2 EH/s with a goal of 2.6 EH/s by the end of 2023. We believe Bit Digital is capable of reaching its goal through increased utilization of the existing fleet as well as various miner purchases.


Get the Full Report

Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision. 

An Investor List of the Industries that Can be Improved With Blockchain Technology

Posted on by phoffman@channelchek.com

Blockchain Beyond Cryptocurrency: The Potential of Distributed Ledger Technology

Does blockchain have a future beyond crypto? Since its beginning as the underlying technology for Bitcoin (BTC) and later other cryptocurrencies, blockchain has been the necessary, behind-the-scenes, engine that allow these fintech currencies to function. Dogecoin (DOGE), Ethereum (ETH), and even the 18 G20 countries developing a central bank digital currency (CBDC) need blockchain to exist.  

But what non-finance industries are being impacted or will be disrupted by blockchain? It is not with exaggeration to say blockchain has the power to revolutionize various industries and redefine everyday transactions, manage data, and establish trust. Long-term investing requires knowledge of current trends and where the future may take them. Below we explore many of the possibilities of blockchain aside from cryptocurrency and delve into its promising future.

What is Blockchain?

At its core, blockchain is a decentralized (no single control) and immutable (unable to be changed) ledger that records activity across multiple computers. This distributed character replaces the need for institutional intermediaries to ensure transparency, security, and efficiency. A person or an entity can function, even across borders directly, without the need for a middleman. Verification of activity is recorded and remains a part of a blockchain ledger.

Uses beyond cryptocurrency, or the speculative investment that crypto and non-fungible tokens (NFT) have become, include health care, finance, voting, real estate titles, and smart communities.

Health Care

The HIPAA Privacy Rule sets national standards to protect individuals’ medical records and other identifiable health information. It applies to health plans, healthcare clearinghouses, and healthcare providers that conduct certain medical transactions electronically. The purpose is to keep data ownership from improperly being passed and to maintain privacy in the industry. Current centralized systems are not able to meet the many needs of patients, health service providers, insurance companies, and governmental agencies. Blockchain technology enables a decentralized system for access control of medical records where all stakeholders’ interests are protected.

Blockchain systems not only allow healthcare service providers to securely share patients’ medical records but patients may also track who has accessed their records and determine who is authorized to do so. If blockchain-driven, all transactions can become transparent to the patient.

And blockchain-powered interoperability can enable the seamless sharing of medical data between healthcare organizations, improving patient care, research, and drug development.

Supply Chain Management

Complex global supply chains involve numerous stakeholders, some sending, others receiving, and others verifying the source of food or products. Verifying the authenticity and improving traceability of products can be a challenging task. Blockchain’s ability to create an immutable record of every transaction and movement along the supply chain enables transparency and accountability. A company will be able to securely track the origin, manufacturing process, and movement of goods. Consumers can be equipped with verified information, among other benefits, this will increase trust and reduce the risk of receiving counterfeit products.

Storing information regarding movement on a blockchain improves integrity, accountability and traceability. For example, IBM’s Food Trust uses a blockchain system to track food items from the field to retailers. The participants in the food supply chain record transactions in the shared blockchain, which simplifies keeping track.

Entertainment Products

As technology has allowed greater reproduction and distribution, including music and art, blockchain may provide creators with more control over their work. The whole entertainment industry may undergo a significant transformation with blockchain technology. Artists can tokenize their efforts, creating a digital certificate of ownership that can be bought, sold, and shared on blockchain platforms. This will enable artists to have tight control over their intellectual property, receive fair compensation, and even establish a direct connection with their followers. Beyond ownership infringement, blockchain can facilitate transparent royalty distribution, this could ensure that artists receive their rightful earnings without an intermediary and the cost that comes with anyone getting in the middle of a transaction.

The Energy Sector

Blockchain is likely to play a transformative role in all forms of energy. As renewable energy sources continue their trend, blockchain can enable peer-to-peer energy trading. Individuals and organizations will be able to directly exchange surplus energy with those expecting an energy deficit. This could create a decentralized energy market.

Smart contracts executed on the blockchain can automatically verify and settle transactions, ensuring transparency. This democratization of energy, if broadly implemented, could accelerate the adoption of sustainable practices, provide energy where needed, and reduce waste.

