Monday, March 26. 2012Purchase Order Financing and Brazil- Is it Time for a New Market?According to the World Bank Financial Sector |
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· The stability assessment under the FSAP is the The development assessment under the FSAP is the In September 2010, the IMF made stability |
The Bottom Line: Brazil may be a new evolving territory for purchase order financing, factoring and commercial financing for international lenders.
(C) 2012 Gregg Elberg
greggfinancialservices.com
Technology has created a new paradigm. The world is “smaller” in the area of
communication and information. The internet, cell phones, and text messaging
have facilitated worldwide communication in a nanosecond.
The countries of the world are more interconnected today economically so
much so that the economy of Greece
will affect the economy of the entire western world depending on how their
politicians handle their debt crisis.
Countries no longer live in isolation which was the case in the year 1922.
The economic wealth of a nation is intertwined with the economic connections
with other countries.
In the US
new products and services are emerging that are shaping the world in new and
unique ways. Witness the affect of the cell phone on politics in Egypt and Libya. Witness the growth of
Chinese factories building computers and silicon chips for US companies.
Witness the development of electric cars with less dependence on oil and gas.
Many new companies are emerging such as Face Book, Twitter, You Tube and
Tesla with products that have a worldwide appeal. Unfortunately, most start
companies cannot obtain Angel Investor money, or venture capital to grow their
companies. They must rely on other sources for financing for growth and
profits.
Large international banks, and most banks in general, require a two year
operating history to be considered for a loan; and the company must be
profitable. Some banks do business in 60 or more countries, but this of little
help to most small companies.
The private commercial finance companies are fragmented with regard to their
geographical scope. For instance, one factoring company located in the San
Francisco Bay Area only will do business in California. Another Purchase Order and
Factoring company located in Arizona will only
lend in Arizona, Mexico
and California.
Another factoring company located on the US east coast will lend anywhere in
the world that is legal, but the transaction must be for $500,000 or more; and
the business must have a six month history. Another company transacts in the US, Canada,
Australia, several countries
in Europe but not Japan, Russia, Taiwan
or Brazil.
Countries and companies benefit from international trade relations. Query:
how can startup companies and new companies with less than two years operation
history engage in international trade?
There are international trade companies that provide credit insurance that
guarantees lenders and companies’ payment when their foreign customers receive
goods that are contractually satisfactory. For instance, a company in the US can use Purchase Order Financing to
manufacture technology products in China
and sell the goods to a creditworthy buyer in Japan with an account receivable
finance companies’ commitment combined with credit insurance. Credit insurance
companies also help a business to transact with foreign companies that are more
likely to pay their obligations in a timely manner. With credit insurance the
doors to over 90 countries are open for business if a product is worthwhile and
the company’s gross profit margins are large enough to be profitable with the
financing and insurance costs of the transaction.
Bottom line: International trade insurance and purchase order financing plus
accounts receivable financing often create new growth opportunities for
companies that cannot qualify for a loan with a major international bank.
© 2012 Gregg Elberg
www.greggfinancialservices.com
According to Wikipedia, “Salvador has a historic name: Cidade de São
Salvador da Bahia de Todos os Santos, in English: "City of the Holy
Saviour of the Bay of all Saints" Salvador is
the largest city on the northeast coast of Brazil and the capital of the Bortheastern
Brazilian state of Bahia. Salvador is also known
as Brazil's
capital of happiness due to its easygoing population and countless popular
outdoor parties, including its street carnival. The first colonial capital of Brazil, the city is one of the oldest in the Americas. For a
long time, it was simply known as Bahia,
and appears under that name (or as Salvador da Bahia, Salvador of
Bahia so as to differentiate it from other Brazilian cities of the same
name) on many maps and books from before the mid-20th century. Salvador
is the third most populous Brazilian city, after Sao Paulo
and Rio de Janeiro.
The city of Salvador is notable in Brazil for its cuisine, music and architecture,
and its metropolitan area is the wealthiest in Brazil's Northeast. Salvador is located on a small, roughly triangular
peninsula that separates Todos os Santos
Bay from the open waters of the Atlantic Ocean." Query: why is crime rising in this city?
