Global Wealth - or Not…
April 16, 2009
According to Stephen Schwarzman, chairman of The Blackstone Group, “Forty percent of the world’s wealth was destroyed in the last five quarters. It is an almost incomprehensible number.” Wow. The reason this recession is so scary is because it is global in nature and it is affecting everyone from small to large. How will we dig our way out of it? In my opinion, it will be for governments and investors to put their money into infrastructure and energy - in particular, clean energy. I’ll keep you posted…
1st Qtr Profits for Banks
April 16, 2009
Good news for Wells and Chase. Both reported healthy profits in the 1st quarter. Chase earned $2.14 Billion and Wells earned over $3Billion. It seems that banks are making money for a couple of reasons. More people are depositing money into the bank. This can either be from savings or because people are taking their money out of the stock market and other investments. Secondly, the mortgage refinance market is doing well due to low interest rates. On the downside, losses are still pouring in from loan and credit card defaults. Ironically, people are being forced to default on their loans because they are unable to get any credit. Let’s hope the trickle down theory works and banks start lending again. According to our banking sources, banks should be lending again by the end of May. Stay tuned.
Bankers - Get a Clue…
March 31, 2009
Here’s my problem with banks. They just don’t seem to get it. Ok, first they take tax payer money to get bailed out. Then they use it for bonuses. That’s just one glaring example, of course. But that’s not what I’m talking about. The following is a scenario that has happened to many people around the country. If this has happened to you, please let me know.
John (not his real name) is a businessman in L.A. He had good credit. His FICO score was 715. He was only using $40,000 of a $100,000 line of credit. His debt ratio was 40%. Two years ago, John could have gotten hundreds of thousands of dollars in loans and lines of credit for his business. But here is what happened to John.
2008 was a little rough. Sales were down a little, as people weren’t buying as much. So John wanted to get some more credit for his business. He heard that in order to qualify at the banks, his debt ratio should be 30% or lower, so he took $10,000 cash and paid down his current debt to $30,000. Now he was at 30%. Then, within the next 24 hours, the bank slashed John’s credit from $100k to $30k. By no fault of his own, John had just gone from a good credit risk (715 FICO and 30% debt ratio) to a bad credit risk (630 FICO and 100% debt ratio). The fact that his debt ratio went from 30% to 100% dropped is FICO scores immediately. So when John went to get a line of credit from his bank, they told him he didn’t qualify. Is it just me, or is this situation F&%#d up?
The banks have basically created a situation where nobody can qualify for credit. And I don’t think the bank got the memo. They don’t seem to see the connection. The right hand doesn’t know what the left hand is doing. Until the banks realize that they are creating another problem, the average person will still be getting the shaft. President Obama wants to get the credit markets flowing again. The banks are supposed to start lending again. But who will they lend to if nobody can qualify?
So what is the solution? I don’t know. I’m open to suggestions. First, the banks have to understand that by their actions, they have just turned good credit-worthy people into bad people. The FICO and debt-ratio criteria for personal guarantors has to be re-evaluated. This is the same problem that car dealers are having. People still want to buy cars. That’s not the problem. The problem is that nobody can qualify for an auto loan. The same is true with home loans. Nobody can qualify because of the banks’ deleveraging policies.
It is frustrating for everyone. Tell your banker. Tell your congressman or senator. Tell President Obama. Maybe they are so busy trying to save the banks that they can’t see how its affecting us normal people.
The government’s plan is to buy up all the toxic assets from the banks and have investors buy and sell them. This will take the bad assets off the banks’ balance sheets so they can begin lending again. This should start happening very soon. But my question to the banks is this, “Who are you going to lend to?”
Cycle or Reset
March 31, 2009
Everything goes in cycles. It always does. The economy always goes up and down. Recessions come and go. We always get through them. But what about today’s recession/depression? Is it the same or different? Many smart people are saying that this time its different. People are saying that this will be a permanent reset to our economy, and not just the usual cycle. And it makes sense if you trace the history of how we got where we are today.