Governments

While the government is often the intermediary that the blockchain makes less needed or unneeded, recognizing the potential of blockchain to enhance transparency and efficiency in public services may become its greatest use. Land registries, taxation, voting systems, and identity certainty can all be improved through blockchain’s tracking and tamper-resistant design. Immutable records of land ownership can reduce disputes and increase trust in property transactions. Digital identities stored on a blockchain can streamline processes such as passport verification and border control, making them more secure and efficient. Blockchain-based voting systems have the potential to eliminate voter fraud, ensuring fair and transparent elections.

Potential

Much of what is described above has either barely been implemented or has not been put to use. This is a period in any technological advancement when most long-term investors would like to be involved. Efficiencies and improved products are poised to help the industries mentioned, and pure blockchain companies, large and small, can benefit from developing uses for their technology.

Despite its potential, blockchain technology still faces challenges. Scalability, energy consumption, and regulatory frameworks require further development and refinement. However, ongoing research and collaborations among businesses, academia, industry, and policymakers are actively finding avenues around these concerns, driving the maturation of blockchain technology.

Take Away

Blockchain is still in its infancy, and industries are just becoming aware of its power to help them. As the paradigm shifts, it could become a technology businesses could not imagine doing without. Blockchain’s decentralized, transparent, and secure nature makes it a powerful tool for revolutionizing healthcare, supply chain management, entertainment, governing, and energy sectors. As the technology evolves, we can expect innovative use and widespread adoption of blockchain that serves to elevate trust, efficiency, and transparency. And maybe the now-developed cryptocurrencies will survive within these changes.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.investopedia.com/tech/forget-bitcoin-blockchain-future/

https://www.hhs.gov/hipaa/for-professionals/privacy/index.html

https://www.ibm.com/products/supply-chain-intelligence-suite/food-trust

https://www.investopedia.com/10-biggest-blockchain-companies-5213784

What Are Hedge Funds, and Why Are They Popular Among Investors?

Posted on by phoffman@channelchek.com

How Well Do You Know Hedge Funds?

There are many investment vehicles beyond just stock market investing. We hear the names of some of these enough to think we know exactly what they are, but we often realize when asked that we have a hard time defining them. I experienced this recently with a financial adviser I know that was asked what a hedge fund is. She knew that it was a pooled fund (more than one investor) and that it may involve complex strategies that require people to be an accredited investors in most cases, but the Series-7 licensed advisor doesn’t spend much time with alternative investments, so her answer was left incomplete.

There are many hedge fund types all with different strategies; in fact it is a wide-open field. Michael Burry proved this as he created his own way to sell short the subprime mortgage market for his hedge fund before the mortgage meltdown in 2008. So there is no shame in not knowing what a hedge fund is, the strategies are limitless. I referred to the SEC website and spoke with several hedge fund managers I interact with regularly to ensure there were no important gaps missing while writing a hedge fund refresher.

What is a Hedge Fund?

Hedge funds are investment vehicles that pool money from investors with the goal of generating positive returns. They differ from mutual funds in that they typically employ more flexible investment strategies. Many hedge funds aim to profit in various market conditions by engaging in practices such as leverage (borrowing to increase investment exposure), short-selling, and other speculative investment techniques that are less commonly used by mutual funds.

There are a number of different types of hedge funds, each with its own unique strategy. Some of the most common include:

•         Long-Short Equity Funds: These are funds that invest in both long and short positions, meaning they buy stocks they believe will go up in value and sell stocks they believe will go down in value. The balance of the long and short, in theory, moderates risk in the management of many long-short equity funds.

•         Market Neutral Funds: These are funds that look to generate returns for investors that are not correlated to the overall market. They do this by investing in a variety of assets, including stocks, bonds, and derivatives. A market-neutral fund that adapts to any market condition by selecting positions for what is expected in the various markets allows the manager much more leeway than most mutual funds available.

•         Volatility Arbitrage Funds: These funds take advantage of volatility arbitrage which is a trading strategy that attempts to profit from the difference between the forecasted future price volatility of an asset, like a stock, and the implied volatility of options based on that asset. Success at calling the disconnect between the two that yields a profit (arbitrage) is the goal of these fund managers.

