Put NCAA in charge of Wall Street

July 24, 2012

The NCAA’s penalties announced yesterday against Penn State’s football team were swift, decisive, relevant and appropriate, based on the “lack of institutional control” over the football program that lead to giving higher priority to protecting the program’s and its coach’s reputations than to protecting the child-rape victims.

Perhaps we should put the NCAA in charge of Wall Street, with power to levy sanctions where lack of institutional control has been largely unpunished despite actions that brought down the entire economy.


Playing Poker with Jamie Dimon

May 19, 2012

I love a good poker game.  To rationalize my desire to play a lot, I side with those who claim poker to be a game of skill, which happens to be affected by luck.  In that vein, Poker is like a variation of Day Trading rather than just pure gambling.  In both Day Trading and Poker, you place very short-term investments (wagers) based on limited information, with a commitment to realize your gains or losses prior to the end of your session.  Your gains and losses are affected significantly by the actions of others and by random forces that you cannot control.  In fact, good poker players may have more and better information for their decisions than day traders.

In honor of JP Morgan Chase’s multi-billion dollar trading loss, I have invented a new poker game.  Designed for very high rollers, it is called “JP Morgan.”

In “JP Morgan,” instead of betting that you will win, you bet on whether you think you will lose.  If you are right and you actually do lose, you lose the pot.  You will not be rewarded for losing even if you bet on that outcome.  But if you are wrong and you win the poker hand in spite of betting against yourself, you also lose the pot since you made the wrong bet.

At the end of each hand, the money in the pot is flushed down the toilet.  Nobody ever wins.

Then each player at the table who did not participate in the betting action is required to ante up some additional money to tip the dealer, who must be compensated for making all of this possible.

-David Bass


The Aftermarket

January 7, 2010

Recapping a lunch conversation from earlier this week…

Right now I’m driving a 10-year-old car.  I like it, it runs well, and my ego doesn’t need to buy or lease a new car every 3-4 years.  But every time I take it in for an oil change or minor service, I end up spending more than planned.  I’ll bet my friends at Jiffy Lube and Pep Boys are much more excited to see old cars like mine than new cars where the belts and hoses aren’t worn out, the fluid levels are topped off, the wiper blades are smooth, tire treads are deep, etc.

After a decade of easy credit, consumer spending will remain soft indefinitely.  Savings will continue to be a priority over spending.  Many consumers will maintain and repair their durable goods whenever practical, and replace only when necessary.  This mindset will apply to automobiles, homes, appliances, furniture, clothing and other areas.

 Broadly speaking, after-market businesses will present strong opportunities.  Enterprises that sell after-market parts, or service, maintain, repair, remanufacture, refurbish, or re-anything for durable goods should be promising.

Would like to make this a longer post, but need to find a place to get some furniture re-upholstered.

Your thoughts?


It’s the Economy, Stupid!

September 30, 2009

Today was the inaugural luncheon meeting of the RTP chapter of the National Funding Association (www.nationalfunding.org).  With about 80 in attendance, it was a rousing success. 

The speaker was John Silvia, Chief Economist at Wells Fargo.  He gave a National Economic Overview, loaded with fancy power point slides, including the following on GDP:

 

John Silvia NFA

 

Basically, he said we are at the tail end of a long and harsh recession (duh!) but also the next 3-5 years will create lots of economic opportunity.

There are, however, a couple of “cultural challenges” that may prevent this recovery from being as strong as prior recoveries (see graph), including continued consumer savings rates at 6% (dang those consumers) and low housing starts that will not return to prior levels (we’re just plain overbuilt). 

On the brighter side, the manufacturing index is up, initial unemployment claims are declining, capital goods orders are up, and corporate profits are trending in the right direction (expect 20-30% profits gains in the next couple years).  Inflation and interest rates should remain very low for at least a year, giving time for many who need it to right their ships.

In other words, an economist forecasting rational behavior.  I wish someone had asked his opinion as to what the next bubble will be.  Any guesses?

— David Bass

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Paybacks are Hell

September 21, 2009

After 15 years of feasting on credit, consumer borrowing decreased in July by its fastest pace in over 50 years.  More of us are paying down debt and fewer people are taking out new lines of credit.

Consumer credit 0909

Quite striking in comparison to the tail end of the previous recession.

This is bad – so much of the U.S. economy is tied to consumer spending, the disappearance of a “borrow and spend” mentality (among consumers; we’ll have to deal with Uncle Sam separately) continues to impede our recovery from recession.

On the other hand, this is good – reducing debt and increasing savings are rational and sustainable behaviors.  Living beyond our means is neither.  Aristotle would be proud.

On the other hand, this is bad – for small business owners looking to sell their companies, fewer individual buyers willing to leverage themselves to the hilt will keep valuation multiples low.  Expect the same dynamics to apply to corporate and institutional buyers.

On the other hand, this is good – at the debt reduction and savings rates we have seen so far this year, it won’t take long for some large cash war chests to amass.  Fewer business acquisitions will be heavily dependent on financing, and more deals will be easier to close.

— David Bass

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Brother Can You Spare a Dime?

September 10, 2009

“Once I built a railroad, I made it run

Made it race against time

Once I built a railroad, now it’s done

Brother, can you spare a dime?”

With these classic words from a Bing Crosby song, today’s topic is about the current state of the credit markets.  Last night I attended a presentation by Barry Yelton, a Senior VP with Federal National Payables, an asset-based lender that specializes in financing for government contracting firms.  Here is a quick summary and my own thoughts…

Credit is still tight.  (Duh!)  But banks have been slow to kick out their traditional commercial and industrial borrowers.  Also many asset-based lenders have scaled back or closed their doors, including Sovereign Bank (shut down operations outside of the Northeast), Textron (closed ABL and factoring altogether) and GE Capital (minimum deal now $20 million).  Some bank-affiliated ABL’s are still active in the middle market, including Wells Fargo and PNC Business Credit.  Factoring is still available if you don’t mind paying in through the nose and back out through the wazoo.

 A picture is worth a thousand words:

Source:  Federal Reserve Economic Data

Source: Federal Reserve Economic Data

The only good news is that if you can get credit, interest rates are low, and should remain that way for awhile.

It may help to explore all places in the credit spectrum if you have a current need – banks, non-bank ABLs, factors, mezzanine lenders, SBIC funds are all options.

My own opinion is that it will take a good bit longer, at least well into 2010, for credit to return to normal.  Let’s face it, we became overleveraged as a society.  Like a python digesting a pig, it’s going to take time for consumers, businesses, and yes, financial institutions too, to become right-leveraged again.

For now, if your business needs to borrow, good luck but don’t count on it.

— David Bass

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