☀️☕️ Card Late Fees Junked!

📝 Focus

• Card Late Fees Junked!

📊 In the Markets

• Gold all time record; bitcoin 69; Bezos back at #1; China market surge - but not HK

📖 MoneyFitt Explains

• 🎓 Gold, Inflation and Interest Rates

💸 Personal Finance Corner

• Understanding Investment Considerations: Return and Risk

📝 Focus

Credit Card Late Fees Junked

The Consumer Financial Protection Bureau (CFPB) is finalising a rule to slash credit card late fees (which, to be clear, are in addition to interest paid on balances.) This is part of the Biden administration's push against anti-competitive behaviour in the US economy, particularly what he calls “junk fees.” 

The new measure will decrease typical late fees from an average of $32 to $8 for most cases, including a new cap of 25% of the consumer’s required payments.

The CFPB estimates that the cap on late fees will save American families $10 billion annually and benefit 45 million cardholders who face such charges every year. The estimated impact of this rule is about $9 billion a year.

..... ▷ According to S&P Global, the most impacted issuers will be in the private-label and subprime sectors. Capital One, Synchrony, and Bread Financial are among the most exposed, along with Discover Financial Services and American Express. 

Credit card issuers are likely to take their opposition to the courts, though the PR spin will be tricky. 

But even without that, implementing the proposed rule could take years as it moves through the formal rulemaking process.

..... ▷ Credit card issuers have been leveraging a loophole created in 2010, evading federal restrictions on unreasonable fees by annually adjusting them for inflation, which the rule will also eliminate. 

Perhaps showing some uncharacteristic awareness of how it looks to their customers, most card companies do not separately disclose late fees they receive from their customers and hide them in the revenue line as “interest income”. 

..... ▷ Despite falling inflation, robust job growth, and a stronger-than-expected economy, American voters still connect the pain of high consumer costs from groceries to housing to Biden's economic policies.

President Biden has made corporate greed and eliminating unpopular junk fees a cornerstone of his campaign. 

The Competition Council has targeted practices across various sectors, most notably airline fees (for seat selection and other extras that may not be transparent when booking) and insulin pricing (prices down 70%, capped at $35 a month from hundreds or more, for four million seniors on Medicare with diabetes.) 

Junk fees are those unexpected and often hidden charges that companies impose on consumers for services that cost them little or nothing extra to provide. 

Besides late fees for credit cards, examples include: Service charges for event tickets (viz Live Nation); Resort fees at hotels beyond the room rate for amenities like the pool or gym; Termination fees for cancelling phone or internet contracts; and Bank overdraft fees… again in addition to interest charges.

📊 In the Markets

Wall Street's major indexes declined over 1% on Tuesday, driven by weakness in megacap growth firms like Apple Inc., more on iPhone sales down 24% in China than on its giant EU fine, and the chip sector, particularly affecting the Nasdaq. [MFM: Brussels Bruises Apple.]

Meanwhile, Amazon founder Jeff Bezos regained the title of the world's richest person, overtaking Tesla’s Elon Musk, according to the Bloomberg Billionaires Index. Bezos' net worth stood at $200 billion, with Musk trailing at $198 billion. Musk saw a $31 billion loss over the past year, while Bezos gained $23 billion during the same period. LVMH’s Bernard Arnault, Musk and Bezos have been trading the top spot for the last couple of years.

Investors are taking some chips off the table and locking in profits ahead of this week's economic data, particularly the non-farm payrolls report on Friday, and Fed Chair Jerome Powell's testimony to the Senate and House on Wednesday and Thursday. Mixed economic data showed slower services industry growth in February, while new orders reached a six-month high.

Gold🎓 kept rallying to a new all time high as rate cut bets keep a tailwind going for “the yellow metal”… and in gold’s case, “all time” is a long long long time. Meanwhile, “digital gold” (limited supply, inflation hedge, no yield) bitcoin surged to a new high of over $69,000 before falling back 8% straight afterwards. [MFM: Gold Bugs go Splat; Gold Bugs go Big!]

China stocks surged above three-month highs after the country set its 2024 economic growth target at "around 5%", as expected, during the "Two Sessions" meeting. Defence spending will rise by 7.2%, with inflation expected to hit "around 3%." China's CSI 300 index ended 0.7% higher, the highest since late November. But Hong Kong's Hang Seng index cratered 2.6% on the lack of any sign of a bazooka.

📖 MoneyFitt Explains

🎓️ Gold, Inflation and Interest Rates

Investors often view gold as a long-term hedge against inflation as its limited supply and its history over thousands of years as a store of value means it will (for believers, known as “gold bugs”) retain its value over time.

As inflation erodes the purchasing power of a currency, the relative value of gold tends to rise, protecting investors against the effects of inflation. 

But rising US interest rates in response to inflation running too high increases the “opportunity cost” of holding non-yielding gold i.e. Gold never pays an owner any interest, so the difference between that zero and yields from bonds or even simple bank deposits widens when interest rates go higher. 

Additionally, rising US interest rates relative to other currencies can boost the value of the US dollar. 

Since gold is priced in dollars, when the dollar strengthens, it makes gold more expensive for global investors holding and investing in other currencies, further dampening demand.

Conversely, lower US interest rates are usually associated with a weaker US Dollar, which itself is correlated with higher prices of commodities, like gold, which are priced in Dollars. When the Dollar weakens, commodities become cheaper and more attractive for buyers who use and invest in other currencies.