•         Merger Arbitrage Funds: These funds trade to benefit from the common price movement experienced when a company announces a merger or acquisition of another public company. Usually, the acquiring company’s price will weaken while the company to be acquired rises. Benefiting from both sides while offsetting overall market risk being both long and short in equities, is how these funds aim to outperform the overall market.

•         Global Macro Funds: are what many investors think of when it comes to hedge funds. The manager can take a view on economic or political events and use derivatives on equities, bonds, currencies and commodities to try to profit from that view. Global macro hedge fund managers may be taking positions on the likely direction of interest rates, the outcome of a significant event, such as a vote to raise the U.S. debt ceiling or anything where they consider the market as not pricing an outcome correctly.

Depending on the size of the assets managed by a hedge fund manager, they may not be required to register or file public reports with the SEC (Securities and Exchange Commission). However, hedge funds are still subject to anti-fraud regulations, and fund managers have a fiduciary duty to the funds they manage.

Who Can Invest?

Hedge funds are generally only accessible to accredited investors, meaning investors who have a net worth of at least $1 million or an annual income of at least $200,000. (there are other criteria that may allow access). This is because hedge funds are considered by the SEC to be high-risk investments.

If you are considering investing in a hedge fund, it is important to do your research and understand the risks involved. You should also make sure that you are comfortable with the investment strategy of the fund.

Downsides Commonly Associated With Hedge Funds

While every fund is unique, there is much overlap in the different types when it comes to the downside associated with many of the varieties. Remember the goal for most of these funds is to make above-market returns – greater returns usually come with a cost.  

•         High Fees: Hedge funds typically charge high fees, which can eat into your returns.

•         High Risk: Hedge funds are considered to be high-risk investments. They can lose money, even in rising markets.

•         Lack of Liquidity: Hedge funds are typically illiquid, meaning it can be difficult to sell your shares if you need to.

If you are considering investing in a hedge fund, it is important to weigh the risks and rewards carefully. Hedge funds can be a good investment for investors who are looking for high returns and diversification. However, they are also high-risk investments and should only be considered by investors who can’t afford to lose their investment.

Evaluating Various Funds

If you’re considering investing in a hedge fund, there are several key areas of information you should seek:

Read the fund’s offering memorandum and related materials: These documents provide essential information about the fund’s investment strategies, its location (U.S. or abroad), risks associated with the investment, fees charged by the manager, expenses borne by the fund, and potential conflicts of interest. It is crucial to thoroughly review these materials before making an investment decision and consider consulting an independent financial advisor.

Understand the fund’s investment strategy. Hedge funds employ a wide range of investment strategies. Some may diversify across multiple strategies, managers, and investments, while others may focus on concentrated positions or a single strategy. It’s important to grasp the level of risk involved in the fund’s strategies and ensure they align with your investment goals, time horizon, and risk tolerance. Remember that higher potential returns usually come with higher risks.

Determine if the fund uses leverage or speculative investment techniques: Leverage involves borrowing money to amplify investment potential, but it also increases the risk of losses. Hedge funds may also use derivatives (such as options and futures) and engage in short-selling, which further impact potential gains or losses. Understanding these practices is crucial in evaluating the fund’s risk profile.

Evaluate potential conflicts of interest disclosed by hedge fund managers: It’s important to assess any conflicts of interest that may arise. For instance, if your investment advisor recommends a fund they manage, there may be a conflict since the advisor may earn higher fees from your investment in the hedge fund compared to other potential investments.

Understand how the fund’s assets are valued. Hedge funds may invest in illiquid securities that can be challenging to value. Some funds exercise significant discretion in valuing such securities. It’s essential to understand the fund’s valuation process and the extent to which independent sources validate the valuation. Valuation practices can affect the fees charged by the manager.

Understand that hedge funds do not follow a standardized methodology for calculating performance, and their investments may involve relatively illiquid and hard-to-value securities. In contrast, mutual funds have specific guidelines for calculating and disclosing performance data. When presented with performance data for a hedge fund, inquire about its accuracy, including whether it reflects cash or actual assets received by the fund, and whether it accounts for deductions for fees.

