Business Articles, Corporate Finance, Finance Articles, Investing, Securities

Corporate Secured & Unsecured Debt Securities

Lending Money to Corporations using Corporate Secured and Unsecured Debt Securities could be a risky opportunity for Institutional Lenders and for the Banks and Private Credit Investors. If your not up to date on the legal hierarchy or priority of claims for repayment? Allow me to share that Priority list below. Familiarity with a Corporate Balance Sheet will likely make this list easy for you.

Liquidation/bankruptcy fees and charges – this does not include court fees.
Debts due to preferential creditors – those entitled to certain payments in priority over other unsecured creditors – including wages owed in the four months before the date of the insolvency order, as well as all holiday pay and contributions to occupational pension schemes.
In company cases, any creditor holding a floating charge over an asset, such as a debenture. This is where a class of goods or assets – eg the debtor’s stock – are named as security for a debt.
All unsecured creditors.
Any interest payable on debts.
The shareholders in company cases.

The hierarchy of Credit starts with Secured Creditors then Unsecured Creditors. However for this Post I would like to focus on deliberately on Secured and Unsecured Debt for Institutional Investing. This small list is meant to be used in order and will help Retail Investors, Students, and Business Executives who need to brush up on this topic of interest. As a value investor we are laser focused at looking on a Companies Balance Sheet and focus directly and early on a Companies Solvency. If the company is Debt heavy? This usually indicates we need to consider the use of the Debt in order to make a informed decision on “How we arrive at a Companies Valuation”. If the Company we are investigating has no Debt on the Books? This is a good sign. And tells us as Value Investors “This maybe a very profitable Business to investigate further.”

Secured Debt

Corporate Debt Securities are like any other Loan, and are backed by various types of assets of the issuing Corporation. This list is a Seniority list. Meaning they are Secured Debt options in order.

Mortgage Bonds

Just as a Individual would go to the Bank to ask for a Loan backed by the Home and Land as Collateral for the Mortgage, a corporation will borrow money backed by Real Estate and Physical Assets that belong to the Corporation. If the Corporation fails and is unable to repay the Long Term Debt Obligation “Mortgage Bondholders”. The Assets pledged are liquidated by Court Order when the Corporation is insolvent and goes through the Chapter 7 Bankruptcy process. For further explanation? This video should help.

Equipment Trust Certificates

Interestingly Railroads and Airline companies, finance the acquisitions of their Rolling Stock, Train Rail Cars, Airplanes, by issuing an Equipment Trust Certificate. The Company provides a Down payment of usually 20% Twenty Percent of the cost of the rolling stock, and finances the balance over the course of time. For example, 20 years time. Because equipment has wear and tear from daily use in the operations of the Business, the Railroad will pay off a portion of the loan on an annual basis. Interestingly at no time, theoretically, is the value of the assets (rolling stock, rail-cars,Jet Aircraft) worth less than the amount of the principal remaining on the loan. When the company finishes paying off the loan it receives a clear title for the equipment pledged from the Trustee. If a company does fail to make the payments for the loan? The lender can then repossess the collateral and sells it for his benefit. It’s the same concept of financing a new Car.

Did you catch my post here on: Pooled Investments What you need to know?

Collateral Trust Bonds

Sometimes a Corporation doesn’t have real estate, Equipment, or assets to pledge as collateral for a Mortgage or Loan. Instead the Board of Directors or Management can pledge Company Securities like Stock or other Negotiable Securities from a Parent Corporation into a Trust as a form of secured collateral. This is useful because the Securities are readily liquidated in case of default. Obviously the better quality of Securities deposited as collateral the better the Rating of the Bond. Sometimes these are also referred to as Collateral Trust Certificates.

Unsecured Debt Securities

Debentures

A Debenture is a Debt Obligation of a Corporation backed by only the Corporations word and general creditworthiness. Debentures are written promises of the corporation to pay the principal loan amount back its due date with interest on a regular basis.Debentures surprisingly are not secured by any pledge of property. They are considered safe when the Lender has trust or a credit relationship with the Corporation. This is sort of like a Revolving line of Credit for Commercial Banks and their clients who are the Corporations. Example: Similar to Consumers who use a Bank Credit Card and have great credit worthiness.