Here’s the short version. It would make a great movie. It involves power and greed. Our economy has been based on easy credit. We got used to the practically free money the banks were giving in loans, credit cards, mortgages, etc. Our savings rate was less than 0% in this country. We were surviving on credit. And the banks didn’t really care, because they would package up all those loans and sell them to Wall Street who would then repackage them and sell them on the global market. It was fueled by greed and allowed to proceed because of lack of regulation. There is no one person or group to blame. It started with people doing no-doc (liar) loans with the banks as complicit partners. The banks allowed it because they were being pressured from Wall Street for more loan packages.
In the end, it created an unsustainable bubble. There was no way it could continue. So when it finally came crashing down, it didn’t just go through a regular cycle. And it didn’t affect just the U.S. It created a global financial crisis. The downside is that we are going to realize that things need to reset back to where they should be. Banks have been deleveraging since last year. The credit crunch turned into a credit freeze for most banks. People’s credit lines have been slashed. People are having to learn to live within their means. With credit maxed out, many people are reverting to a cash and carry system. You can only spend what you have. The people who are slow to come to terms with this reset are the people who will be in the worst situation.
In our business, we have been telling people for months about the banks and the credit crunch. Unfortunately, many people are still in denial and think they are still living in 2006. The strategy for this year is to stop and reassess your situation and to start planning and preparing for when the market rebounds. There will be more regulation. The banks’ criteria for getting money will be more difficult. So make no mistake, this is not your usual economic cycle. Expect the economy to reset to a lower level than what you may be used to. It won’t be forever. Things will get better. But this year, everyone needs to face reality. Be positive. Don’t let it get you down. The one good thing I see coming from this crisis is that people are beginning to talk about things like virute and family and the more important things in life. When times are tough, people and families come together. Maybe its an American trait, I don’t know. But we will all get through this year. And things will get better.
Private Equity & the Capital Market
March 31, 2009
Last week I went to a Global Private Equity Conference in Glendale Arizona hosted by Thunderbird School of Global Management. The mood was somber yet hopeful. The general consensus is that more government involvement is not necessarily a good thing. Investors are bracing for a lot of new regulations. From December ‘08, many hedge funds and high net worth investors simply got out of the game and are sitting on the sidelines until the market settles down a bit. There is over $11T sitting on the sideslines right now just waiting.
Investors are no longer looking for the big payoff and 30% ROI. This year, people are more concerned with capital preservation. Everyone is being cautious. The new rule of thumb is to be conservative and have steady returns of maybe 5-15%. The question is where to invest.
It seems the best place to invest these days is in infrastructure and clean technology both in the U.S. and emerging markets. President Obama has already set aside billions of dollars to fund green technology. If you have green tech projects or if you are looking to invest in green tech projects, please contact us.
Nobody seems to know how we’re going to come out of this financial crisis. It is new territory for everyone, and nobody has the solution. Most people seem to agree that the recession (or depression) will continue for the rest of this year. At least everyone has become fully aware of the problem, and things are being done to fix the system.
So this year, the strategy seems to be to sit tight, be conservative, and prepare for when the market turns around. The market will rebound. It always does. But where it lands this time, nobody knows…
More Bank Updates
January 22, 2009
Below are some of the recent bank earnings. Ouch!
Fifth Third swung to a $2.1 billion net loss.
KeyCorp reported a $554 million net loss.
SunTrust swung to a $348 million net loss.
Comerica’s net income fell to $20 million from $119 million.
BB&T’s net income fell 26% to $305 million.
M&T’s net income increased 57% to $102 million.
Yesterday’s Teleconference
January 22, 2009
I want to thank all the people who were on our teleconference last night. For those of you who didn’t make it, well, you missed out. We discussed the current state of the economy and what’s going on in the banking industry. We went over real examples of what has happened to some of our clients and what banks are doing. Lastly, we discussed the best strategies to move forward in 2009.
To our current clients, we thank you for your business. We continue to work on your behalf to build your business. To those of you who are not yet our client, we hope that you consider using our expertise to help you incorporate and build corporate credit. We also help with business networking, online marketing, and investment opportunities.
