SBA and Commercial Finance and Investment News

I got laid off yesterday.  Downsized, from 4 senior managers to three.  A shocker, though not to the three who remained.  Hope for their sake their vision (without business or portfolio real estate lending, just “B-C” consumer and B through E car lending) works.  But onward.  When it hits you get out there, make the calls, dust off the resume. 

My colleague Lou Barnes reflected this week on one of the few AAA countries remaining:  Jolly Old England.  I love all things British, except Kidney pie.  I love the simplicity of the British solution.  Here is how Lou put it:

“One place has it right. Devalue your currency, accept some inflation, balance your budget mostly by cutting spending; and to keep things going until you heal, let your central bank buy assets with invented money, and force your banks to provide credit. Policy aside, all should study the unique national character traits that in difficulty avoid self-deception and allow getting on with it. In England, Wales, and Scotland.”

OK. Just print the money, cut spending, and live with the consequences.  What a concept, Wa!

No one wants to die.  Even people who want to go to heaven don’t want to die to get there. And yet death is a destination we all share.  No one has ever escaped it.  And that is as it should be, because death is very likely the single best invention of life.  It’s life’s change agent.  It clears out the old to make way for the new.  Right now, the new is you.  But someday, not too long from now, you will gradually become old, and be cleared away… Sorry to be so dramatic, but it’s quite true.  Your time is limited, so don’t waste it trying to live someone else’s life.  Don’t be trapped by dogma, which is living with the results of other people’s thinking.  Don’t let the noise of other opinions drown out your own inner voice, heart and intuition.  They somehow already know what you truly want to become.”

-The late Steve Jobs

This is a blog about small business finance, struggling small businesses in need of capital and loans, and their role in creating jobs.  The help they need in Washington is in lightening the National debt with sensible across the board spending cuts.  It’s the help we all need.

Liam Halligan reported  pithily in Saturday in the (London)  Daily Telegraph’s Economic Agenda . “So let me get this straight. The Standard and Poor’s rating agency last week took the historic step of putting the US government’s AAA credit rating on “negative watch”. There is now, according to S&P, “at least a one in three chance” that American debt will be downgraded from its top-notch status over the next two years – which would be a first in modern times.

A New York Times/CBS News opinion poll has also suggested the US public is now more economically pessimistic than at any time since President Barack Obama’s first two months in office in early 2009 – when the country was still caught in the “Great Recession”.

Amid renewed talk of a “jobless recovery”, the number of Americans who think the economy has deteriorated spiked by 13 percentage points over the past month. Congress, meanwhile, is locked in a bitter dispute over the federal government’s ability to make ends meet.”

We are going nowhere fast in reigning in reckless spending.  The Ryan Plan has hit a brick wall and the Democrats are stonewalling.

It’s a shocker:  We have a deficit that is over 10 percent of our GDP.  Who are we to point the finger at France, Britain, and Germany? Our national debt is a crushing 220 pct of GDP. They, despite Europe’s woes, are doing a better job than we are.   Yet few people this side of the Pond give a damn.

Let’s get on with it.  Reign in the entitlements, attack the sacred cows, elect politicians with courage,  free up entrepreneurship in this country, our the land of Ayn Rand’s Atlas Shrugged (tremendous book, and a great new movie) will be, in truth, our land.  The question is not, “Who is John Galt,” but where?  Give me a good strong Oligarch.  I am voting for Trump.

Last week I said I agreed with the non-inflationists.  Now the Trump card, so to speak,  Here is how Lou Barnes put it yesterday:

“March retail sales were soggy, a .4% gain and only .1% ex-gasoline. New claims for unemployment insurance spiked 27,000 to 412,000 last week, the highest in two months.

The one bright spot has been manufacturing: March industrial production beat estimates, gaining .8%, and capacity-in-use up to 77.4% is the highest since Lehman collapsed.

The National Commission on Fiscal Responsibility and Reform, aka Bowles-Simpson, released on November 10, 2008 is on the Web at  (www.fiscalcommission.gov ). The summary  does suggest what to do, but its fairness, humanity, wisdom, and principles are a durable guide to how to do it.