Guaranteed Bonds

A Guaranteed Bond is a Bond that is guaranteed as to payment of interest, or both principal and interest, by a corporate entity other than the issuer. The guarantee is only as good and valued if the company providing the guarantee has a strong business. Guaranteed Bonds were popular in the Railroad industry in which Major Railroad Companies sought to ease the trackage rights from a short line Rail lines, and would guarantee the smaller Rail Lines companies debt. A more recent example would be Exxon Mobile Corporation guaranteeing a subordinate companies debt issue.

Senior Debt

This is used to describe the seniority of a Debt Issue. Or the relative priority of repayment claim of a Debt that has been issued. Every preferred stock has a Senior claim to Common Stock. Every Debt security has a senior claim to preferred stock. Secured Bonds have a senior claim to unsecured debt.The term senior securities means bonds and preferred stock, because they have a claim senior to common stock. If you would like to see the Seniority of Debt and Equity? Please refer to the Chart Above below the opening paragraph.

Subordinated Debt

Subordinated Debt is just that! “Belonging to a lower class or rank.” Please refer to above list of Ranked Repayment Obligations.

Credit Ratings

It would be unprofessional of me not to include Ratings and Credit Ratings Agencies in this Post. When evaluationg a Bonds Ratings? You should refer to the Bond Ratings are defined by the Creditworthiness of a Companies Debt. These are issued by Standard & Poors and Moody’s and Jefferies Investment Bank. All these are fantastic Companies who hand Credit Worthiness of Debt Issues and Companies Debt History.

For Credit Ratings This Image Below Will show my Notes on Bond Ratings.

High-Yield Bonds

Since I would have a difficult time explaining in detail High-Yeild Bonds. Investopedia has shared and described High-Yield Bonds as?

High-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they pay a higher yield than investment-grade bonds to compensate investors.1

Issuers of high-yield debt tend to be startup companies or capital-intensive firms with high debt ratios. However, some high-yield bonds are fallen angels, which are bonds that lost their good credit ratings.

In conclusion I hope you learned a few things about Corporate Secured and Unsecured Debt Securities. In the end Bond Investing can fail. So it’s vital to know the basics of Bonds and Credit. This Wall Street Journal Animated Video should help you understand this fact.

These are basics we use as Investing and Finance professionals. Feel free to share and if you learned something? Fantastic! “

This post is for Educational purposes only. And should not be construed, implied, or taken as Investment Advice.”

Godspeed! Thank You.

Business Articles, Finance Articles, Investing, Law, Securities

National Securities Markets Improvement Act

Wether your a Financier, a curious investor or a even new Stock Broker/Dealer Agent, If your not up to speed on the NSMIA of 1996? This short post will give you a brief overview of what the National Securities Markets Improvement Act is and what it is used for.

Here is a question? What is the National Securities Markets Improvement Act of 1996 (NSMIA)? The National Securities Markets Improvement Act is a law passed in 1996 that sought to simplify securities regulation in the U.S. by apportioning more regulatory power to the federal government.

NSMIA is a List of Securities that are Federally Listed on the NSMIA Website.

NSMIA Securities are Federally Covered Securities.

The National Securities Markets Improvement Act (NSMIA) amended the Investment Company Act of 1940 and the Investment Advisers Act of 1940 and went into effect on Jan. 1, 1997. Its main consequence was to increase the authority of federal regulators at the expense of their state-level counterparts, a change that was expected to increase the efficiency of the financial services industry.

What Changed after NSMIA was Introduced?

NSMIA caused a material impact on the responsibilities of federal and state regulators. Ultimately, it reduced the overlap between federal and state power. State security laws no longer oversaw the following topics:

1. Capital

2. Margin

3. Bonding

4. Custody requirements

N.S.M.I.A

The National Securities Market Improvement Act (NSMIA) was introduced to more efficiently allocate capital in financial markets.
NSMIA amended the Investment Company Act of 1940 to promote more efficient management of mutual funds, protect investors, and provide more effective regulation.
Nationally traded securities, securities of registered investment companies, sales to qualified purchasers, and securities issued in certain exempt offers are exempt from state regulation.