Query: why did the police go on strike? Query: how will this affect doing
business as between the USA
and Salvador Brazil?
The Brazilian city of Salvador
registered a total of 29 homicides over a 30-hour span, during a crime wave
caused by a police strike, according to government officials. The Public Safety
Secretariat of Salvador, capital of the northeastern state of Bahia,
stated that the murders occurred between Friday and the early hours of
Saturday, during which time another 10 homicide attempts were reported.
The city has been plagued with a wave of violent crime since Tuesday, when
the 30,000 members of the Bahia state police
force went on strike demanding a pay raise.
Thursday a court declared the walkout “illegal”. It ordered police to resume
their work immediately; nevertheless the strike continued until Saturday with
spokespersons for the police union announcing that it would not be called off
until their demands were met.
The Brazilian government Friday ordered 2,600 soldiers of the Salvadoran
army sent to other cities of Bahia to provide
reinforcement in patrolling the streets and announced it would send another
4,000 if the situation gets worse.
Bahia Gov. Jacques Wagner stated that the crime wave was related to groups
with ties to the police on strike.
The bottom line: the European Debt crisis, the unrest in Libya and Egypt, and the Occupy Movement are
all examples of outlier events that can turn your business upside down. There
is no way to insure against these business risks.
© 2012 Gregg Elberg
www.greggfinancialservices.com
Finding working capital is a major obstacle for start-up
companies. The San Francisco Chronicle recently reported on the effect of the
housing crises on start-ups and new small business ventures. During the days of
ever increasing housing prices entrepreneurs were able to tap the equity in
their homes to fund a start-up and to fund operations until the business became eligible
for purchase order financing, accounts receivable financing or a bank line of
credit.
The steep and continuing declines in housing values across
the nation have radically changed this option. Instead of being able to go to a
bank for a line of credit to start or grow a small business, banks are reducing
and/or calling customer’s lines of credit. This is causing some small
businesses to fail and making it impossible for new businesses to tap equity
for working capital.
Even if the small business has achieved profitability, the
banks are very conservative in increasing bank lines of credit for growth. The
regulatory environment demands extreme caution from bank’s lending to small
business. Thus, the options for finding working capital have become more
limited.
According to the Wall Street Journal, “A recent study found
64% of start-ups were turned down by banks when seeking loans”.
The Wall Street Journal also reported on Angel Investors
that were willing to invest in a broader type of enterprise than technology
companies. There are over 4000 Angel Investors in the US.
New websites such as www.raisethatmoney.com, www.equitynet.com, and http://angelinvestordirectory.com
offer leads to thousands of potential Angel Investors to fund a start-up.
The bottom line: besides your family and friends, Angel
Investors may be a viable source of working capital to start or ramp up a small
business in today's difficult economic times. Purchase order financing and accounts receivable financing may also
be the answer to working capital for growth until the business is strong enough
to graduate to bank financing.
© 2012 Gregg Elberg
www.greggfinancialservices.com
Caveat emptor. Buyer beware. The world economy is clearly
more fragile that ever before primarily because of two reasons: 1) most all of
the world’s economies are interconnected; 2) the U.S.
economy is in a deep recession and Europe’s economy may crash and bring the U.S. down with
it.
Why is this so? It is because of a myriad of investments
that span the globe. China
is investing in the U.S. U.S. Banks are investing in foreign debt. European
nations may default on their debt and bring the world’s entire economy down
with it. The Middle Eastern nations such as Iran,
Libya, Iraq, Saudi Arabia
and Egypt
are wild cards controlling oil prices which affect all of the above.
The U.S.
congress is in a state of paralysis. There is little if any analysis between
the extremism of the Republicans regarding our economy and the Democratic
vision of working together. Suffice it to say that in this election year the
probability is that little will be accomplished to help those who need it most.
The so-called Occupy Movement is trying to stir things up
but their message is muddled at best. U.S. real estate is still in real
trouble with a vast amount of foreclosures coming this year.
It appears that the rich, the so-called 1% are getting
richer. The rest of the world is generally suffering for lack of sufficient
food, education and housing.
