World Debt Exceeds $152 trillion – Does it even matter to you?

The IMF (International Monetary Fund) issued a report today[i] that shows we learned nothing from the Great Recession.  In fact, as the world slid into recession and growth slowed into reverse, instead of deleveraging, we collectively amped up borrowing – private borrowing by consumers and businesses and sovereign borrowing by countries – in massive quantities.  Counterintuitively, economies shrunk and debt blossomed:


The IMF report is chock full of beautiful charts and graphs and loads of scholarly research.  Really great stuff.  Exactly what you expect from a group that has such exciting committees as: Dissemination Standards Bulletin Board (DSBB), General Data Dissemination System (GDDS), Reports on Observance of Standards and Codes (ROSCs), and Special Data Dissemination Standard (SDDS).

The one thing that the IMF got right is placing the blame on globalization of banking and easy access to credit.  Which brings us to you.  And me.  The easy access to credit pre-recession was universal – consumer mortgages leading the way.  Post-recession, the credit bubble has been inflated primarily by large corporate borrowing, governmental borrowing and two areas of consumer borrowing: cars and student loans. bright-note

Notice what is missing from the above list? It is the heart of the American economy – small and mid-sized business borrowing.  It has been incredibly difficult to obtain.  The bright note today is we have found a few brave sources of capital who will work with great management teams who have a great products and better business plans.  It’s not easy, in fact it is harder than it has ever been.  And we have to navigate often unconventional terms.  When we get your deal financed, it is all worth it.

Joe Briner
Managing Director
Vertical Capital Advisors LLC
866-912-9543 ext 108


[i] Source IMF

Have you ever wondered if you should call a professional to help your business restructure its debt?


You see reports in the financial press and mainstream media about companies that have spectacular missteps and flame-outs but for every story you see, there are perhaps hundreds or even thousands that you don’t.  In fact, there were 12,764 business bankruptcies filed in the first six months of this year, that’s over 2,000 per month on average:


Chart © Vertical Capital Advisors LLC 2016

Every one of these cases is a tragedy involving the loss of up to hundreds of millions of dollars and countless jobs.  The human toll, the distress caused in the lives of thousands of people, is incalculable.

So have you ever wondered if you should call a professional to help your business restructure its debt?  If the answer is yes, you have wondered, then the next step is to make a call.

You see, if the right financial professional is involved early enough in the process, many more options are open to the leaders of the business.  The right plan can shed unproductive assets, invest resources in revenue and profitability drivers and create a leaner, more focused, more agile enterprise that can once again compete effectively in the marketplace.  It is always a tough process but guess what, it is much easier than bankruptcy.  We know.  We often get the call from creditors who have had enough and are ready to pull the plug.  We have liquidated many businesses and the shock and tears and disbelief sadden the soul.

In most cases, your creditors and investors are delighted to see you take affirmative action to resolve a crisis.  They much prefer you call us to craft a solution over them calling us to liquidate your business.  They almost always give us another length of runway to develop and implement a recovery plan (that they approve) and sometimes they even provide additional funds to make it happen!

If you have the right team, a credible plan and the resources to implement it, save some modest amount of capital to prime the pump (modest being defined by the size of the enterprise – ranging from tens of thousands to hundreds of millions of dollars), your business can be reinvented so it can once again thrive.

Joe Briner
Managing Director
Vertical Capital Advisors LLC
866-912-9543 ext 108

Repeat Business & Referrals – The Ultimate Compliments

percentageIn the depths of the recession we helped scores of businesses restructure their financing so the company involved could live to fight another day.  We helped each company get lean and profitable by focusing on the core revenue and profitability drivers, especially strategic client relationships.

Now that the economy has recovered we are seeing many business owners seeking a new round of permanent financing.  Most gratifying of all is the client who we helped survive the recession now flourishing and needing graphsgrowth capital.

In August we helped a wholesaler obtain new $1,500,000 financing at a fixed rate of 5%.  It may not seem like much but the new rate is over 20% lower than the previous rate that was over 6%.  This savings, on top of the $500,000 discount we negotiated five years ago, has transformed the company into a very profitable enterprise.

