Business owners and fellow entrepreneurs have lately been asking; where are businesses getting financing these days? The answer is less and less at traditional banks. The mid market firms we deal with are caught in the crunch. Too big for family and friends financing, too small for Wall Street or junk bond issuances and spurned by the banks that served them in the past.

The answer to the question is varied depending on the health of the business, where it is located and the industry it is in. Here are some of the answers:

Many companies are operating under forbearance agreements with their banks. Unable to deleverage as fast as their loan agreements expire they simply operate under the old loan agreements in default and pray. The healthy companies are finding some relief from private equity groups offering new issue non investment grade notes and partial equity buyouts. It is estimated between now and 2010 over $600 billion in revolving credit lines will mature. Look for even more creative non bank financing as billions sit on the sidelines looking for a place to park and desperate companies seek replacements for their traditional banks.

Posted by David Sheives

http://money.cnn.com/2008/11/06/news/companies/automakers/index.htm?postversion=2008110622

These companies are obviously on their way out. Please don’t send my tax dollars to fund companies that should be taken over within the next year anyway.

If the money does in fact go to these companies, it is immediately being turned over to union worker’s pensions. I have no desire to pay for someone else’s retirement, nor should I be responsible for it. Stop the handouts and let these companies be purchased in a free market.

Submitted by Chris Bailey

As I was watching CNN on the kitchen TV, I saw the Federal Reserve reduced interest rates to 1%. That is simply ridiculous. Interest rates at 1% bear no market resemblance.

Ron Paul mentioned the Fed’s actions are immoral and I agree. There are a lot of retirees that could and should be earning a lot more than 1% on their money. Interest income being paid at 1% doesn’t allow the retirees to keep pace with inflation.

When the internet bubble popped, the Federal Reserve dropped interest rates to 1%. What did it create? Another bubble in real estate and malinvestment. Below Ron Paul explains the effect of easy money on the economy.

“Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.” —

When prices need to come down, we need to allow this to happen. Instead, the government keeps trying to prop up these unreasonable prices. It’s simple supply and demand. If the supply for housing exceeds the demand for housing, the price must drop.

The market needs to determine interest rates. That should start with the abolishment of the Federal Reserve.

Submitted by Tom Waller

Market Volatility:

I have written about this before, but the market has taken this to a new extreme. There is really no excuse to have swings of 1,000 points in intraday trading. It is apparent that many people are either profit taking every time there is an upswing or removing large sums of money from the market as a whole. I find it troubling that people have so little faith in the markets now that the only investors who remain long are those with substantial losses. Hopefully we can settle into a pattern of either sustained loss that will allow the market to find a bottom. That is the only way that I see the market stabilizing in the near future. My favorite quotation, “Buy when there’s blood in the streets, even if the blood is your own.”

The dollar will be worthless in the near future, at least that is what it seems like our government is trying to accomplish. The mere mention of another stimulus package is absolutely insane. Did we not just stimulate our banking industry with 700 billion dollars? Does the Fed really find it necessary to mention that they foresee more rate cuts? We are flooding the global economy with American Dollars. If a company you owned were to start passing out shares of stock you would be outraged. Why is there not similar anger over the outright dilution of our currency? We are losing traction against almost every other currency in the world that is not directly linked to our own.

To quote Ivan Boesky, “I think greed is healthy”.

Submitted by Chris Bailey

Today should be an interesting one on Wall Street. I am anxious to know how the market will react to the recent Fed rate cut. Normally we see a rate cut stimulating the economy as demand for loans increases to spur economic activity. Except wait a minute, The banks aren’t making loans at any rate. This is a liquidity crisis. It doesn’t matter what the price of the loan is if the bank has no liquidity to make the loan. The rate cut may factor into a long term recovery but don’t expect to see a quick turnaround of the last weeks losses.

Submitted by David Sheives

Rate cut of half a point, 700 billion dollar bailout. Can we print any more money? Not only is my net worth eroding before my eyes as the market sends blood into the streets, but what cash I do have is becoming worthless as cash is being printed as fast as the mint can handle. This country needs drastic reforms to fix this. We are in the middle of watching our nation’s wealth be destroyed by poor decisions and a desire to prop up a failing market.