There are a-lot of Securities that are listed on the N.S.M.I.A website. To catch up on the latest case by case basis? Here is the List HERE.

I do hope you learned something here, If you did not catch my Invesment Fund Article Here, Id highly recommend you go read it. It’s all about Investment Funds.

What are covered securities under NSMIA?

Today, most stocks traded in the U.S. are considered covered securities. In addition to the offers and sales of certain exempt securities, the NSMIA defines “covered” securities as securities that: Are listed on national securities exchanges such as the New York Stock Exchange and the Nasdaq.

Thanks for Stopping by,
Godspeed

Business Articles, Finance Articles, Financial Products, Investing, Law, Securities

Thought’s On Crypto Regulation & Binance Lawsuit

Anthony Scarramucci CEO of Skybridge Capital Shares Opinion Segment In My Youtube Video Provided.

People do ask for my opinion on Crypto and its shaky history of legitimacy.There are many questions that need to be asked. Is it useful? Does it have a place in the Financial Service Industry or Markets? Can we leverage it for good? And can we keep the Scam Artists, Conmen, and Charlatan’s from promoting their shady dealings with this unregulated Currency?

My latest video on the topics above will give you better understanding “How the Securities and Exchange Commission used a little known Law that describes a “Investment Contract – THE HOWEY TEST” to bring a Lawsuit against Binance Crypto Exchange.”

Did you catch my latest Article on “Asset Backed Securities”? HERE.

Enjoy, and Please Do Share if you find useful.

Godspeed
JS

Business Articles, Finance Articles, Financial Products, Real Estate, Securities

“Asset Backed Securities”

What are Asset Backed Securities? “Why every Finance Professional Should Know All the Asset Classes and “How they impact our Community and Business’s.”

Asset-backed securities (ABS) finance pools of familiar asset types, such as auto loans, aircraft leases, credit card receivables, mortgages, and business loans. In one way or another, these asset types represent contractual obligations to pay.

These contractual obligations to pay often rank senior to a borrower’s traditional debt obligations, reducing ABS investors’ exposure to the borrower’s financial health. ABS also have many other investor-friendly features that may help protect against loss and improve liquidity, such as traunching (SEGMENTS) of risk, over-collateralization, and diversity of payers in each underlying pool. Despite these and other strengths discussed in this report, some ABS and other forms of structured credit continue to offer higher yields than similarly rated corporate or municipal bonds. ABS investors’ principal job is to analyze the cash flows from these obligations to assess value and the possibility of loss, rather than relying solely on the current market prices of hard assets, the reputation of a sponsor, or the presence of an investment-grade rating.

Guggenheim

What is a RMBS? (Residential Mortgage – Backed Security)

Residential Mortgage – Backed Security is exactly what it sounds like. A Home or Residential Building Mortgage Contracts packaged and registered by a Investment Bank Institution placed into a folder with other Residential Mortgages and Packaged as a Security product by the Investment Bank for the purpose of trading and Investing within the Public Markets.

LARRY FINK – BLACKROCK

1970 to 2000

It is with great enthusiasm that I am able to introduce the Man who pioneered Mortgage Backed Securitization. Mr. Chairman of BlackRock Larry Fink. According to Wikipedia’s Profile on Fink? Larry started his career in 1976 at First Boston, a New York-based investment bank,^[13] where he was one of the first mortgage-backed security traders and eventually managed the firm’s bond department.^[14] At First Boston, Fink was a member of the management committee, a managing director, and co-head of the Taxable Fixed Income Division; he also started the Financial Futures and Options Department, and headed the Mortgage and Real Estate Products Group.^[15]

Fink added “by some estimates”^[3] $1 billion to First Boston’s bottom line. He was successful at the bank until 1986, when his department lost $100 million due to his incorrect prediction about interest rates.^[3] The experience influenced his decision to start a company that would invest clients’ money while also incorporating comprehensive risk management.^[3]

In 1988, under the corporate umbrella of The Blackstone Group, Fink co-founded BlackRock and became its director and CEO. When BlackRock split from Blackstone in 1994, Fink retained his positions, which he continued to hold after BlackRock became more independent in 1998. His other positions at the company have included chairman of the board, chairman of the executive and leadership committees, chair of corporate council, and co-chair of the global client committee.^[3][15] BlackRock went public in 1999.