Purchase order financing is for companies that cannot get
financing from banks; these companies still need more cash to grow. The risk is
greater than ever that the world’s economy will virtually fall apart
notwithstanding business deals that are artfully engineered.
The bottom line: companies need to be more cautions than
ever even if purchase order financing will help their bottom line because their
customers may or not survive 2012.
© 2012 Gregg Elberg
www.greggfinancialservices.com
The Occupy Movement claims to represent 99% of Americans.
They are against corporate greed and callousness and the political acquiescence
that nurtures both. There is a real growing disparity of wealth in America
and many citizens are concerned that they will never get their “fair share” of
our wealth. Query: Is Wall Street or Washington taking notice of this
historical movement?
Perhaps they are. But in the context of a musical metaphor,
it is similar to one grace note within a concerto lasting over an hour. It is a
little blip in the news of some interest; clearly it is not much of a threat at
this time to the elitist One Percent Majority.
Query: who are the One Percent Majority? According to
President Obama, there are about 300 thousand people that control 99% of the
wealth in America.
The very wealthiest individuals are on the Forbes Four Hundred list, the
richest people in the world. People like Warren Buffett, Nelson Peltz, Biss
Ackman and Carl Icahn are a part of the One Percent Majority. They are the Presidents and CEO's of America's largest companies.
Query: how can so few people influence and control so much?
Money talks. Money buys lobbyists. In effect, lobbyists buy politicians though
not directly or usually not illegally. Nevertheless, our system allows
corporations to spread unlimited money on politicians. Politicians need money
because of the enormous cost of getting elected and re-elected. It is said that
to be a successful politician, you have to campaign on a full time basis. This
leaves little time to deal with national and international issues. Money
showered on politicians buys political favors; it buys access to politicians to
influence their vote to favor the One Percent Majority.
Tax rules and Security and Exchange Commission rules are
influenced by the One Percent Majority. This helps to keep the One Percent
Majority intact. Of course, sometimes fraud such as Bernie Maddoff ponzi scheme
and the former U.S.
senator Jon Corzine’s little problem of the missing Billion dollars put some
dents in the wealth of the One Percent Majority. Nevertheless, the trend of
corrupt politicians is clear.
Former New Mexico Governor Bill Richardson faces a “Pay to
Play” investigation. Former Illinois Governor Rod Blagojevich was sentenced to
14 years in federal prison this week for a corruption spree that included
trying to auction President Barack Obama’s vacated Senate seat. The Wall Street
Journal today reported that fifty money managers have “used Securities and
Exchange Commission rules to keep confidential their stakes in certain
companies”. Prominent in this disclosure is Warren Buffet’s Berkshire
Hathaway’s $10.7 Billion stake in IBM Corp.This list is far from identifying all such individuals.
The One Percent Majority are not a majority in the normal
sense. A majority is generally 51% or more. The One Percent Majority is a majority
because of their political and economic power. They influence American tax
rules, tax rates, government spending, economic policy and political votes.The One Percent Majority has 99% of America's economic and political power.
Although some Banks are a part of this One Percent Majority,
in general, commercial finance companies are not involved because they simply
are not rich enough. By providing purchase order financing, inventory financing
and accounts receivable financing they may help some individuals rise to the
One Percent Majority; but this is probably few and far between the norm. Some
venture capitalists have scored hits with companies like Google and Face Book
which gives newly minted Billionaires entrance into the One Percent Majority.
Even so their win loss ratio is probably worse than one out of ten.
The bottom line: The One Percent Majority exists. It has
never been acknowledged as the source of our economic and political problems,
except in a more generalized way. Power to the people is a nice saying but the
people who have the power are in the One Percent Majority.
© 2011 Gregg Elberg
www.greggfincialservices.com
The members of the Republican Party have signed a written
pledge not to raise taxes under any circumstances. Lobbyists and loyal
Republican political groups threaten any Republican that breaks this pledge with
a vow to do everything in their power to see that a “bad Republican” will not
be re-elected by giving vast support to their challengers the next time at the
polls. This has created Congressional gridlock regarding solving the problems
of the ongoing financial crisis.