There are ordinarily limitations on taking money out of the fund. Unlike mutual funds, hedge funds typically impose restrictions on redeeming (cashing in) shares. These are usually monthly, quarterly, or annual redemption windows. They may also impose lock-up periods, during which you cannot redeem your shares for a year or more. These limitations mean that the value of your shares can decrease during the redemption process, and redemption fees may apply.

Why Hedge Funds are Popular

The lure of possibly finding a hedge fund manager with a crystal ball is a nice fantasy, but dreaming aside, hedge funds are popular among investors for a number of other reasons.

First, hedge funds have the potential to generate higher returns than traditional investments, such as mutual funds. Second, hedge funds offer investors the opportunity to diversify their portfolios and reduce risk. Third, hedge funds, although not as liquid as SEC-registered mutual funds, are typically more liquid than other alternative investments, such as private equity.

Take Away

Hedge funds offer accredited investors a unique opportunity to potentially earn returns through diverse investment strategies not found in traditional mutual funds. With their focus on generating profits regardless of market direction, hedge funds have become popular due to the potential for higher returns, diversification benefits, customization, and access to unique investment opportunities. However, it is important for investors to thoroughly understand the risks involved, carefully evaluate fund managers, and consider their own investment objectives before considering hedge fund participation.

Paul Hoffman

Managing Editor, Channelchek

Source

SEC Investor Bulletin

The Fed – Hedge Funds

Solid Evidence a Recession is Unlikely this Year

Posted on by phoffman@channelchek.com

Reliable Data, Not Emotions, are Pointing to a Growing U.S. Economy

In roughly one month, we will be halfway through 2023. While many point to the Fed’s pace of tightening and the downward sloping yield curve, as a reason to run around like Chicken Little warning of a coming recession, a fresh read of the economic tea leaves tells a different story. Just today, May 23, the PMI Output Index (PMI) rose to its highest reading in over a year. Home sales figures were also reported to show that new homes in May sold at the highest rate in over a year. These are both reliable leading indicators that point to growth in both services and manufacturing.

U.S. Composite PMI Output Index

Business activity in the U.S. increased to a 13-month high in May due in large part to strong growth in the services sector. This is a reliable indication that economic expansion has growing momentum. Despite the negative talk of those that are concerned that the Fed has lifted interest rates closer to historical norms and that the yield curve is still inverted, in part due to Covid era Fed yield-curve-control, the numbers suggest less caution might be warranted.

S&P Global said on Tuesday (May 23) its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 54.5 this month. It indicates the highest level since April 2022 and is up from a reading of 53.4 in April. A reading above 50 indicates growth, this is the fourth consecutive month it has been above 50. The consensus among economists was only 52.6.

Home Sales

One sector that is directly impacted by interest rates is real estate. However, new home sales rose in April, this is a clear sign that prospective buyers are making deals with builders.

New homes in April were sold at a seasonally-adjusted annual rate of 683,000, Its the highest rate since March 2022. The April data represents a 4.1% gain from March’s revised rate of 656,000,. The report was from the Census and Department of Housing and Urban Development and was reported Tuesday May 23. Economists had expected new home sales to decline to 670,000 from a March rate of 683,000. It was the largest month-over-month increase since December 2022.

Leading Indicators

PMI is forward-looking as it surveys purchasing managers’ expectations and intentions for the coming months. By capturing their sentiment on future orders, production plans, and hiring intentions, PMI offers insights into economic trends that have yet to be reflected in other after-the-fact indicators.

Home sales are considered a leading indicator because they can serve as a measure of other needs and broader economic trends. Home sales have a significant impact on related sectors, such as construction, home improvement, finance, and consumer spending. Changes in home sales can influence economic activity and indicate shifts in consumer confidence, employment levels, and overall economic health.

While many economic reports offer rear-view mirror data, these reports are true indicators of business behavior as it plans for future expectations, and consumer behavior as it is confident that it will have the resources available to purchase and outfit a new home.

The upbeat reports prompted the Atlanta Federal Reserve to raise its second-quarter gross domestic product estimate to a 2.9% annualized rate from a 2.6% pace. The economy grew at a 1.1% rate in the first quarter.