For more info on Mr. Fink please refer and read Blackstone – Mr. Scwarzman’s Book “What it Takes“.

Continuing with Asset Backed Securities.

Did you catch and watch my latest Youtube Channel Video on Derivative Contracts Below?

Commercial Mortgage Backed Security

(CMBS)

A commercial mortgage-backed security (CMBS) is a type of fixed-income security. It is backed by real estate loans. These loans are for commercial properties. They might include office buildings, hotels, malls, apartment buildings, and factories.

Learn more about CMBSs, how they work, and what they mean for individual investors HERE.

In 2008 WallStreet’s Lehman Brothers Investment Bank was overly exposed by backing, and registering TOXIC Securities, otherwise known as Subprime Mortgage Backed Securities.

Watch as Warren Buffet shares and explains more about the Financial Crisis that happened in 2008 Below.

CDO SWAP Derivative – Collateralized Debt Obligations

According to my friends at the Corporate Finance Institute: A Collateralized Debt Obligation (CDO) is a synthetic investment product that represents different loans bundled together and sold by the lender in the market. The holder of the collateralized debt obligation can, in theory, collect the borrowed amount from the original borrower at the end of the loan period. A collateralized debt obligation is a type of derivative security because its price (at least notionally) depends on the price of some other asset.

Historically, the underlying assets in collateralized debt obligations included corporate bonds, sovereign bonds, and bank loans. A CDO gathers income from a collection of collateralized debt instruments and allocates the collected income to a prioritized set of CDO securities.

Similar to equity (preferred stock and common stock), a senior CDO security is paid before a mezzanine CDO. The first CDOs comprised cash flow CDOs, i.e., not subject to active management by a fund manager. However, by the mid-2000s during the lead up to the 2008 recession, marked-to-market CDOs made up the majority of CDOs. A fund manager actively managed the CDOs.

Finishing out this month’s post on Corporate Finance and Investing, I genuinely hope this article and post was of value to you. Did you know I began learning all about the depths within Corporate Finance only few years ago? This has been a difficult road. But I am having a Blast learning and becoming a Professional Investor and Corporate Finance Professional. There have been times learning all these Financial Products has been Challenging. Especially learning the exact details of Markets, Contracts, and the growing list of Sophisticated Financial Products. But I can say with certainty all my efforts and has been worth the effort. And I do hope you will share the Post. And until next time? We will see ya. Thank you for reading.

Godspeed.
J.S.

Business Articles, Corporate Finance, Finance Articles, Hedge Fund Articles, Value Investing

How to Calculate a Stocks Intrinsic Value

Just like with any profession there are professionally instructed leaders of industry and amateurs. That is the same for Investing. But you should know that if you are not read up on the latest value investing procedures or if you haven’t formed your own personal checklist before investing in a Company or stock? You likely are make big mistakes along the way. But with today’s post on “How to Calculate a Stock or Company’s Intrinsic Value?” This will begin giving you a foundation or basic education to thrive and become successful in Investing.

I see so many people who do let emotions control their investing strategies and future. They are bound to lose almost everything. It’s just like If your a player in the Stock Market using only your gut and other people’s money? Your a borderline Criminal, Moron and most likely a gambling Day Trader at best. And should be taken behind the Building strung up by your ankles smothered with cheap grape jelly packets from the cafeteria and left for the Bears. These day’s Quants run the show. But there is good news! This post is for the bonafide new up and coming Investors wanting to reach that next elite level in Investing. If you have ever wondered where the like’s of Warren Buffet, Seth Klarman, Howard Marks, and other Value Investing Legends get there super secret knowledge from? This post is definitely going to provide you with a foundation of how to Calculate Intrinsic Value of a Stock or Discounted Cash Flow (DCF) of a Business.

