Risk Rap

Rapping About a World at Risk

Second Time the Charm for EESA

USS Constitution

EESA went to the house for a second time. It has passed and will now be signed into law. The Emergency Economic Stabilization Act is loaded with earmarks and special provisions so that congressmen can go home to their districts and brag about bringing home the bacon. It is an unpopular bill. To quote W “I appreciate their leadership.”

I suspect that some congressmen may be dismayed that they received too little for their vote. I wonder what future generations will feel about the value they receive from the passage of this bill? In times of national crisis the price of a senators integrity rises or falls in proportion to its severity. Lets see how the USS EESA performs. Lets see if it raises the our nation from the depths of a looming recession.

We are in this thing together. Everyone has just been impressed as a crewmen on this national ark of economic salvation. I just hope no mutinies occur as we journey through rough seas that are sure to come.

See Risk Rap post: Our Ship of State

I hope that the big suspendered bankers aren’t snickering about the fast one they just pulled. I have visions of them snapping towels at each other in the locker room at some fancy country clubs after a day of hard golf. They’re joking about the fast one Paulson pulled over the country, pulling their cookies out of the fire and keeping the good times rolling.

I hope not. I pray for success, peace and prosperity for everyone.

God Speed.

Music Video: BB King, Bobby Blue Bland, Let The Good Times Roll

Risk: depression, credit market stabilization,

October 3, 2008 Posted by | banking, blues, credit crisis, economics, EESA, TARP | , , , , , , , | Leave a comment

Corporate Credit Markets Redux

This morning I attended a Standard and Poors presentation on Emerging Issues in Fixed Income Market. It was extremely well done. The presenters offered some interesting data and insights concerning the health of the corporate bond markets.

Key Takeaways:

  • Tighter lending conditions spell heightened risk of defaults
  • Two-Thirds (66%) of Non-Financial US Corporate Bonds are Speculative Grade
  • A spike in lower grade new issues from 2004 through 2007 will feed default supply
  • Consumer Discretionary Market Sector is weakest (media/entertainment, consumer products, retail)
  • Corporate defaults will escalate in late 2008 through 2009 and will trough in 2010.
  • This year’s baseline default rate forecast is 4.7%, with a high of 8.5% and a low of 3.7%

What interests me is the degree to which these prognostications may reflect similar default and business distress rates in the small and mid-size business market (SMB). My initial guess is that SMB’s will not experience a similar level of default. I don’t believe that SMB’s are as leveraged as public companies. But credit risk remains a pressing problem for SMB’s and the dramatic curtailment of bank lending heightens default risk.

SMB’s that sell to public companies should take time to study the financial condition of these corporate accounts. Defaults are painful for investors and creditors. Having a large unmet receivable exposure can seriously damage the financial health of an SMB.

I do believe that the forecast for the consumer discretionary sector is very relevant for SMB’s. SMB’s in this sector will not escape the pressures of the economic downturn. High fuel costs, consumer spending capability and inflation will dramatically hurt this sector and may result in increased defaults as the economic slowdown takes hold.

We highly recommend that SMB’s purchase the Profit|Optimizer to mitigate the effects of these risks.

You Tube Video: Louis Jordan, Let the Good Times Roll

Risk: Credit Risk, Corporate Defaults, Consumer Product Market, Small Mid-Size Businesses

May 2, 2008 Posted by | banking, blues, credit crisis, recession, SME, Sum2 | , , , , , , , , | Leave a comment