PS, My article on SBA lending will appear in the APRIL 22 issue of the CREDIT UNION TIME both in print and on the ‘Net.  Stay tuned!

As you probably know I have made the switch from a Series 7 SBA-USDA secondary market specialist to a Credit Union SBA-USDA secondary market specialist (oh yes, adding residential 1-4, participation loans, indirect and direct auto, unsecured credit, and a two foot stack of loan policy.  I’m at a great place, Credit Union of the Rockies, a 77 year old, conservative, focused credit union that also happens to be a wonderful place to work.  So I have you might say a new perspective.

If you lend money or invest for your credit union, inflation is going to trash much of your portfolio when you do the old “shock test” for the examiners.  Thank goodness we do not have to mark to market anything we are holding to maturity.  And thankfully those MBLS and mortgages and participation loans are holding their own.  But if we get a huge spike in the 10 year Treasury, or the 5 year, and bonds truly tank, look out.

Are we Re-Inflating?

Yes. No. I say No. You say why.  I say I have friends who know. Like Lou Barnes.

The 10-year T-note is out of bounds, up at 3.60%, taking mortgages above 5.00%. Oil is $111 a barrel. Gold $1468/oz and silver $40/oz. That gold price is more than double the cost of new production, and silver is quadruple.

On the other hand, as my friend and WSJ guru Lou Barnes points out, The US is more in recession than recovery. Wages not growing at all while rising costs of energy, food, and health insurance keep consumers on the ropes.

In China, Bloomberg points out that tight price controls on real estate are being put in place to stem rampant housing cost-push inflation.

OK, there’s Europe.  Sonnets of the Portuguese just met James Joyce.  Greece, Ireland, Portugal, Spain, and the rest of the clan are swallowing the austerity pill (and spitting it out again).  Deficits = Inflation.

In the emerging nations,   let’s revisit econ 101.  Take Brazil, the model of South American capitalism. Brazil’s real has broken upward, almost 10% in two weeks, maybe a trend-setter.  OK now.  If the Real goes up against the dollar, Brazilian exports are more expensive here.  We buy less, so production in Brazil has to slow down, and so does their economy.  As their economy slows (everything is cyclical,)  their expenses drop… goods become cheaper to produce, exports creep back up again, things get better.  At least that is how it is supposed to work.

It is still OUR economy which is dominant in El Mundo.  And the  US economy is far too weak for global inflation to get going. As Ben Bernanke says is right: here in Los Estados, cost increases are transient, shifting US patterns of consumption instead of raising the general price level.

For me, I am going to find some good 5 7 and 10 year loans, or taxables, and sleep well at night.  How about you?

The 504 Refinance is HERE.  What it means is you can get 90% CLTV, which is helpful since values have fallen 30-40% most places,  So you can get cash to pay off that balloon payment, keep Elmira Gulch from foreclosing on the building so you can stay in Kansas,,  I’ll write about the specifics later but now is the time to get your commercial borrowers refinanced.  Fixed rate 20 year second from your local CDC, and a 5 year adjustable (or some such) first mortgage at a reasonable rate from lenders like Horizon West (www.horizon-west.com).  The CDC to call here in Colorado is Colorado Lending Source, they also have the best website:  www.coloradolendingsource.0rg. 

So where are rates GOING?  Not as high as fast as you think.  Time to look at (don’t laugh) some good municipals with a short call.  Yields 5-8 taxable equivalent.  Higher in some areas.  And yes there are some GOOD RELIABLE bonds out there.  We like essential purpose revs — sewer, water, that kind of thing.  No matter how bad it gets you have to drink and flush. 

My friend and coleague, WSJ contributor and Fed guru Lou Barnes said this week ” Interpreting markets is hard these days.

The deafening financial-market recovery…inflation…recovery…commodities…recovery…sustained…recovery… makes it hard to concentrate. Maybe we could set the whole thing to music and hire the Super Bowl babe to sing the wrong words.