So stay tuned…This is a post you do not want to miss. Even if it is Mathematics and heavy Calculations.

Hedge Fund Managers

If you plan on opening your own Hedge Fund Shop in the future or if your a Everyday Sophisticated Investor that plans on using Calculations and Mathematics instead of Gambling and Speculating? Your going to want to lay a foundation around Value Investing using Benjamin Graham’s teachings and procedures. So it’s absolutely vital you read Benjamin Grahams “Intelligent Investor” Book. Question. What makes a Hedge Fund unique to calculating a Stock or Companies Intrinsic value or Discounted Cash Flow? Well for starters Hedge Funds typically focus on trading on the stock market. But before I begin explaining Hedge Funds in depth like so many Financial personalities around me “I have extreme ADD sometimes.” LOL So maybe I should keep on track.

What is Intrinsic Value?

The intrinsic value of something is said to be the value that that thing has “in itself,” or “for its own sake,” or “as such,” or “in its own right.” Extrinsic value is value that is not intrinsic. Many philosophers take intrinsic value to be crucial to a variety of moral judgments. STANFORD BUSINESS ENCYCLOPEDIA

If your going to understand Intrinsic Value of a Business or Stock you need to understand that the Market is just voting for the day what they price is of a Stock. It doesn’t actually value the company. We use Intrinsic Value to evaluate and make a opinion to analyse if the Company or Stock we are looking at is undervalued and a bargain. If it is not a bargain and not undervalued? Then we keep looking. What is the formula to calculate Intrinsic Value? Before I answer this basic question you must know I highly recommend you read Benjamin Graham’s “Intelligent Investor” Book. It’s Warren Buffett’s bible of sorts. But first we need to lay out to terms.

Intrinsic Value Formula and Margin of Safety. These Topics are incredibly important for making a educated and professional judgement on a company’s future. And knowing if it is worth investing in.

By the way did you miss Berkshire Hathaway’s 2022 Annual Meeting? WATCH & READ HERE!

How to Calculate Intrinsic Value of a Business?

#1 – Intrinsic Value Formula of a Business

Mathematically, the intrinsic value formula of a business can be represented as,

where FCFE_i = Free cash flow to equity in the i^th year
FCFE_i= Net income _i + Depreciation & Amortisation _i – Increase in Working Capital _i – Increase in Capital Expenditure _i – Debt Repayment on existing debt _i+ Fresh Debt raised _i
r = Discount rate
n = Last projected year

Since this formula is mathematically difficult for ADD individuals like myself who struggle with on the page formulas. I would like to make this as easy as I am able for you. Here are a few videos that go in depth. Watch the Videos below to explain the calculation and models in action. This will begin giving you a foundation to grow.

BENJAMIN GRAHAM’S INTRINSIC VALUE CALCULATION MODEL EXPLAINED

Watch this Video below for a in depth explanation by this legendary Value Investor who is Charlie Mungers Bridge Playing Side Kick Mr. Mohnish Pabrai. Mr. Mohnish Pabrai is sincerely a fantastic guy. Mr. Pabrai has been very generous with the lessons and information he gives to up and coming Value Investors/Academics. And for this reason I need to list him in my blog. The way he lay’s out all his information and lessons makes it digestible and simple to newer people like us. His resources for all Value Investors is a must see, and you should watch his Youtube Channel and Videos. 100%

Discounted Cash Flow Model

When evaluating a Company’s (FCF) Free Cash Flow currently and for the next 10 years you need to include a Average Growth Rate and also consider what your “IDEAL” return rate is that you want to include within the DCF Model. For a more easier way of explaining this I need you to watch this video below. It will give you a better understanding of “How to calculate the DCF of a Company”.

