Far West Capital November 2010 Newsletter

Bank of America lost $7.3 billion for the third quarter, writing down $10 billion as it gets ready for the effects of legislation giving the Fed power to set fees associated with debit card transactions.  We all love to hate banks and the fees, but what would you say if the Feds came in and told you what you could charge?

All Leading Economic Indicators: weekly hours in manufacturing, weekly jobless claims, manufacturers’ new orders, vendor performance, building permits, stock prices, M2, yield curve slope, and consumer expectations are all telling us that No Double Dip is imminent.

We were recently approached by a prospect whose very large and credit-worthy customer changed payment terms on them in midstream.  We were introduced on a Friday, and they needed to fund $400,000 worth of invoices for a payroll due the next Thursday.  We negotiated, structured, and closed the facility in 3 days, and we are happy to say there were 250 employees that got paid.  Another example of how we can move fast to create win-win-win relationships.

Bank problems, for the most part, seem to be making a recovery with the number of institutions closing their doors, slowing from the rapid pace of 2009. During the 3rd quarter, there was a dramatic slowdown of bank closures with 41 closures versus 50 during the same period last year. If you want to see a list of banks in Texas on the “watch list,” click here.

As banks enter this phase of the recovery, look for them to be aggressively courting those companies that made it through the recession. During the recession and its lingering after effects, many banks experienced weak loan demand because of the lack of qualified borrowers. This seems to be changing as we have seen more “aggressive” deals in the last 60 days being done by banks than in the last 2 years.

Thanks to Beretta USA & everyone who contributed to our Wonders & Worries efforts, our team won first place and raised over $66,000, while the total event raised over $270,000. We won these Beretta Shotguns, but my teammates Kam Kronenberg, Matt Mathias, Roberto Fiebig and Paul Holubec and I were really glad this contest did not come down to shooting ability.

Mexico’s drug problems: 28,000 people dead since 2006, including 2,000 police officers. Gunmen execute reforming addicts at rehab clinics, decapitate police chiefs and buy off officials. An entire town’s police force quit and a female college student became police chief in one town. What is your answer to this problem?

In October, we attended Commercial Finance Association’s Annual Convention in Chicago, where attendance was up 21% from last year and you could gage the mood of the attendees because the conversations went from discussions of portfolio problems to new deal flow. Most everyone has had a very good 2010 and is looking forward to continuing improving conditions for 2011. Asset-based lending is now cool, FYI.

Have you read our blog entry that CFA recently included in their convention recap? Check out: 5 Reasons To Join an Association.

CFPB, the new regulation designed to “protect” consumers, will be quite interesting. The way we hear it, Elizabeth Warren wants the agency to regulate via a “principles-based” approach rather than the “rules-based” one followed by other financial regulators. That means that, in practice, her regulators will determine after the fact, based on how they interpret the principles they themselves put forward, which products “provide services to the customer that are valuable.” Lenders won’t have any rules to refer to ahead of time for guidance. Expect a further constriction of credit to small businesses. We have financed hundreds of companies that got their start with a credit card loan. This is an important source of initial capital for small business, and we say let the consumer decide what is good for them.

Far West Capital just started a Facebook page, which is cool and all, but in order to set this up, I had to set up a personal page. Now I’m that guy who is checking how many friend requests I have and looking at pictures of my sixth grade girlfriend. I’m officially sucked in. “Like” us here. So far 63 people “like” us, mostly my relatives, so please help us get that number respectable.

For those of you (us) that believe Facebook is something for your kids to use and not for serious communication – check this out.

Since its low-water mark last January, the rolling 12-month total of federal government revenues has been rising at an annualized rate of 10%. In the past six months, the rolling 12-month total of federal government receipts has risen at a 12.5% annual pace. This has nothing to do with tax rates, since they haven’t changed at all. It is entirely attributable to rising incomes and profits, and those in turn provide irrefutable evidence that the economy is improving.

Our favorite time of year is upon us, no not deer hunting, although we do enjoy the rut as much as the next Texan. No, it’s budgeting and planning for next year time. Our process is to plan on what we think is reachable but a stretch from this year. We put this out to our people, and since their incentives are tied to the yearly budget, we usually get buy-in. What are you doing to plan for 2011? Have you seriously compared your results to your plan from last year?

If you like venison, here is a way to prepare that will guarantee a slap-yo-mama response. We learned this on a hunt at the King Ranch, which my young friend Ryan from Chicago did not know the origins or location of. How does one not know KR? Anyway – cut the backstrap in long strips, pound and tenderize, marinate in Italian dressing, red wine, kitchen bouquet and olive oil, season with seasoned pepper and Cavender’s, wrap in bacon and grill to medium rare. When you are done, it should look like a cinnamon roll. Oh baby!

  • Darrin Allgood

    I enjoyed reading this newsletter; very informative. It is almost as if it was my first exposure to the world of finance and economics. Thanks

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