This is a small example however this client is connected to over $10 million in other capital we have placed for other clients.  And for this particular, it means literally everything.

We love the trust that we earn by securing sound financial futures and we love even more the repeat business and referral opportunities it generates.

To all of our clients, thank you from the Vertical Capital Advisors team!

Hate Tina? The smartest people in the room do, too

A buddy of mine runs bond funds for a huge multinational financial firm.  He hates Tina.

Tina is an acronym for “there is no alternative”.

Bond fund managers lament having no good choices to invest billions of dollars.  Bond yields are notoriously low and they have been for eight years.  Central banks across the globe have kept short term rates at or near zero that long.  Sure, the Fed raised the fed funds rate 0.25% in December and the market threw up all over it.  The Fed wants to raise it another 0.25% but is concerned that the market may tank if they do.  All central banks are confronted with the same problem: no real economic growth, stagnant wages, rampant underemployment, anemic business investment.


What is crazy is that central bankers, always the smartest people in the room, worldwide have been prancing around while the emperor who has no clothes leads the parade.  The really crazy thing is that the smartest people on the planet, global central bankers, have no clue how to fix it.  They just met for three days in Jackson Hole, Wyoming, and this is the best they could come up with:

Their message to global governments: “HELP!”[i]

Central bankers hate Tina, too.

It appears their solution may be for central banks to buy corporate debt[ii], in effect supplying capital directly corporations which is equivalent to nationalizing corporate debt.  You heard that right, taxpayers will be taking on the risk of large (and maybe small) corporations if central banks buy corporate bonds.  It’s another form of bailout.

The low rate environment is forcing big banks to double down on financial risk on scale never before seen.  Want evidence?  Look at the ProShares Ultra Short QQQ (SQQQ) whose objective is to generate three times the negative performance of the S&P 500 (ProShares symbol QQQ) every day.  The top five positions (counter party positions, technically) are held by commercial banks.  Banks are putting their capital to work on the financial markets instead of lending it to small and medium-sized businesses because their models show less risk and higher return with higher certainty than making loans.

Top Holdings

Institutional investors the world over are doing the same.  Hundreds of trillions of dollars have been allocated to “investments” that do not produce anything: no real products or services, no jobs, and in many cases, no taxes.  All financial engineering.

George Soros has made the same bet in a very big way[iii].  He has shorted 4 million shares of SPY, the SPDR S&P 500 ETF by buying puts which gives him the right to put the stock back to the counterparty if the price falls below the strike price.  This is essentially the strategy the John Paulson employed to pull of the Big Short.  But it wasn’t a quick trip for Paulson and it may not be a quick one for Soros either.  Paulson had to borrow over $200 million to keep his bets in play, to avoid margin calls in effect.

In an earlier blog I promised to give you a glimpse of where to park funds in order to prosper in the next recession.  But beware, this could be a case of being right but still being wrong because if the markets tank, as markets do, and if the world’s top commercial banks are wiped out, it may be a very long time before one could be able to access funds tied up in them and in the meantime, legislators may invent a way to nationalize your funds as well.  And keep in mind that even Paulson was never completely certain where the bottom was or whether he would be able to collect on all of his correct bets.

The advantage of SQQQ over shorting stocks is that when you short a stock, you can only profit between your acquisition price and zero.  SQQQ is designed to triple that return.  And the advantage of SQQQ over buying puts as Soros is doing is that puts expire after a period of time, taking the premium you paid to buy them with them, meaning you have to be prepared to re-buy several times if you are too early.

Tina is making people do crazy things.



[i]  Global central bankers, stuck at zero, unite in plea for help from governments–business.html


[iii]  Believe in George Soros? Short S&P 500 with These ETFs

Could the U.S. Government Take Part of My Retirement Savings?

I have seen this movie before, Maestro – and I don’t like how it ends!


I received a notice today from a retail broker informing me that under new federal regulations our company cash reserves can no longer be invested in money market mutual funds that maintain a stable $1 net asset value.