Margin of Safety

In conclusion of today’s post it seems like it would be worth it to include what I had touched on earlier, “Margin of Safety”. If you are a Hedge Fund Manager or Value Investor, or everyday Accredited Investor knowing and calculating a Company’s Intrinsic Value is incredibly useful when analysing if it is a Investment you want to make. However even though you do find the Value of a Stock or Company you need to add an extra layer of Safety to the strategy before deciding to invest. The way you do this is by adding a Margin of Safety. Benjamin Graham’s Book will give you more info on this. But if your really a Pro? You will likely want more of a tactical explanation, strategy and guidance. So I highly suggest you read Mr. Seth Klarman’s “Margin of Safety”.

To end this chapter of todays very long post, it’s ideal if I say this in conclusion. Even though you may calculate the Value of a Company or Stock? You must make a educated professional judgement if the company warrants a long term investment. Many everyday investors don’t have the temperament nor experience within Value Investing to make these correct calls. But with time and learning to be Risk Averse by, with and through failures? You will learn. I wish you all happy hunting and I do hope you learned a bunch from today’s post. It’s long over due. And let’s make something clear up front.

This post is just a short taste of what Calculating Intrinsic Value is all about. The topic and subject is so deep and wide this post is nothing compared to the expertise out there in the market. If you are a Beginner or moderate investor? Please find a mentor and study the greats/legends like Warren Buffett, Charlie Munger, Bill Ackman, Mohnish Pabrai, Howard Marks, Seth Klarman and others. Then you will begin to see “How to use this post as a spark of which direction you should go to invest in your education, experience and financial gain.”

Godspeed
JS

Accounting, Corporate Finance, Finance Articles, Real Estate

Four Loan Types Business Leaders Need To Know

When you need money as a Investor or Real Estate Developer? You will certainly use one of these Loan types. Entrepreneurs also need to know and digest what the 4 different Loan types are when Investing and using Debt vehicles or Borrowed money.

Kansas City Private Loans, Kc Mortgages and Kansas Missouri Financing Available.

Contact Me HERE NOW!

What you need to know?

What Is a Balloon Payment Loan

A balloon payment loan is a mortgage or loan in which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are more common in commercial real estate than in residential real estate.

Constant Amortization Loan

In this Method of lending an equal portion of the principle is paid at each period plus interest variable.(On the loans Remaining Balance)Paid in the beginning of each period. Example Photo of the Schedule of Paying the Principle and the selected terms or additional Interest.

Constant Payment Loan

Constant Payment Loan is what most who buy a house refer to as a Mortgage. However in the world of Real Estate this loan example is a simple Loan plus interest schedule you pay back over the life or duration of the Principle.

Here is a Example image of the Simple Calculation of Constant Payment Loan and Interest Schedule.

Interest Only Loan

An interest only Loan is the simplest type of Interest payment loan schedule. Meaning you pay a percentage of Interest on the Principal annually over the life or duration of the loan. Until the loan is paid off. Simple. But here is a image to demonstrate to those who may have trouble computing the schedule. If your anything like myself? I always need extra help. Your in good company.

Loans Interest payments are easy to compute as a Business leader if you understand the basics. This post will help anyone getting in Real Estate of needing to research what Repayment of Loan interest really means.

I truly hope you learned something today. As this post was meant to be lean and mean. I did not want to pose how to calculate the Interest payments. Because often times you will become confused reading the verb-age. So just youtube the Payment Calculations of the loan types. This post was just meant to show what and how things work in the world of Interest loans and Amortization schedules. Cheers to all the Bankers in Finance, and Mortgage Brokers out there. This Post was sparked after I learned that a good man and Titan in the New York Real Estate Community passed last Tuesday. Simply I was watching a Interview and heard Larry start to speak about the Loan types with Son Bill in casual Conversation. And decided I needed to follow up on the Finance Slang and types they were discussing. And Viola this post was born.

R.I.P. to the Good and Great Mr. Larry Ackman.

Godspeed and Cheers To Larry.
JS

Business Articles, Economics, Finance Articles

“What is Quantitative Easing?”

Today your going to learn “What Quantitative Easing is?”