Take Away

Many economists are negative about the economic outlook later this year. Market participants have been positioning themselves with the notion that there may be a late year recession. Is the notion misguided? Recent data suggests there may be buying opportunities for those willing to go against the tide of pundits preaching recession.

No one has a crystal ball. In good markets and bad, there is no replacement for good research before you put on a position, and then for as long as the position remains in your portfolio.

Channelchek is a great resource for information to follow the companies not likely being reported in traditional outlets. Turn to this online free resource as you evaluate small and microcap stocks.

Paul Hoffman

Managing Editor, Channelchek

Sources

World Economic Outlook

Barron’s (May 23, 2023)

Reuters (May 23, 2023)

Is Your Bank Prepared for a US Debt Default?

Posted on by phoffman@channelchek.com

War Rooms and Bailouts: How Banks and the Fed are Preparing for a US Default – and the Chaos Expected to Follow

When you are the CEO responsible for a bank and all the related depositors and investors, you don’t take an “it’ll never happen” approach to the possibility of a U.S. debt default. The odds are it won’t happen, but if it does, being unprepared would be devastating. Banks of all sizes are getting their doomsday plans in place, and other industries are as well, but big banks, on many fronts would be most directly impacted. The following is an informative article on how banks are preparing. It’s authored by John W. Diamond the Director of the Center for Public Finance at the Baker Institute, Rice University, and republished with permission from The Conversation.  – Paul Hoffman, Managing Editor, Channelchek

Convening war rooms, planning speedy bailouts and raising house-on-fire alarm bells: Those are a few of the ways the biggest banks and financial regulators are preparing for a potential default on U.S. debt.

“You hope it doesn’t happen, but hope is not a strategy – so you prepare for it,” Brian Moynihan, CEO of Bank of America, the nation’s second-biggest lender, said in a television interview.

The doomsday planning is a reaction to a lack of progress in talks between President Joe Biden and House Republicans over raising the US$31.4 trillion debt ceiling – another round of negotiations took place on May 16, 2023. Without an increase in the debt limit, the U.S. can’t borrow more money to cover its bills – all of which have already been agreed to by Congress – and in practical terms that means a default.

What happens if a default occurs is an open question, but economists – including me – generally expect financial chaos as access to credit dries up and borrowing costs rise quickly for companies and consumers. A severe and prolonged global economic recession would be all but guaranteed, and the reputation of the U.S. and the dollar as beacons of stability and safety would be further tarnished.

But how do you prepare for an event that many expect would trigger the worst global recession since the 1930s?

Preparing for Panic

Jamie Dimon, who runs JPMorgan Chase, the biggest U.S. bank, told Bloomberg he’s been convening a weekly war room to discuss a potential default and how the bank should respond. The meetings are likely to become more frequent as June 1 – the date on which the U.S. might run out of cash – nears.

Dimon described the wide range of economic and financial effects that the group must consider such as the impact on “contracts, collateral, clearing houses, clients” – basically every corner of the financial system – at home and abroad.

“I don’t think it’s going to happen — because it gets catastrophic, and the closer you get to it, you will have panic,” he said.

That’s when rational decision-making gives way to fear and irrationality. Markets overtaken by these emotions are chaotic and leave lasting economic scars.

Banks haven’t revealed many of the details of how they are responding, but we can glean some clues from how they’ve reacted to past crises, such as the financial crisis in 2008 or the debt ceiling showdowns of 2011 and 2013.

One important way banks can prepare is by reducing exposure to Treasury securities – some or all of which could be considered to be in default once the U.S. exhausts its ability to pay all of its bill. All U.S. debts are referred to as Treasury bills or bonds.

The value of Treasurys is likely to plunge in the case of a default, which could weaken bank balance sheets even more. The recent bank crisis, in fact, was prompted primarily by a drop in the market value of Treasurys due to the sharp rise in interest rates over the past year. And a default would only make that problem worse, with close to 190 banks at risk of failure as of March 2023.

Another strategy banks can use to hedge their exposure to a sell-off in Treasurys is to buy credit default swaps, financial instruments that allow an investor to offset credit risk. Data suggests this is already happening, as the cost to protect U.S. government debt from default is higher than that of Brazil, Greece and Mexico, all of which have defaulted multiple times and have much lower credit ratings.