The Democrats seem more reasonable and flexible is proposing
some tax increases, some cuts in government spending; they are making efforts
to compromise with the Republicans when no compromise seems possible. Thus, the
recession continues. The foreclosures continue. The jobless in America
are at an all time high, perhaps excepting the great depression of the earlier
1930’s. Query: will the Occupy Movement have any positive effect on the
impending crisis?
It is hard to get your hands around what the Occupy Movement
really stands for. It is not clear-cut like the protests in the 1960’s against
the Vietnam War. The Occupy Movement’s war cry seems to be “we are the 99%!"
Congress must listen and act regarding our needs for jobs, housing, medical
needs, and retirement needs.
The countervailing
forces are very strong. Editorials in the media like the Wall Street Journal
generally seem to support the status quo for the top 1%. Houses and
Condominiums are advertised for sale at staggering prices: $5 to $100 million
for a house in Silicon Valley. The ads in the Wall
Street Journal seem directed to the rich. Jewelry for $10-$50,000; a simple
women’s dress for $2500 and a purse to go with it for $3000 all can be yours if
you are a part of the top 1%.
Perhaps the Occupy Movement will become a political movement
that will force politicians to work together again; the Vietnam
protests produced this result and a long period of prosperity followed. Just like the Vietnam war, the US needs to get out of Iraq and Afghanistan immediately. We can declare victory as we leave. The alternative is endless dead bodies and billions of American dollars wasted with no end in this millennium.
Query: when will banks have customers that are qualified to
borrow to buy a house as a normal, common outcome of a loan application? Query:
when will banks have customers that are qualified to borrow to expand or start
businesses? Query: when will banks be able to predict the future value of homes
or when the economy will sustain a prolonged period of positive growth? Query:
will the European debt crises drag us down no matter what these outcomes are? We are years away from any solution; and that will take many more years to make the US economy healthy again. Perhaps five to ten years if substantial change is effected Americans will have reason to be optimistic about our economic future.
The real risk takers today are the venture capitalists, the
commercial finance companies that offer hard money loans for real estate,
purchase order financing, inventory financing, and factoring for business to
grow.It is interesting to note that one thing these lenders have in common is a virtual lack of government regulation.
The bottom line: Unless the Republicans and the Democrats
listen to the Occupy Movement and agree to compromise, the United
States will continue to have homeless children,
jobless families, and reduced government services for decades to come, at least for the so-called 99%.
© 2011 Gregg Elberg
www.greggfinancialservices.com
The G-20 conclave in Europe, attended
by President Obama and many of the world’s leaders, is attempting to formulate
plans to prevent the bankruptcy of Greece,
Italy and Spain.
It is a well known fact that the US
economy is teetering on the brink of a economic collapse into a depression; a
so-called super committee of Republicans and Democrats are attempting to find
agreement regarding spending cuts and tax increases that will define the US
economy for years to come.
Similarly, the European leaders are attempting to agree to a
plan that will prevent the collapse of the Euro and the Bankruptcy of many
European nations. Query: what does this have to do with a Tri-party Reverse
Repo?
Wikipedia, the free encyclopedia, has a discussion of
repurchase agreements, forward contracts, tri-party repos and tri-party reverse
repos. Additional information may be obtained from A White Paper Prepared by
The Federal Reserve Bank of New York
dated May 17, 2010 entitled
“TriParty Repo Infrastructure Reform”. Their report is 68 pages long. In order
to understand this obscure corner of the financial industry it would help to
have a four year economic degree from Yale or Harvard, a master’s degree in
economics and several years of practical experience at a major securities firm.
This is a $1.6 Trillion dollar lending market. It effects the entire world.
In the novel, “Invaders from Mars” mysterious machines
arrive all over the world. Other machines with Martians in them come out of the
big landing machines and engage in frantic activity. Nobody understands what is
going on. One day the smaller machines leave the arrival area and start to
destroy all humans on the planet Earth. What a surprise!
This first week of November, 2011 a major Wall Street securities
firm, MF Holdings Ltd. declared bankruptcy because of bad bets on European debt
instruments. Today, November 4, 2011
the Wall Street Journal reported that “MF Global Masked Debt Risks” on the
front page headline. Further, “For the past two years, MF Global Holdings Ltd.