About a Month ago I was invited to a ACG (Associated Corporate Growth) Reception and the first person I meet turns out to be a very nice guy named Chad G. Chad is just no ordinary average finance guy, he is a respected leader and a experienced Portfolio Manager. Chad is the Senior Vice President and Portfolio Manger for Waddell Reed’s High Income Fund. But meeting him you would never know he manages a huge Asset. He’s just a fantastic nice guy. As soon as I meet him? We immediately connected and began talking shop all about Corporate Finance, M&A, and his work in Asset Management. These are incredibly advanced topics. But very interesting to me.

Talking shop with other Finance Professionals is something that usually does not happen to me as a Entrepreneur here in Kansas City. Most people look at me like I am talking Greek. But here in front of me is a SVP of a Major Kansas City Asset Management Company and Fund. Chad could easily speak my new language of Finance. And truth be told that was really awesome to me. It made connecting with him all that more interesting and dynamic. Thanks Chad! It truly is a Privilege to connect with you Good Sir!

Why was this connection unique to me? Usually I do have a very difficult time meeting and connecting with others who work in Financial Services here locally in Kansas City. But this night would be very different. The entire presentation on the Mergers & Acquisitions state within Kansas City was truly impressive. CC Capital Advisors did a fantastic job presenting. If you missed my article about Kansas City’s best Investment Bankers? Read that (HERE)

The Bond Market Explained By Video

Quantitative Easing Described?

For most out there reading this Post? I will most likely need to describe what Quantitative Easing is in simplistic terms. And please don’t mistake this article as “Quantitative Tightening” thats the reverse of Easing. And a different article.

What does Quantitative Easing Mean?

Quantitative Easing is when the Central Bank approves the creation of Money. This money is invested into Government Bonds. These Government Bonds are held by Banks. These Banks are then able to begin lending to Small Businesses and Individuals. And this in theory will stimulate the United States Markets.

How Quantitative Easing help the Economy?

This is all theory based, it’s only based on what the Economy Academics have brought to the table to explain how this may work. But in general. We don’t know. But what we do know is Quantitative Easing is supposed to stimulate the American Economy when it looks like the Economy is about to freeze or fail from lack of capital being traded.

Quantitative Easing is supposed to stimulate the Economy in three ways.

The federal government auctions off large quantities of Treasurys to pay for expansionary fiscal policy.⁵ As the Fed buys Treasurys, it increases demand, keeping Treasury yields low (with bonds, there is an inverse relationship between yields and prices).

QE Keeps Bond Yields Low

Treasurys are the basis for all long-term interest rates. Therefore, quantitative easing through buying Treasurys also keeps auto, furniture, and other consumer debt rates affordable. The same is true for long-term, fixed-interest debt. When mortgage rates are kept low, it supports the housing market. Low rates on corporate bonds makes it affordable for businesses to expand.

QE Attracts Foreign Investment and Increases Exports

Increasing the money supply also keeps the value of the country’s currency low. When the dollar is weaker, U.S. stocks are more attractive to foreign investors, because they can get more for their money. It also makes exports less expensive.

QE Could Lead to Inflation

The only downside is that QE increases the Fed’s holdings of Treasurys and other securities. For example, before the 2008 financial crisis, the Fed’s balance sheet held less than $1 trillion. By July 2014, that number had increased to almost $4.5 trillion

WARNING – Some Financial Experts Warn Quantitative Easing could create out of control inflation, and possibly “HYPERINFLATION”.

The more dollars the Fed creates, the less valuable existing dollars are. Over time, this lowers the value of all dollars, which then buys less. The result is inflation.

Inflation doesn’t occur until the economy is thriving. Once that happens, the assets on the Fed’s books increase as well. The Fed would have no problem selling them. Selling assets would reduce the money supply and cool off any inflation.

The Following Three Ways QE could stimulate the Economy was borrowed from “THE BALANCE ARTICLE”.

I do hope you learned more on the topic what Quantitative Easing is today? And I also hope you learned more about the Basics of the Bond Market in the Video.