But buying credit default swaps at ever-higher prices limits a third key preventive measure for banks: keeping their cash balances as high as possible so they’re able and ready to deal with whatever happens in a default.

Keeping the Financial Plumbing Working

Financial industry groups and financial regulators have also gamed out a potential default with an eye toward keeping the financial system running as best they can.

The Securities Industry and Financial Markets Association, for example, has been updating its playbook to dictate how players in the Treasurys market will communicate in case of a default.

And the Federal Reserve, which is broadly responsible for ensuring financial stability, has been pondering a U.S. default for over a decade. One such instance came in 2013, when Republicans demanded the elimination of the Affordable Care Act in exchange for raising the debt ceiling. Ultimately, Republicans capitulated and raised the limit one day before the U.S. was expected to run out of cash.

One of the biggest concerns Fed officials had at the time, according to a meeting transcript recently made public, is that the U.S. Treasury would no longer be able to access financial markets to “roll over” maturing debt. While hitting the current ceiling prevents the U.S. from issuing new debt that exceeds $31.4 trillion, the government still has to roll existing debt into new debt as it comes due. On May 15, 2023, for example, the government issued just under $100 billion in notes and bonds to replace maturing debt and raise cash.

The risk is that there would be too few buyers at one of the government’s daily debt auctions – at which investors from around the world bid to buy Treasury bills and bonds. If that happens, the government would have to use its cash on hand to pay back investors who hold maturing debt.

That would further reduce the amount of cash available for Social Security payments, federal employees wages and countless other items the government spent over $6 trillion on in 2022. This would be nothing short of apocalyptic if the Fed could not save the day.

To mitigate that risk, the Fed said it could immediately step in as a buyer of last resort for Treasurys, quickly lower its lending rates and provide whatever funding is needed in an attempt to prevent financial contagion and collapse. The Fed is likely having the same conversations and preparing similar actions today.

A Self-Imposed Catastrophe

Ultimately, I hope that Congress does what it has done in every previous debt ceiling scare: raise the limit.

These contentious debates over lifting it have become too commonplace, even as lawmakers on both sides of the aisle express concerns about the growing federal debt and the need to rein in government spending. Even when these debates result in some bipartisan effort to rein in spending, as they did in 2011, history shows they fail, as energy analyst Autumn Engebretson and I recently explained in a review of that episode.

That’s why one of the most important ways banks are preparing for such an outcome is by speaking out about the serious damage not raising the ceiling is likely to inflict on not only their companies but everyone else, too. This increases the pressure on political leaders to reach a deal.

Going back to my original question, how do you prepare for such a self-imposed catastrophe? The answer is, no one should have to.

In the Event of an Official U.S. Bankruptcy…

Posted on by phoffman@channelchek.com

Is a U.S. Default or Bankruptcy Possible – How Would that Work?

It seems no one is talking about what would happen if the U.S. defaulted on maturing debt, yet it is within the realm of possibilities. Also not impossible is the idea of the powerful country joining the list of sovereign nations that once declared bankruptcy and survived. A retired government employee with a passion for economic history wrote a timely piece on this subject. It was originally published on the Mises Institute website on  May 12, 2023. Channelchek has shared it here with permission.

The current known federal debt is $31.7 trillion, according to the website, U.S. Debt Clock, this is about $94,726 for every man, woman, and child who are citizens as of April 24, 2023. Can you write a check right now made payable to the United States Treasury for the known share of the federal debt of each member of your family after liquidating the assets you own?

A report released by the St. Louis Federal Reserve Branch on March 6, 2023, stated a similar figure for the total known federal debt of about $31.4 trillion as of December 31, 2022. The federal debt size is so great, it can never be repaid in its current form.

Some of us have been in or known families or businesses who had financial debt that could not be paid when adjustments like reducing expenses, increasing income, renegotiating loan repayments to lender(s), and selling assets to raise money for loan repayment were not enough. The reality is that they still could not pay the debt owed to the lender(s).

This leads to filing bankruptcy under federal bankruptcy laws overseen by a federal bankruptcy court.

Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. It allows for assets of a debtor that are not exempt from creditors to be collected and liquidated (turned to cash), and the proceeds distributed to creditors. A consumer debtor receives a complete discharge from debt under Chapter 7, except for certain debts that are prohibited from discharge by the Bankruptcy Code.