I had to choose whether to receive a check for the funds or move them to a money market fund that invests in US Treasury obligations.  Simple enough, I chose the UST fund and went on with my day.

bloomberg 81814Then a friend sent me an article about a rumored tax on retirement funds.  Sure, I had seen these articles before, we all have.  The financial press has written amply about the prospect of a European “bail in” but here, in the U.S., come on, no way.  Yes, Argentina, Hungary, Poland, Portugal, Bulgaria and Russia have all “nationalized” private pensions and retirement savings, but here, in the gold old U S of A?  No way.argentine

Then it hit me.  This is exactly how we started down the slippery slope that plunged us all into the Great Recession.  It started with innocuous little changes.  Greenspan advocating 65% then eventually 85% home ownership.  Social engineering, not monetary policy, to be sure, but for a great and noble cause: greater stability and bank bail ininvestment in communities that comes with home ownership.

Then came the financial creativity.  No longer would mortgage lenders be bound by the decades old strictures of 20% down (or 10% with PMI) and maximum 36% debt ratios.  Mortgage lenders were loosed to run amok in society, preying on any group unsophisticated enough to know the dangers they were signing up for.  Greenspan, Clinton’s “Maestro”, changed federal policy to allow banks to invest Tier 1 capital in mortgage-backed securities, flooding the secondary mortgage market with trillions of dollars in liquidity.  He changed the net capital rule for broker-dealers, essentially allowing infinite leverage and exposure to risk.

Greenspan set the stage for the catastrophe, then, as the economic bloodbath raged, the henchmen slammed us with mountains of new regulations and flooded the markets with trillions of dollars printed out of thin air.  Although he largely denies personal culpability for the Great Recession, he sheepishly, once upon a time did admit that some of his models may have been wrong:

greenspan testifying

The parallels of the precursors to the 2008-2010 Great Recession to what we are experiencing today are there, sure enough.  Innocuous government regulation aimed at improving the markets but with serious ramifications when the economy hits the inevitable rough patch.

I have seen this movie before, Maestro – and I don’t like how it ends!

Where’s the safe zone?

That will be the topic of a future blog.

The Great $550 Trillion Bet of 2016 – And how it will impact YOU within a year

falling off cliffA college student asked me today, “a group just did a presentation on the last crisis and they just didn’t seem to think it would happen again or at least to that level because of the regulations in place – what do you think?”

Wow.  Loaded question.  How to answer and not sound like a cantankerous old WASP?  (52 is ancient to millennials).

We can start by taking a look at how we are creating the next recession before it has even officially started.  We are not getting into this recession the way we get into most recessions.  Most recessions represent a cooling off period after the economy overheats – – inflation caused by expansionary monetary policy is followed by a period of higher interest rates and contraction, a.k.a. a recession.

The 2008-2010 “Great Recession” was different.  The Fed embarked on a bold new plan of social engineering, increasing home ownership by encouraging creative financing alternatives in the residential mortgage lending market and allowing banks to invest trillions of dollars of Tier 1 capital into mortgage backed bonds, among other systemic changes.  This caused the “housing bubble” which when it burst, rained $4 billion on John Paulson personally, enabling Michael Lewis to write the New York Times bestseller (and later a movie based on the book), The Big Short.  (This is the abbreviated version – call me if you would like to schedule the 4-hour lecture.  Seriously, call me.  I have one).

The next recession will be a totally new breed of economic disaster.  It is a hairy, monstrous beast being fed a steady diet of ever increasing sovereign nation debt and corporate debt, most of which is producing no new output of any kind.  And the debt is being juiced with steroids made of derivatives, over $550 trillion of them worldwide according to the Bank for International Settlements.  Amazingly, U.S. banks have exposure to $247 trillion of them!

As I wrote in a previous blog, the CIA World Factbook indicates that the Global GDP (OK, it’s GNP when talking globally, forgive me professor Tutterow) is only $107.5 trillion.  So why do we need to hedge every economic transaction five times over?   We don’t.  It is all speculation.  And when speculation turns to panic triggering a full-blown collapse, guess what?  We get a singularity!  Everything will go down because nothing will hold its value.  No one wants to buy anything, no matter the price.

What might the first step down the slippery slope be?

