Nightmare on Wall Street 2 - The Fed to the Rescue

I was sitting at my desk in August 2007 reading financial headlines that sounded surreal.  I was running a new start-up bank here in Georgia.  The Fed was pumping hundreds of billions of dollars into the market in a desperate bid to stabilize them by flushing them full of liquidity – the beginning of a decade-long period of “Quantitative Easing”.  The Fed had to do something to keep financial institutions and financial markets from collapsing.  I heard that overnight LIBOR rates were not quoted one Friday afternoon.  European banks were concerned that if they loaned their excess cash to other banks on Friday, they might not get it back on Monday if the other banks failed.  The European Central Bank began pumping hundreds of billions of dollars and Euros into the market.  We stood on the cliff-edge of global financial collapse. 

In 2007 I had to make sense of what was happening.  Why were financial markets spiraling out of control?  What did this mean for our little bank?  We made loans in our community, mostly to builders.  How would these macro events affect us and our borrowers?  What did we need to do to prepare for what lay ahead?  In fact, the question was what could we do?  The answer, it turned out, was nothing.  Greenspan had built a monster and no one could control it.

Today, September 18, 2019, I sit at my desk reading the same headlines.  Here’s a sample:

 The Fed just pumped $128 billion into markets to pull down interest rates

 – Business Insider 9/18/19

 For a second day, the New York Fed spent billions to calm the financial market

– CNN.com 9/18/19

 FED pledges to continue pumping billions into US economy

– BBC.com 9/18/19

 Today’s 2019 Fed Monster is of different composition than the Fed Monster birthed in 2007 but no less predictable.  How can we say this?  Because we blogged about it in 2016: Blog Post October 5, 2016 World Debt Exceeds $152 trillion - Does it even matter to you?  and Blog Post October 20, 2016: Here Be Dragons!  In hindsight, the 2007 Fed Monster was hiding in plain sight, just as this one has been.

 In retrospect, total the Fed pumped $3.5 trillion dollars into financial markets to stabilize them from 2008 to 2015 and despite its best efforts to pare back its balance sheet, it has largely been unsuccessful in its efforts to slime down.  And now, in the latest episode of The Fed to the Rescue, market participants know the Fed and ECB will rescue them every time they get into trouble.  The decade since the Great Recession has shown that regulators are utterly incapable of de-levering and de-risking financial markets because they themselves are the worst offenders – enormous bloated balance sheets loaded with illiquid assets, drawing money from the treasury at will, disconnected from the restraints that every business on the planet must operate within.

 Time will tell if this is going to be another huge “correction.”  With age comes wisdom or at least the ability to spot trends.  From my chair, the headlines read the same.

 Vertical Capital Advisors can help your business plan and execute strategies that enable your enterprise to thrive in all market conditions.  It’s not too late to plan.  Call us today.

More Capital Than Ever In Human History

We are often asked, “What’s going on in the markets? What deals are hot right now?  Where is the money flowing?”

 The answer is that there is more money chasing more deals than ever before in human history.  Bain reports there is now over $2 trillion seeking deals.

What types of deals?  Buyouts continue to be the most popular deal type with sponsor-to-sponsor deals increasing in size and frequency – one private equity firm buying a company from another private equity firm – with North America and Europe dominating the deal flow.  Business services, software, distribution, healthcare and insurance are the leading industries in terms of overall investment.  Private lenders deserve an honorable mention here – this space has seen tremendous cash inflows in the last two years. 

 Why is the private equity space so active and flush with cash?  The returns justify the allocation of capital, outperforming publicly-traded equities in all major market regions:

These are heady times in the private equity markets.

 What does this mean for you as a business owner?

 It means that the party rages on, flashing a sell signal to you.  The time to sell is when markets are at a peak.  Notice the word “a” not “the” because no one knows when the tide will turn, we just know that it markets are cyclical.  The yield curve just flashed an ominous sign portending a recession.  The top red line shows short-duration US Treasuries yielding more than longer-dated US Treasuries – a perfect predictor of recession every time this has happened since WWII.

VCA Graphic from treasury.gov data

 And the time to sell is when markets are at a peak.  If you wait too long, squeezing the last bit of juice out of your capital expenditures and other investments, you risk becoming fodder for the type of “distressed” investor that dominated the market during the Great Recession:

Hint: you want to be an “opportunistic” investment target, not a “distressed” target.

 The message of the day: Run!  Don’t walk.  The time to act is now.

 Vertical Capital Advisors can help your business plan and execute strategies that enable your enterprise to thrive in all market conditions. 

 Call me.  It is time to plot your strategy to maximize the exit value of your company. 

Repeat Business & Referrals – The Ultimate Compliments

This blog was originally posted September 2, 2016

In 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 growth 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!