Chapter 11 bankruptcy provides a procedure by which an individual or a business can reorganize its debts while continuing to operate. The vast majority of Chapter 11 cases are filed by businesses. The debtor, often with participation from creditors, creates a plan of reorganization under which to repay part or all its debts.

These government entities have filed for Chapter 9 federal bankruptcy:

Orange County, California, in 1994 for about $1.7 billion

Jefferson County, Alabama, in 2011 for about $5 billion

The City of Detroit, Michigan, in 2013 for about $18 billion

The Commonwealth of Puerto Rico in 2017 for $72 billion

According to the United States Courts website:

The purpose of Chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Reorganization of the debts of a municipality is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.

Although similar to other Chapters in some respects, Chapter 9 is significantly different in that there is no provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors.

The bankruptcies of two counties, a major city, and a sovereign territory resulted in bondholders with financial losses not repaid in full as well as reforms enacted in each governmental entity. Each one emerged from bankruptcy, one hopes, humbled and better able to manage their finances.

The federal government’s best solution for bondholders, taxpayers, and other interested parties is to default, declare sovereign bankruptcy, and make the required changes to get the fiscal business in order. Default, as defined by Dictionary.com as a verb, is “to fail to meet financial obligations or to account properly for money in one’s care.”

Sovereign government defaults are not new in our lifetime with Argentina in 1989, 2001, 2014, and 2020; South Korea, Indonesia, and Thailand in 1997, known as the Asian flu; Greece in 2009; and Russia in 1998.

Possible Outcomes

Some outcomes from these defaults lead to sovereign government debt bond ratings being reduced by the private rating agencies, bondholders losing value on their holdings, debt repayments being renegotiated with lenders, many countries receiving loans with a repayment plan from the International Monetary Fund (IMF), reforms being required to nations’ entitlement programs, a number of government taxes being raised, their currency losing value on currency trading exchanges, price inflation becoming more of a reality to its citizens, and higher interest rates being offered on future government debt bond offerings.

Very few in the financial world are talking about any outcomes of a U.S. federal government debt default. One outcome from the 2011 near default was Standard & Poor’s lowering their AAA federal bond rating to AA+ where it has remained.

What organization would oversee the execution of a U.S. federal government debt default, and what authorization would they be given to deal with the situation? No suggestions are offered when its scale is numerically mind-numbing since the U.S. has used debt as its drug of choice to overdose on fiscal reality.

Some outcomes would include a lowered federal bond rating by the three private bond rating agencies, where the reality of higher interest rates being offered on newly issued federal debt cannot be ignored. Federal government spending cuts in some form will be required by the realities of economic law, which includes reducing the number of federal employees, abolishing federal agencies, reducing and reforming military budgets, selling federal government property, delegating federal programs to the states, and reforming the federal entitlement programs of Medicaid, Medicare, and Social Security. Federal government tax revenue to repay the known debt with interest will rise as a percentage of each year’s future federal budget.

One real impact from a federal government debt default would be that the U.S. dollar would no longer be the global reserve currency, with dollars in many national reserve banks coming back to the U.S. Holding dollars will be like holding a hot potato. Nations holding federal debt paper—like China ($859 billion), Great Britain ($668 billion), Japan ($1.11 trillion), and others as of the January 2023 numbers published by the U.S. Treasury—as well as many mutual funds and others will see their holdings reduced in value leading to a selling off of a magnitude one cannot imagine in scale and timing. Many mutual fund holders like retirees, city and state retirement systems, and 401(k) account holders will be impacted by this unfolding event.

The direction of an individual or business when they emerge from federal bankruptcy is hopefully humility—looking back with the perspective of mistakes made, learning from these mistakes, and moving forward with a focus to benefit their family and community.

However, cities, counties, and sovereign territories differ from individuals, families, and private businesses in emerging from federal bankruptcy. What the outcome of a federal government debt default will be is unknown. Yet its reality is before us.

About the Author:

Stephen Anderson is retired from state government service and is a graduate of The University of Texas at Austin. He currently lives in Texas. His passions are reading, writing, and helping friends and family understand economic history.