How about Japan.  Japan’s national debt has grown 94% in the last 10 years (from USD$1.55 trillion to $3.02 trillion) and now stands at 229% of its GDP despite no real growth in nearly three decades and yet the yen is still one of the strongest currencies in the world.  Why?  Because almost everything else is worse!    Japan’s only solution is debt monetization, a fancy economics term for paying off corporate debt with even more sovereign debt.  And with its low borrowing rates, it has long been a favored source for traders to obtain low-cost funds to place their bets in riskier markets offering higher yields (known as the carry trade).  What happens when traders no longer want to play this game?  That could be the first slippery step.

aug 4 graph

Or how about Italy?  The average Italian bank has 18% non-performing loans and 8% capital.  If they recover 50% of every non-performing loan, the capital base of the entire Italian banking system will be wiped out.  Greece at 34% non-performing loans and Ireland at 19% are even worse.  Portugal at 12% is technically bankrupt as well.

And don’t forget the $247 trillion of derivatives held by US banks.  During the great recession some of these instruments had nearly infinite (at least very difficult to calculate with any accuracy) negative values.

These are only a few potential flashpoints built into the global economic system.  There are myriad others that could be the last snowflake that triggers the avalanche.  I don’t see a soft landing under any scenario.  Having learned nothing from the worst recession in nearly a century, we have levered up in every way imaginable.  We have dialed up the risk to a point that no individual, corporation, government or intergovernmental entity can manage.  The powder keg is busting at the seams.  One spark is all it will take.

As we wrote about earlier, the best way to protect yourself is to have ample cash on hand to weather the storm.  Or as more aptly spoken streets quoteby Baron Rothschild in the panic that followed Napoleon’s defeat at the Battle of Waterloo, “Buy when there’s blood in the streets, even if the blood is your own”.

$550 Trillion Global Derivatives:

Japan External Debt as of 8/3/16: USD$8.978 trillion per

Japan External Debt as of 2006:

Japan Debt as a Percent of GDP: and


FRED says: Our Money Velocity Sucks – Let’s Add More!

 FRED says our money velocity sucks – like a vortex heading down the proverbial drain.  And FRED’s friends keep throwing more and more money on the heap.

FRED is shorthand for Federal Reserve Economic Data and in this case, we reference the St. Louis Fed report titled Velocity of M2 Money Stock (as an economics undgrad, I love this stuff) (, July 14, 2016).


Take a look at that chart.  Velocity has averaged 1.74 post-Depression.  It peaked at 2.21 Q31997 and has dropped steadily since then.  It is now around 1.4 and falling steadily.  Most people alive today have never seen money moving so slowly.  Capital is log-jammed in the financial system and not moving – money is simply not changing hands the way it used to.  As an entrepreneur, you may have noticed that it is much harder than usual to secure capital for fun things like buying new equipment and hiring employees.

Now check out the supply of money, M2:


It has ballooned from $7.4 trillion to $12.7 trillion since the beginning of the most recent recession.  We have never experienced economic conditions like this – EVER.  Normally when the money supply expands rapidly, it pushes prices up – more money chasing the same quantity of goods.  Ominously, this has not happened in the last nine years.  In fact the opposite is happening – deflation.  Deflation has been avoided only because of the unprecedented printing of money.  But it is coming.

So we have nearly doubled the money supply (71% increase since December 2007) and all of that increase plus a big chunk of the money in circulation before that is now lodged firmly in the financial system and isn’t coming out any time soon.  It will take a major event to dislodge it.  What type of major event?  How bad will it be?  Well, seeing as to how the last one was pretty painful and we were at half the altitude we are now, the next one is probably going to be severely painful.  Rioting in theriotingstreets like Venezuela painful? (
shortage-683228). Don’t know.  Please respond with your thoughts on what you think the outcome might be.

global wealthMany people have asked me “Well then, where is this money held exactly?”  Ultimately, it is all owned by individuals – you and me.  In fact, it is now estimated that the wealthiest 62 people on the planet have the same wealth as the bottom 50% of people on the planet.  Credit Suisse puts the figure at the top 1% having the same wealth as the bottom 50% of the world’s population.  (

So the answer is that the vast majority of wealth created is stored safely and securely at the top.  (

On the bright side, the number of newly-minted millionaires is on the rise again.  The city with the most millionaires?billionaires


New York!

us wealth report

What next? Sell in May and Go Away

Sell in May and go away

That’s the mantra of many traders.  Nothing happens in the summer months because everyone is in the Hamptons.  It’s 5:00 Friday, July 1 and if I needed to reach one of my former bosses right now, my call would likely be returned sometime around Wednesday next week.  I know.  It happened more than once.