May have disguised its debt levels to investors by temporarily slashing the
debt it was carrying before publicly reporting its finances each quarter…” It
also appears that about $633 million of customer accounts are missing. Query:
is the tip of a bad financial iceberg?
Query: is this like the fictional Martians from “Invaders from Mars”?
The bottom line: Banks, Securities Firms, Venture
Capitalists, Commercial Finance companies that provide accounts receivable
financing and purchase order financing are all subject to the risks of today’s
international financial risk taking. The actual extents of these risks are
obscured in the balance sheets of many of the largest institutions in the
world. Will the world’s economy plunge into a depression or will the G-20
leaders and the US Republicans and Democrats find ways to compromise debts and
solve legitimate differences of opinion in economic theory? If they can all
understand Tri-party Reverse Repo’s at least there can be some cause for optimism.
© 2011 Gregg Elberg
greggfinancialservices.com
The planet's economy is in turmoil. Greece appears to be upsetting the European currency agreement to keep the Euro stable. Italy may fall as well. The interrelationships between US Banks and European Banks is difficult to quantify. The risks are tremendous.
Private investment Companies are also in peril, at least those who are heavily invested in European debt. The US Congress is ignoring lectures by former congressmen about the need to compromise to prevent a full blown depression in the US. A major US firm, MF Global Holdings, LTD, that invested in foreign debt went bankrupt yesterday.
Billions of dollars of US commercial and residential real estate are in foreclosure, bankruptcy, or liquidation. Compounding this problem, the legal eagles are attacking the foreclosure process to gain concessions from lenders that may or may not be reasonable. In San Francisco, people who have been foreclosed and evicted are illegally re-ocuppying their former houses. People are marching in Oakland, California to shut down the local economy for a day to protest the gross unfairness our economic problems have created. In any event these events will slow down the process of the stabilization of the US economy.
Can the Banks, the Commercial Finance Companies that provide accounts receivable financing and purchase order financing save the US economy from disaster? This is a great unknown.
It will take several years to find out the answer to this question.
The bottom line: These are perilous times of unprencedented complexity. Turning off the television and avoiding the newspapers will not help. The problem is all around us and we are a part of it, whether we know it or not. We are also the answer to our problems, whether we know it or not. What we do collectively as the Earth's civilization will determine the future of our planet.
(c) 2011 Gregg Elberg
Greggfinancialservices.com
Much has been written about Steve Jobs since his recent demise. His authorized biography is a number one best seller. It was recently reported that Steve Jobs was incensed at a dinner he attended with President Obama. "Why can't you fix the problem we have with visas for foreign tech workers who are desperately needed in Silicon Valley?" he asked. The President replied he did not have the authority to make such a change in the US immigration laws. As far as Steve Jobs was concerned, this was unacceptable.
For the last several years it appears that with regard to measures to improve the US economy, the Democrats and Republicans cannot agree on anything of significance. The Republicans are on hundred percent against new taxes; this is a posture that clearly favors the one percent of America's richest people. The Democrats believe a combination of tax increases and budget cuts are required to fix the US economy. Congress is paralyzed by this stalemate.
The economy is paralyzed by this stalemate. The housing crisis will not go away without a significant improvement in the economy which creates more jobs and more personal income for the vast majority of Americans to be able to purchase a home again.
Commercial finance is paralyzed by this stalemate. Banks are sitting on gigantic amounts of money, almost interest cost free, and they do not have enough customers who qualify to lend the money out prudently. This filters down to private commercial finance companies that engage in accounts receivable financing and purchase order financing. Their clients are having a difficult time securing the orders to obtain financing that would significantly improve the economy.
The Occupy Oakland protesters and the Occupy protesters in other cities are venting their frustrations with encampments and calls for strikes. College students are finding that their degrees, often financed with enormous personal debt, do not insure them a job much better than they might have found if they spent the past four years working in a low level, low income job.
The bottom line: change is required to correct these problems. Perhaps there should be more women at the heads of corporations, more women in the US Congress, or more men that are capable of compromising their strongly held opinions for the good of all of America.
(c) 2011 Gregg Elberg
greggfinancialservices.com
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