Banking Crisis, Continued...

By Weronika Pycek, Matthew Gutierrez,and Shawn O'Malley · April 28, 2023

*LinkedIn newsletter is posted at a one-day delay.

 Another day, another fraction of First Republic Bank's market value gone. On Wednesday, we wrote here that its stock had fallen 30%. Today, it dropped another 43%. 

Many now expect the bank to be seized by regulators to stop the bleeding. We'll keep an eye on the latest in banking crisis news over the weekend so you don't have to.

Collapsing banks aside, it's actually been a pretty good earnings season: Axios reports that of the companies that have announced first-quarter earnings thus far, almost 80% have delivered better-than-expected numbers.

On a rainy Friday (at least for me), I can cheers to that 

—Shawn

Here's the rundown:

MARKETS

*All prices as of market close at 4pm EST

Today, we'll discuss in the news: 

• Can India re-create China's economic success?
• Big oil's big profits
• Plus, our main story on young adults increasingly living with their parents

All this, and more, in just 5 minutes to read.

Pop quiz: What's the most expensive college in the United States?

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IN THE NEWS

💸 Exxon, Chevron Profits Stay Robust (WSJ)

OK, a break from Tech earnings which have dominated headlines this week: Lower oil prices brought profits down from last year’s records, but Exxon and Chevron still reported strong quarters.

The Western world’s largest oil companies rocketed to record earnings last year as energy prices soared following Russia’s invasion of Ukraine. This year, investors fear an economic slowdown could suppress energy prices while rising supply-chain costs have steadied at high levels.

• The oil giants still pocketed hefty earnings that beat analysts’ expectations, with Exxon’s quarterly net income of $11.4 billion and Chevron’s $6.6 billion more than double their quarterly averages for the past 10 years. The results amounted to a first-quarter record for Exxon.

Why it matters:

Said Exxon CEO Darren Woods: “We're growing value by increasing production from our advantaged assets to meet global demand.” He said the company’s Low Carbon Solutions business, on which it plans to spend $7 billion through 2027, is growing rapidly as it signs up customers for carbon capture and storage services. 

• Fossil-fuel companies are still struggling to explain their value proposition to Wall Street. Many investors continue to shrug off drillers after financiers lost billions on an unprofitable U.S. oil boom in the 2010s and because of the industry’s vast carbon emissions.

Per The WSJ: Exxon and Chevron’s messages are gaining some traction on Wall Street. Large institutional investors, including BlackRock, Capital Group, and Boston Management & Research, recently increased their positions in Exxon, and some boosted their stakes in Chevron, as well, per FactSet.

• In recent months, Exxon executives have held more frequent in-person meetings with large investors discussing the company’s outlook and strategy, homing in on its returns and plans for the world’s anticipated shift to cleaner sources of energy.

🇮🇳 Can India Unlock Its Economic Potential? (FT)

India is overtaking China as the world’s most populous country. By midyear, the UN projects, there will be 1.428 billion people in India. It could have double China’s population by the end of the century. 

• But India is forecast to lag when it comes to economic growth.
• The Financial Times poses: “The demographic bulge prompts probably the biggest question Indian policymakers are asking now, along with the global banks, consultants and strategists who predict an ‘Indian century’: will India seize its demographic dividend, or squander it?”    

Why it matters:

A large, youthful population could accelerate economic growth if India can harness its skills — giving it a chance to join China among the ranks of economic superpowers.

• It's a massive market for companies like Apple, which has recently pushed to crack the market this year.
• Today, most Indians still live in rural areas. But urbanization is picking up pace. By the middle of the century, more of the country’s residents will live in urban areas than rural environments, per UN projections.

India is spending record amounts on capital expenditure, following in China’s path, which rose to become one of the world’s largest economies upon a spree of motorway and high-speed rail construction.

• This growth is likely to accelerate. The World Bank estimates India will need to invest $840 billion in urban infrastructure over the next 15 years to meet the needs of its growing population and unlock its economic potential.