But this summer the roads back to NYC and Greenwich from the Hamptons may be clogged soon.

Here’s why.

blog 7 1 pic 2

Signaling a massive capital flight to an asset with universal value, gold has skyrocketed $300 or 30% in the last three months:


Large amounts of capital are moving into the asset that has never gone to zero.

Global banks have plummeted over the last five years.  Deutshce Bank lost$7 Trillion in value in the fourth quarter by itself.  That’s Trillion – as in One Thousand Billion, times 7!!

blog 7 1 pic


Why?  Because eight years into this “recovery” the global financial system has ingested $550 Trillion in credit default swaps and other derivatives.  Duetsche Bank has ten percent of the total.  One institution has 10% of the global total of what Warren Buffett called “financial weapons of mass destruction”.  “How is that possible, Joe?” you ask.  “I thought it was all about deleveraging after the Great Recession”.

That was what we all read in the financial press.  Financial regulators worldwide were forcing systemically important financial companies to rein it in, to decrease risk, to reduce reliance on borrowed funds.  It appears that was all window dressing.  Even the blog I wrote earlier this week about the eight largest US banks passing the new “stress tests” was evidence of the prevalence of this new story line that on the surface looks great but just below the surface is in reality probably not worth the paper the plans are written on.

To put the risk we are facing in perspective, the Gross World Product was $107.5 trillion in 2014 according to the CIA World Factbook.  Based on the $550 trillion figure above, we have hedged every financial transaction in the world more than four times over.  I just bought a $3 pack of gum at the Atlanta airport.  Global financial traders have already placed bets totaling $12 for and against that transaction.  Why?  Because financial engineering has taken precedence over actual engineering, actual goods and services.

If you don’t follow Harry Dent at, you should.  Harry has spotted macro trends worldwide for almost 30 years.

Harry identified that many of the world’s largest banks are in deep trouble but regulators, even the vaunted European Supervisory Authorities are apparently ignoring the problem.

How big is the problem?

Italy’s banks have 18% non-performing loans.  That means bad loans are over two times larger than their systemwide collective capital.  I can tell you from personal experience (as the founder of Georgia’s largest community bank – one that failed in the Great Recession, I can say this with no risk of contradiction) that a bank has no hope of survival in this condition.  And this is the entire Italian banking system. Italy is part of the EU.  Losses of this magnitude could wipe out the entire capital base of the EU.

But Italy only takes third place in the deficit Olympics.  Greece has 34% non-performing loans and Ireland has 19%!  No slacker, Portugal has 12%.

If regulatory bodies had the resources to shut these institutions down, they would.  The fact is they are also undercapitalized.  It’s a house of cards that everyone hopes will miraculously remain standing but it simply can’t.  Our own FDIC operated in the red for a couple years but there was nothing anyone could do about it.  The option was to shut it down and start over.  Every bank in the U.S. would have had a run that day.  The next day, all banks would have failed.  Global financial meltdown.  We have been 48 hours away from this scenario a few times.  The first time was in September 2007.  I remember it well.  There was briefly no LIBOR.  Banks would not lend excess reserves to other banks overnight because they were afraid they would not get their money back the next morning.  The Fed and the European Central Bank engaged in coordinated flooding of over $250 billion into the financial markets over one weekend to maintain market liquidity.  I told my bank board that this had never happened before.  That was just a precursor of the tidal wave barreling down on all of us.

The Greater Recession

Enough doom and gloom.  I write about this so that it might give rise to the thought about what to do when the Greater Recession starts.  In the last one, the Great Recession, cash was king.  One client called me and excitedly exclaimed, “I just bought my four million dollar loan from the FDIC for eight cents on the dollar!”  He wasn’t bragging, he was genuinely excited at saving 92%.  He had just saved his company from certain financial ruin.

