Sunday, August 29, 2010

To Overthrow the Darkness: Calling All the New Heroes

(Excerpt with permission of the author):
"Only the boldest among us can acknowledge the role that fear plays in their lives. The bold are like those captives freed from Plato's cave -- they are no longer servants to ignorance. If you are governed by fear -- and who is not -- and if you can acknowledge what it does to you, what it costs you and others for whom you care, and even the world to which you owe your best being, then you at last know, really know, to whom your final obligation belongs.

If you are still afraid, imagine your tombstone: "Here lies one who was not here, one who did not show up!" That is something to really fear; compared to this, our daily fears are trivial.

Every day, dual demons show up to make us miserable. One is fear, as we have seen, and the other is lethargy, a sweet, sibilant, seductive, susurrus that summons us to sleep. How easy to fall back into the sleep of innocence, naivete, fundamentalism of one kind or another, avoidance, rationalization, and self-deception. These demons are the enemy of life.

Yet nature has provided us with an energy greater than these intimidating and seductive beasts, if we but call upon it. What we call "the archetype of the hero" is the specific constellation of energy whose task is the overthrow of darkness. When we see, for example, images of St. George and the dragon, what is he fighting? How many dragons have you seen? What is a dragon? A dragon is an archetypal, universal image representing the devouring fearfulness of life -- that which would destroy you, or swallow you, or take you back to the cave. Sound familiar? Fear, and lethargy! So, the hero energy in you is nature's answer to the diminution and extinction of life. We are called to fight the dragon, slay its power. The dragon shows up every day, no worse for the wear, and ready to scare you back into a corner of your life, to swallow you, and to annihilate the life energy you are supposed to incarnate in this world. Whatever we are running from will sooner or later back us into the corner anyway. Sometimes, the things we fear show up in the flurry and flux of daily life, and sometimes at the hour of the wolf when we awaken to discover that not even sleep helps us hide. As poet Fleur Adcock expressed it:
It is 5 a.m. All the worse things come stalking in
And stand icily about the bed looking worse and worse and worse.
(Adcock, "Things," Poems: 1960-2000)
So, then, now you know your task: to become what the gods want, not what your parents want, not what your tribe wants, but what the gods want, and what your psyche will support if consciousness so directs. A person who can undertake a conscientious inventory will be stunned to learn how much his or her life is driven by fear, as well as the many devices we evolve to manage it. Such a person then knows, really knows, what his or her life asks. The meaning of our life will be found precisely in our capacity to achieve as much of it as is possible beyond those bounds fear would set for us. There is no blame in being fearful; it is our common lot, our common susceptibility. But it may be a crime, an impiety against the gods, when our individual summons, our destiny, is diverted or destroyed by fear. For those of us who can address this inventory, our mantra, summons, and daily discipline becomes: That Life Not Be Governed by Fear. "

Shock and Awe: That Life Not Be Governed by Fear, pages 13-15

Wednesday, February 10, 2010

A Hat Tip to Fred, Charlie, Marvin, Tom and Chris

A hat tip and thanks to Fred, Charlie, Marvin, Tom and Chris -- guys from similar industries and backgrounds, with a common "go-for-it" attitude. These are the guys taking the risks to acquire equipment and build their ventures while all around them businesses are failing, people are being laid off and economic forecasts remain grim.

Whether scrounging for capital, making their own repairs, running equipment themselves or chasing down receivables, these characters make the economy work; they understand that you have to do it yourself. No one instills a work ethic in someone else -- it comes from within. With no business school knowledge to fall back on, no government grants to leverage from, painfully little support from bankers on which to rely, these hardy types are the backbone of what one hopes is an emerging recovery.

I am happy to call them clients. I'm proud to call them friends.

Monday, January 25, 2010

Welcome Them All

Without reference to religious beliefs or political persuasions, Canadians already know what we need to do. Let's get it done.

The calamity in Haiti has led to an outpouring of support from all Canadians. The scope of the devastation has touched us and we have responded in the only immediately practical way possible -- we opened our wallets.

While the cash flow into Haiti will be of use, the prospect of years of rebuilding will mean displacement and stagnation for hundreds of thousands, if not millions of Haitians. Beyond the basic necessities of life provided in camp-type facilities the near term looks grim for health care, education and economic development.