  Inbound data do not support acceleration of the US economy (retail sales half of February forecast, flat industrial production, mortgage apps falling near record lows…). Global food and commodity prices are rising, igniting inflation fear among those who have worried about inflation ever since it broke in 1981, never to return. These price rises are cost increases likely to slow the US economy, as there is no wage growth with which to pay them, or to pull into broad-gauge inflation.”

     Public policy is the deal, now — not markets, and not even the economy. In gathering force, ordinary civilians have decided: given a flat-broke Treasury, and a choice to borrow, to raise taxes, or to cut spending, we’re going to cut spending. Oh, we’ll have higher taxes, but by three or four to one, spending cuts will dominate.

Don’t Forget that the engine of job creation in this country is small business — companies with $15MM or less in sales a year.  

  As my colleague and Fed guru Lou Barnes points out, The National Federation of Independent Business small-company survey (www.nfib.com) reported this week that small firms have been absent from this “recovery”  The overall survey reached a three-year high, but to a level similar to the worst of the two prior recessions. Earnings have nudged up (makes sense, firms cut to gristle), as have plans to increase inventories , and although sales expectations are the best since 2007, actual sales are still sliding. Current employment has stabilized from negative, but plans to hire are flat.

Consider adding member business lending – or stepping out and in to SBA production.  Or buy some SBA guarantees, they’ll help the portfolio and do not carry principal and interest risk.

The  simply awful employment report was, let’s face it, terrible.  39,000 against at least an expectation of 150,000.   The 10-year T-note crested at about 3.04 this week and, fortunately, fell back.  Bill Gross thinks things remain weak for at least another two years.  That’s good for good quality general obligation bonds. Bad for everyone else with a 9.8% unemployment.  Millions of families for whom the Yule tide is a struggle not a time of peace.

 You’d think bonds would be even lower in yields (which means that cities and states and, Uncle Sam have lower borrowing costs)  But there’s a bit of credit risk tweaking rates.  As well as supply – the visible supply in municipals hit the highest level we have seen since 2005.  That’s due in large part to the projected end of the Build America Bond program December 31.  Cities, states and other issuers are struggling to get issues done supporting new, job-creating public projects while they can with this great taxable bond program.

 Soon the excess supply will be gone, we’ll return to normal.  Trouble: The prospect of sovereign defaults all through Club Med,  Euro problems north and south, nd euro-reversal to local currencies seems to have infected our bonds as well, calling into question the strength of the sovereign guarantee of the US Treasury. Long-term rates are higher here not merely for reasons of recovering economy and inflation risk, but credit risk.

 We’ve got to get this party started, snap the doldrums.  Tried to get a home loan or a business loan lately?  Many have just given up, and business bankers – along with their competitors among the 1,500 or so credit unions that do MBL – say there just isn’t much demand.

 Let’s take a step forward.  On or about  January 12, I am publishing a free CD and White Paper, with some well known names in the SBA world, called How to Start Your Own SBA Department (and actually hit your numbers).  You may find it useful in planning, or thinking about, producing SBA guaranteed product not just for the profit, but, let’s face it,  for the good of the country.  Maybe we can dramatically boost production this year – beyond the $30 B bank business lending preferred stock fund being offered, we (YOU) can add 504 and 7A production and get the small business job engine firing on more than one cylinder.  There, I said it.  What a concept.   Email me if you want a copy, we’ll be producing 250.Click here to email me your request for a copy

Overall, demand for Treasuries this week is expected to be robust, with the Fed buying up bonds, primarily 3-10 years, through its quantitative-easing program.  Will $600 B be enough to kick-start the economy?  Yes, if banks loosen the purse strings a bit.  But meanwhile yields on everything that moves with Treasurers – including mortgages and taxable municipals and Build America Bonds, are falling.  That means cheaper borrowing for you and I as homeowners/buyers and cheaper borrowing for cities and states on new construction and infrastructure projects and that means JOBS.  

Our friends across the pond and in China are eagerly purchasing U.S. government debt too.  And continuing demand from asset managers and pension funds.

The Treasury l auctions $72 billion in government debt this week, mostly 3 year, 110 year and some 30 year bonds being offered.