Be prepared.  Cash gives you optionality.  You can choose to spend it or invest it or you can simply hold it.  If another recession hits, you will have your pick of assets to purchase at very deep discounts if you have cash that you can access.  This is a great time to be building your reserves.  And if we miraculously avoid another recession, you have the option of investing in assets that have a more certain future.

The New Normal

What will the banks do this time?
 Life Post-Brexit

Will we have to adjust to a “new normal” the way we did in 2008 and beyond?

By 2010 it was clear that the recession was not ending anytime soon.  We began to talk to clients and capital providers about the “new normal” in many industries.  The metrics had just simply changed.  Most industries have recovered and the industry benchmarks have returned to where they were pre-recession and many industries have entirely new metrics.

Fortunately there have been structural changes, especially in the banking system.  In fact, the eight largest “systemically important” banks had to specifically test for the impact of severe UK recession coupled with similar conditions in the Euro Zone and Japan and a less intense recession in Asia, and they all passed according to a Federal Reserve report.  Click here for a link to the Bloomberg article on the topic.

banks post brexit

And these banks had to draft their own obituaries – a detailed plan of what to do in the event the bank failed (now wouldn’t that just put you in a bright cheery mood if you had had to do that?).  Bankers had to get much more deliberate about how they manage their operations and they have to plan for extraordinary events in ways they never did before.  The most important factor at the end of the day is cash capital, or, in banking terms, liquidity – the ability to meet cash demands when they are made.  Probably not a bad idea for your company to do the same.  Plan to have enough cash to meet the needs of your business for up to two years without borrowing or selling assets.

Can you do it?

We may have seen a permanent shift in banking in the last several years.  U.S. banks have more regulations and are under more pressures than they ever have been.  They are forced to look more closely at everything they do.  There has been an explosion of growth in the shadow banking system – non-bank capital allocators like hedge funds – that are filling in the gaps left by the banks withdrawal from certain sectors.  It’s a different game with these operators.  Vertical Capital Advisors LLC is built to help you navigate your company through the new new normal in the capital markets.

How is the Brexit going to affect my business?

If you are like me, last Friday you were pondering, “I wonder how the Brexit is going to affect my business”.

man with cigar

So I went searching for hard facts and analysis from leading authorities.  I found a post by Matthew Bishop, an editor at The Economist, perhaps the leading authority on global economics.  After all, they invented the Big Mac Index ( that compares the cost of a Big Mac in every currency simultaneously, enabling the entire world to instantly view the relative strength/weakness of every currency.

In case you missed Matthew’s treatise, here’s the link:

And here is my post in response:

Don’t know that I agree with your police work there Matthew. We need facts.

Chaos – yes, definitely today, but give the markets ‘til Tuesday morning. When everyone realizes they weren’t hit in the drive-by, no bullet holes, it’s back to business. Remember, the vote was non-binding so Parliament must now do some dirty work and THEN a mandatory two year break-up process begins. The exit process was smartly designed to minimize collateral damage.

Likely and long period of uncertainty – hmmm, by Monday it won’t even be yesterday’s news. Donald, Hillary, or fill in the blank, will do something crazy by Sunday night then we will be on a fresh news cycle.

Intense stress – like the subprime mortgage stress? Probably less – significantly less.

We all feel bad that globalization took a hit but a subprime hit it was not. You hinted at the real villain lurking in the shadows – all the world economies are struggling to return to growth post-Great Recession, having been kept alive, limping along, supported by unprecedented printing of money. This massive monetary experiment is about to have its BIG reveal. The Brexit probably won’t even be a factor. It might be blamed as a “catalyst” but in reality the business world has already taken this in stride. Markets got hammered all the way back to last week’s starting values. London will still be the world’s financial center in ten years. The only difference will be the billions of pounds lawyers will make re-documenting everything they can get their hands on. British politics is always devolving into an ugly vicious battle over something. This at least gives MPs something material to argue about. Keep them off the streets and out of the pubs.

100 quid says it’s up from here