It's time to open the doors to our amazing country. Let's bring in those who most need our help to heal and get a new start in life. With so many seriously injured, orphaned and uprooted, how can we not share our riches and resources to extend a hand up and a way out?

Wednesday, August 26, 2009

It's Not 'Just Business' -- It's Personal

How many times have you heard the phrase "It's not personal, it's just business"? Do you remember who said it and how it made you feel?

Reflecting on these few words -- often uttered casually, as if self-evident, justifying or rationalizing a certain style of enterprise -- one has to wonder how much they are part of a stale ethic, a kernel of an ideology that ought to be examined more closely and challenged.

How can your business not be personal? How can it not be a reflection of who you are, what you represent and believe? When -- at what point exactly please -- is the enterprise created and shaped by your personal initiative and vision, nurtured by family financial resources and sustained by individual drive, separate from "you"? How could it be any different for your customers, clients and competitors?

Imagine if a separation between what is enterprise and what is personal were simply an illusion. And what if by 'enterprise' we also include professions, careers and vocations regardless of ownership or corporate structure? Has our thinking been poisoned by a piece of cultural mythology? Is it wrong to think that part of who we are is tied to what we do and, more importantly, how we do it?

As some form of economic recovery unfolds, let's be conscious of the personal nature of enterprise. How we interact with our clients and colleagues may mean more than the immediate success of a particular transaction. Let's be aware of our impact on individuals and families through the services we offer. It's time to engage a new ethic.

Tuesday, July 7, 2009

Seeking Stimulus: Where is the Support for Small & Medium Enterprises?

Even well established companies are seeing a rapid decline in their borrowing capacity due to the downturn over the last 9 months. As earnings disappear and/or losses mount, balance sheets -- and retained earnings specifically -- erode, destroying the ratios on which bank lending decisions are made.

The rapid erosion of financial statements means many prospective borrowers no longer meet bank lending criteria. Unfortunately, our federal government has funnelled most "stimulus" capital through banking channels (with the exception of BCD and EDC, who with limited additional resources, simply cannot respond in a timely manner):

To my knowledge, there has been no stimulus support at all for the 'B' and 'C' credit markets that accommodate earlier stage companies or enterprises with weaker financial results. These companies are a substantial component of the overall economy and also tend to be drivers of innovation and job creation. Besides the higher risk leasing funds we offer, broader scale funding support and incentives need to be made available to the companies still willing to move forward in this environment; there is an urgent need to find higher risk funds for promising ventures -- before they fade away.

Another concern, based on what we are seeing in the leasing industry -- primarily through the resolutions of principal underwriter Sun Life -- is a virtual moratorium on equipment refinancing. This restriction on lending means equity in equipment cannot be freed up to help operators with current liquidity challenges (including paying taxes). The freeze on refinancing is across the board, regardless of corporate or personal financial strength, or the verifiable equity levels in the equipment. Supporting refinancing of working assets (based on readily available, published liquidation values) would be an easy way to create real stimulus with limited cost and government involvement.

Have you seen any evidence of government stimulus in the small to medium enterprise market? Please let me know -- perhaps I am missing something.

Tuesday, May 12, 2009

Is it a Sucker's Recovery?

Almost as quickly as value was destroyed in the crash it has come back in an impressive 'bounce'. Beyond just a Sucker's Rally in the stock market will this be a Sucker's Recovery faking out manufacturers and producers who may be starting to consider ramping up operations?

Money "evaporated" during the crash. The objective measure of value of companies and commodities was 'disappeared' by the market. Sure, some of the re-pricing was in real dollars as there were timely counter-trades -- some clever and/or lucky people had options or sold short to protect themselves. The vast majority of value, however, just went 'poof': A complete pricing reset.

A smart government might recognize that to get away with printing money to provide stimulus, it might be prudent to replace the money that was 'disappeared' with fresh, newly minted currency. That is, the government needed to buy into the store of value in the economy (companies & commodities) in such a way as to not create inflation. How? Slowly put a floor under the markets, quietly buying up everything and anything that resembles value. (Markets up 30%, Oil up 80%, etc, etc) A floor needed to be established to enable pricing to come back over the cost of replacement / production. We're close to that now I think.

Short term, is the market over-cooked? Probably... But watch for huge profits at Goldman Sachs and similar gov't instruments over the next few quarters -- they'll always know first which way the breeze is blowing and act in advance of the general market and Joe-the-Sucker. Government is not just supporting the banks as Kessler suggests below. They are using the big bank brokerages to re-establish value platforms in the markets.