 It’s a good time to lock in some yield by the end of the year because the availability of safe asserts with decent return is going to be reduced – that is to say, the price will rise and yields fall a few more basis points toward the basement.

PS TUNE IN TO OUR WEBINAR

“Five Ways to Ramp Up Fee Income” (without talking on additional credit risk)  scheduled Friday, November 12 at 9:00 AM Mountain time; 10:00 AM Central and 8:00 AM Pacific.  The panel will be moderated by myself,  along with bank accounting expert Charles Garrison, CPA , Fortner, Bayens, Levkulich & Garrison, P.C. and Board advisor Larry Martin, Director, Bank Strategies, LLC.  You’ll get a chance to hear from each of the five co-authors of the White Paper, who’ll be questioned by Messrs, Garrison and Martin (who’ve promised to ask the tough questions).  Please see the Invitation and White Paper attached and all you need do to register is email me back and join us by phone and computer on Friday the 12^th using the instructions in the invitation. I will be recording the session as well.  To register email me at tim@isaakbond.com or call 800-279-4426.

So the Federal Reserve is going to buy US Treasury bonds next week, in a big way.  If demand for treasuries goes UP, prices RISE, and, as yields move inversely to prices,  yields on treasury bonds will fall.  Mortgage rates, taxable municipal bond yields, long term bank debt (is there such a thing?) and life company commercial rates, along with fixed SBA 504 rates, are likely to drop if the Fed attacks the middle of the yield curve. That may stimulate borrowing if credit does not tighten further.  An who knows, as we all hope, borrowed money gets spent, and company sales go up, so they hire more workers, who in turn spend more, etc.

So where, my fellow Americans, does the money come from that the Fed uses to buy those securities? 

Psst.  They PRINT it.  No, they don’t even bother. It’s an electronic debit to a fictitious account.  It literally appears out of thin air.

My friend, colleague and WSJ contributor Lou Barnes had the following to say this week. Pithy guy. Read on and amaze your friends.

         A controlling equation: MV = GDP(p). The quantity of money times its rate of turnover (velocity) equals GDP. That (p) notation refers to prices. If you get MV going to fast, you get big GDP andinflation; if too slow, deflation. V rises in good times with credit creation and slows in bad; in extreme cases (bank runs) M disappears altogether. In “quantitative easing,” the central bank bypasses broken banks completely and buys Treasuries in the open market, sustaining M. Done right, price-neutral printing!

       Doesn’t printing money guarantee future inflation? The Fed hopes so! But only to get CPI back in the 2% range, and the economy is so slack (“excess capacity”), and so much money has effectively gone to mattresses that all inflation tinder is soaking wet.

     But, once printed, the money is still there!The easiest of all central bank jobs is to make money disappear. If the Fed overdoes QE, if banks suddenly snort to wakefulness and make loans, all the Fed must do is to sell Treasuries that it bought. Market rates will rise, and the cash will go back into the Fed’s mattress. Coming out of this, expect high volatility in start-stop-start “draining,” but the Fed will not allow the aftermath go to inflation.

     Why bother? Why not just leave well enough alone? The Fed did contribute to the predicament, and is hardly infallible, but its errors were omission, especially allowing a credit bubble to inflate (and no, rates were not “too low” ’02-’04 — underwriting was too easy). Since ’07, the Fed has been the only government institution to rise to the crisis, and a major lesson of the crisis is the need for an active Fed to regulate terms and supply of credit, and cautiously to intervene in asset bubbles.

  The Fed intends to drive down intermediate Treasury rates (3-10 years, “caving-in the shoulder of the yield curve”), and in turn drive down other long-ish rates. Perhaps mortgages in the threes. In further turn, those lower rates will support asset values (houses if the Fed is lucky, stocks and gold if not). As assets stabilize, maybe even rise in value, defaults will wane and the world will become safe for bankers to lend. Last, the Fed’s intent is domestic, not to “drive the dollar down,” although it would be pleased if other central banks were forced to follow, giving global support to M and adding pressure to currency manipulators.