2009 Outlook
January 19, 2009
We are all anxiously awaiting President Obama’s inaugural speech. He has been one of the most vocal and active President-Elects I have ever seen, so I think we all know what he is going to say. He has already put together a stimulus package to try to get the economy and the banking industry back on track.
As most of you have probably heard already, Bank of America received yet more money from the federal government and Citibank has split into two companies. The thing that disturbs me most is that the banks are taking money from the government while at the same time reducing or cancelling people’s credit lines and giving much less money in the way of loans and credit. The banks are basically taking money from every possible angle and not giving any in return which is what they were supposed to do to stimulate the economy. Right now, the banks are the ones holding everything up.
One the positive side, once the banks get their house in order, they will begin doing what they are meant to do - lend money. We are still getting money for our clients, but the process has become a bit more difficult and more strategy is needed. We can see the light at the end of the tunnel. What we recommend now is to start planning and preparing now, so you will be in a good position for when the market turns around.
There are still many opportunities out there for people who have the money. We have billions of dollars of investment projects in real estate and green technology just waiting to be funded. If you are interested in real estate or green tech, give us a call and find out more.
The Green Machine
November 22, 2008
Last week I had lunch with Tom Delay and Robert Kennedy Jr. - separately, of course. Interestingly, although these two men come from completely opposite sides of the political spectrum, my conversations with both men centered around sustainable energy.
Even though Tom Delay and Robert Kennedy Jr. have different opinions about global warming and green technology, they are both interested in green technology and how it plays a role for America in the 21st Century. What does this mean? To me, it means that Green Technology is not (or should not be) political. Whether you believe in global warming or not, that’s not really the point. The point is that as the population grows, we (as a planet) will have a growing need for energy resources. Our current sources of energy (ie. oil, gas, coal, etc.) are finite and will someday run out. And they create pollution (CO2, etc.). The world will have to move to sustainable energy. It is inevitable.
In the 1960’s the United States had a mission to put the first man on the moon. It was a project that all Americans rallied around. It helped make us a great nation with a common cause. In the 1990’s, we had a dot com explosion and the U.S. lead the world in technology.
A sustainable energy project is what is needed in this country. America has to take the lead in the 21st century in Green Tech. As you all know, we are in a recession. Things are tough out there right now. Banks aren’t giving very much. The Big 3 automakers are on the verge of collapse and begging for money (although their Japanese counterparts seem to be doing ok.) In order for our country to get back on track and get our economy out of the dumps, we need to take the lead in green technology. It should be our new “moon landing” and our next “dot com” boom. The time is right.
Axiom has joined a Green Consortium where we are working with Green Tech and Nano Tech companies in order to get funding for Green Projects. The money is there for Green Projects. Its actually one of the few places where money is still available. So I like to say there is green in Green.
If you have a green project or if you are a green company, please contact us to see if we can work together. Send any correspondence to bill@theaxiomteam.com.
By the way, Thomas L. Friedman, the author of The World is Flat, has a new book out called Hot, Flat, and Crowded. I highly suggest reading this book.
Behind the Scenes at WAMU
November 3, 2008
“At WaMu it wasn’t about the quality of the loans; it was about the numbers. They didn’t care if we were giving loans to people that didn’t qualify. Instead, it was ‘How many loans did you guys close and fund?’” This according to former WaMu underwriter Keysha Cooper. She could have worked at lots of companies and come to the same conclusion. She shares her story as one of 89 employees whose accounts are contained in a suit against the thrift by an Ontario pension. She says starting about 2006, the company started ramping up the pressure to close loans at all costs. No loan was suspect. “You were like a bad person if you declined a loan,” she said. She was sure that a lot of fraudulent activity was taking place. She ended up being put on leave for refusing to sign off on a loan that was plainly just wrong. Brokers sometimes tried to bribe her to approve loans. This is akin to inviting regulation.
The Corporate Code, Only $995