MORE HEADLINES

🌇 In just four years, an office tower San Francisco's financial district has lost 80% of its value, down from $300 million

💪 Amazon posts $3.2 billion profit despite tough macro environment while it goes through rounds of layoffs

🤑 Tech giants pour money in AI, cut costs elsewhere

🏦 Fed plans revamp of its oversight process after SVB failure

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MOVING AWAY FROM HOME

Red Flags

Living with your parents in your 20s isn’t most people’s ideal scenario.

The plan usually involves moving out from your parents, whether you intend to go to college, hunt for your first job, or take a gap year to explore the world. 

At least, it used to. As it turns out, leaving the family home is not too common these days.

Recent data show that nearly half (46%) of young adults aged 18-29 lived with their parents in October 2021, nearing levels not seen since the Great Depression.

Is Gen Z any different?

When you live in Mexico, the Philippines, or Italy, it’s common to continue living with your parents or grandparents, even when as an adult going to college or pursuing a career.

Conversely, for Americans, where multi-generational living conditions are less common, the surge in young adults living with their parents is often reduced to the following factors:

• Gen Z youngsters who are unable or unwilling make it on their own
• A system so rotten that it constrains the most educated generation in U.S. history

What's the truth between these extremes, though?

Pointing fingers

Blaming Gen Z for becoming too comfortable with parental support and prioritizing discretionary spending on, say, luxury goods over standing on their own two feet has become increasingly common.

Even if there’s a grain of truth, it shouldn’t be shocking that young adults want to continue living with their parents if it helps them reach their personal or professional goals, particularly as higher costs of living, rising interest rates, and stubborn housing prices make financial independence all the more elusive.

To shed some light on the issue, the median price of a home in 1972 would cost $189,500 (adjusted for inflation), while in 2022, the median home was worth $440,300, according to the U.S. Census Bureau. 

At the same time, the cost of a public college has jumped. In 1971, a public four-year college degree would cost around $10,000 (adjusted for inflation), compared to today, with the same degree costing roughly $24,600.

Said differently, price increases for housing and college education have far outpaced inflation.

Still, in today's globalized society, with boundless opportunities and connections, to some, it might be disheartening to see young adults struggling or unable to achieve independence.

Adult Children

On the Money with Katie Show, Katie Gatti explores data from Pew Research showing the surge in “adult children” is driven largely by young adults returning to their parents' homes.

The peak of young adults living with their parents occurred in July 2020 when Covid forced most college campuses to lock down.

However, the trend of young adults between 18 to 29 years old living with their parents has increased slowly from 29% in the 1960s to 38% in 2000 before spiking to 52% by 2020, showing steady growth throughout the last two decades.

On top of that, the vast majority of young adults living with family, 88%, stayed in their parents' homes. That’s in contrast to those whose parents moved in with them or who live in homes headed by other family members.

In other words, much of the increase in young adults living with family members is related to moving back in with their parents.

Now, Covid or not, the numbers imply that the trend of young adults living with their parents has been accelerating in the last 20 years. Yet, it’s not so black and white — the context is key here.

Data shows that most of the growth in Adult Children came from the 18-24 age group, accounting for 71% of young adults living with their parents. 

While it’s easy to imagine a bunch of almost-30-year-olds refusing to move out, financial independence issues are naturally more acute for folks in the first half of their 20s.

Saving, procrastinating, or struggling?

As it turns out, today’s kids aren’t necessarily avoiding living independently. Rather, many have cited challenging economic conditions in their decisions to stay home versus move out.

According to Pew Research, a few factors have contributed to the increase in young adults living with family:

• Firstly, much of the recent surge is an anomaly — about 23% of young adults in the studies came back home simply due to Covid restrictions and college campus lockdowns in 2020
• Only 18% of respondents admitted they’d lost their job and didn’t have enough money to either move out or continue living on their own
• Others were focused on saving: For those interested in starting families and buying homes, staying with their parents is a tactically wise short-term financial decision to save on rent
• A small portion of respondents became the head of their households, with their parents and other family members actually moving in with them

Dive deeper

Listen to this episode from the Money with Katie podcast for more on why half of young adults live with their parents.

TRIVIA ANSWER

America's most expensive college in 2023 is Kenyon College. Tuition alone is $66,490, and when accounting for room and board and other fees, the estimated ~mandatory~ costs are over $83,000.

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