Long term, despite likely dips and cooling periods, this may be some smart government coordination that was possibly the only way out of a complete system failure. Another guess? The Harper Crew completely missed the opportunity.

(thanks Peter)

Was It a Sucker's Rally?
You can have a jobless recovery but you can't have a profitless one.
May 12, 2009

The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?

I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:

- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.

On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.

Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.

It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.

- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?

Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.

- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.

A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.

The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.

Can you see why I believe this is a sucker's rally?

The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?

Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.

For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.

Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).

Monday, April 27, 2009

Income Trusts: A Better Business Model

Income trusts have served Canadian investors, particularly pensioners, extremely well over the years. The Conservative government's policy reversal and betrayal, mostly of its own base of support in the west and among investing seniors, will not be forgotten by the next election. My prediction is the Liberals will recognize and seize the opportunity, especially given that PM Harper and Finance Minister Flaherty are fairly stubborn (some might say pig-headed) in following through on earlier decisions, despite the dire change in economic circumstances.

Refusing to acknowledge and reverse this particular mistake may very well determine the outcome of the next election. Besides their own embarrassment over the collossal blunder, Harper and Flaherty would be sensitive to undermining former Goldman Sachs and finance ministry golden-boy and now Governor of the Bank of Canada, Mark Carney, who was the architect of the income trust policy reversal.

The Conservative leadership ego inflation and policy intransigence is a huge gift to the Liberals. Prepare to welcome the return of a better business model led by (the soon to be) Prime Minister Michael Ignatieff. Sad that we conservatives will likely be relegated to the shrill side-lines again, but in their flexibility and leadership maturity the Liberals show again why they are Canada's 'natural ruling party'.

Income trust fiasco should be reversed
Posted: April 25, 2009, 8:19 AM
by Diane Francis, National Post

It’s been 2.5 years, and a Great Recession, since the income trust tax of 31.5% was announced by Finance Minister Jim Flaherty and the Prime Minister.

At the time, I said: prove the case that trusts should be shut down with this tax because they are a tax drain or drop the tax.

Today we know that the tax, to start in 2010, has not prevented leakage but has caused it as income trust values collapsed by $35 billion. Foreigners bought nearly C$100-billion worth of trusts with large bank loans. The interest on these loans is written off against profits allowing them to duck taxes altogether. This has been, and will be, a drain to taxpayers of
billions and was predictable.

It’s been a huge mistake so what should be done? Scrap the tax immediately to correct the situation as well as to help the country get through this economic collapse. In fact, I believe that income trusts are a superior model to other corporate structures for many companies:

 The income trust is more accountable because up to 95% of profits flow through to unitholders, preventing inept managements and boards from indulging in excessive bonuses, stock options and stupid takeovers.

 Income trusts are also a superior because they provide Canadian corporations (big or small) with a capital advantage, thus enhancing the possibility they will survive now and thrive later on.

 Income trusts provide a superior investment vehicle for investors, both retail and institutional, big and small which has been missing since they were attacked. Scrapping the tax is also a form of stimulus, which is badly needed as a result of the market meltdown worldwide, because it will:

 Stimulate the stock markets by bringing investors back into the fold by not sandbagging the popular and profitable income trust sector.

 Restore the integrity of investment rules in Canada which were applied retroactively to attack income trusts.

 Restore the Prime Minister’s reputation which was sullied after he broke his promise in 2006 to leave income trusts alone. Demonstrate a flexibility and wisdom that he realizes that being correct outweighs defensiveness or merely being tied to consistency.

 Remove the advantage foreigners have enjoyed by picking off the income trusts which lost $35 billion in value after the tax was announced.

 Reverse the Harper/Flaherty income trust tax leakage problem caused by leveraged buyouts of trusts.

 Provide or restore an important investment vehicle for 75% of Canadian seniors and
investors who do not have a company or public sector pension.

 Eliminate over-reliance on derivative or synthetic type products that were billed as “retirement safe” or equities paying dividends but which have been clobbered more than the existing income trusts by the way.

 Level the playing field with American trusts (called MLPs and REITs) by letting Canadian real estate and energy trusts continue under the old rules. As anyone who understands business realizes, the Tories made a mistake with their income trust taxation and there’s no time like the present emergency to correct the situation to help Canadian companies and investors.