I am of the opinion that we all would have been better served letting risk taking institutions fail. Is that not what we are all taught? With great risk comes great reward. That is quickly becoming the case for any company that does so. However, the American people are being punished for the risks they took in supporting these entities. I have heard people referring to executives coming out on top. Do you not realize the majority of these executives’ net worth was tied to these companies in stock grants and options? They are watching as their nest egg is smashed just like the rest of us.

Submitted by Chris Bailey

700 billion dollars, that is a pretty disgusting amount of money. I am terribly afraid that government is going to authorize a free wheeling spending spree with freshly printed money.

The value of the dollar will fall through the floor and we will all be facing inflation to rival that of my parent’s generation. I will say, to those of us fortunate to live in the Houston area, that our real estate market has been forged by those who suffered during the previously boom-bust cycle. We are living in relative comfort, for now.

I am concerned about our global standing as an economic power now that our government has shown a willingness to devalue our currency to toilet paper levels.

I understand the ramifications of not bailing these companies and I, personally, would bear my share. The government is setting a dangerous precedent of using taxpayer dollars to bail out private companies, and that is an idea I want no part of.

Let them fail, take the punishment, and, for those who can, start building a new foundation of dollars in the market. Your money will have infinitely more value if the government can refrain from writing themselves a blank check.

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits the public treasury with the result that a democracy always collapses over lousy fiscal policy, always followed by a dictatorship. The average of the world’s great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to Complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage.”

Alexander Fraser Tyler, Cycle Of Democracy (1770)

Submitted by Chris Bailey

Freddie and Fannie…These stocks dipped to historic lows after everyone learned of their financial issues. Yet, days later their prices had doubled. No new information, at least good information, had come out suggesting strength in these securities. Now, the bad news is confirmed again, despite the overall outlook on the stocks staying the same, and they go right back to where they were to begin this whole cycle. I understand that stocks are cyclical in nature, but this should not include a run up of 100% and a crash of 50% over the course of a month.

The market is showing ridiculous amounts of volatility due to uninformed investors making terrible decisions. I don’t know how this could be rectified while allowing educated individuals without licenses to continue to make trades.

Even, now, people are forced into buying stocks that they know are no good because of the lure of profit. There is profit to be made off other people’s continued poor decisions, but this seems to encourage buying with no rationale, replacing research with “this might go up” mentalities.

All I ask is that someone at least know the P/E ratio of the stock they are about to buy instead of buying it because the symbol is their child’s initials.

Submitted by Chris Bailey

Merrill Lynch…They are certainly to be applauded for being the first to open their books and show how deeply invested the financial sector is in subprime mortgages. A 30.6 billion portfolio was sold for 22 cents on the dollar, but the real killer is that Merrill financed 75% of the purchase and will be taking any losses over the 1.7 billion dollar payment. This looks like a scramble to raise any capital that it can get its hands on. This is in addition to selling new stock and selling its stake in Bloomberg. Merrill must be hurting to put itself in such a bad position and dilute shareholders value so badly.

However, the question becomes; when do the other financials begin to look for an exit strategy of their own? Will there be any buyers for their distressed mortgages or will they have to continue to take losses every quarter? The result of this move by Merrill Lynch makes the financial sector a time bomb. The banks should start coming clean and stop trying to massage their write downs to be more appealing, its time to face the music and take the fall. I think its time for the banks to start preparing because now everyone can see just how deep this hole really is.

Submitted by Chris Bailey

Crude Oil is finally dropping, futures are in a virtual free fall.

Some of this was caused by the demand supply from the US plummeting. Catching up to world gas prices has obviously not smiled on the average consumer. However, this is another reason behind crude oil falling and it should be of greater concern.

Oil futures are traded in dollars. As the value of the dollar continues to plummet, due to rampant inflation, oil becomes cheaper to the rest of the world. I do feel it is necessary to say that inflation is out of control globally.

Check the six month chart to see the rise and fall of oil, while I do not believe the bubble has popped and will still be artificially inflated further I do believe it is releasing pressure.

There is one other huge reason that I think oil sank, the failing of IndyMac. This failure brings about a large influx of dollars as the FDIC is now responsible for all deposits up to 100,000 dollars. I do not know the exact figure, but billions seems appropriate.

We are printing money and consumers are bleeding it, but at least oil is getting cheaper?

Submitted by Chris Bailey