In conclusion of today’s post it was important for me to share my story of connecting with Chad. Chad’s professional career is certainly involved with the Bond Market. Which in turn is related to Quantitative Easing. But regardless I had to introduce him somewhere. And today’s post made the most since. I genuinely hope you learned a few things today. And as always Stay Tuned. You never know what it right down the road on this journey I am on inside Finance.

Thanks for Reading! GODSPEED.

Accounting, Finance Articles

The Three Financial Statements

What are the three financial statements in business?

Amazingly most who do not have a Finance or Business background struggle with this question. And these individuals fail to see the future scope of looking at these Documents produced while in the course of business. Most small businesses rely on sophisticated Software to do their books. And I have even seen a Junkyard owner use a simple checkbook register for his sophisticated software to control profits and losses of his small empire. LOL

I can not stress “HOW IMPORTANT IT TRULY IS FOR A ENTREPRENEUR OR Anyone in business to sincerely go take a accounting course online or at a community college.”
-Big 4 Accountant Partner “MY GOOD FRIEND” John.

One thing is for sure? If your not using these statements in your business? Your missing critical finance intelligence and future opportunities. These are the three Financial Statements every Entrepreneur or Business professional needs to become very intimate with.

In conclusion for this short post. Make sure your being educated by a Accounting course. Taking a basic Accounting course will change your business career. Because it did mine. Thank you for reading below is a Basic Accounting Course Video for your future success.

HAPPY COUNTING AND LEARNING!
GODSPEED

Business Articles, Finance Articles, Venture Capital

Ten Common Problems Entrepreneurs Face With Venture Capitalists

Yesterday I found myself chatting with a local Kansas City VC Attorney and he shared some personal experiences that really shared a few challenges Entrepreneurs face when seeking Venture Capital Partnerships. These insider secrets and failures really snapped a few things into perspective. The VC’s must be very selective and use strategic selections to keep and sort the deal flow that is not a waste of time.

If you really think about it? Venture Capitalists are bombarded with so much junk? Often real opportunities must be challenged and sorted. And the only way to accurately find the real opportunities? Is to create impossible standards and a crucible of challenges. The following is common things Venture Capitalists say to Entrepreneurs who are seeking Capital Partnerships or Investments.

Investor, Partner, or Venture Capitalists

Are you seeking a Partner or Money Investor? Is a question VC’s will likely directly ask you. However if you don’t know what your seeking? Your going to end up disappointed and likely roadkill. Fair warning. When a VC say’s they are Value investors? That means they like to fix things and make money.

However some will add money and other things like connections, guidance for improving operations and more. Some just give you money and say go get busy without guidance or mission support.

Did you catch my last Article and Post on “How Entrepreneurs Stay Safe When Investors Invest?” Read this article before accepting investment money from anyone. Back on topic an Back to business.

Often times when your in the Boardroom with a VC you should already know what you want, how much money your asking for and a laundry list of other details. If your there and unprepared? It’s likely your going to be disappointed like I shared earlier and roadkill. You should always be prepared and have a battle plan that is at least 6 months out.

Impossible Odds and Certain Rejection

2. Thank you for coming in and presenting your vision and business. However my partners just won’t let us move forward right now. (They say this because you weren’t convincing or exciting. They were just curious.)

How to handle this?

I would Thank them for your time. And leave. All things considered? Your going to face lots of rejection. Thousands of people who reject you and your business vision. However it’s likely you will work for face to face meet for over a year. And when you get in that boardroom with a Investment Committee? It was all for nothing. You fail and you move on. Your value process should be creating a huge pipeline. That’s your edge in a market filled with rejection and time wasters.

Scheduling Problems and Impossible Follow Up?

3. Trouble Scheduling a Meeting? Ok. So your a Entrepreneur your working hard and your finding it nearly impossible to have a meeting scheduled with Investors. What is happening? Well two things are happening. A. The Investment Team is watching you and looking at your background and your business vision. They also won’t tell you they are doing this. But expect it to be happening covertly behind your back. B. They want to see if your easily distracted and they want to test your mettle so to Speak. Don’t give up. Be polite. Be Confident. And under no Circumstances be a jerk or look weak.

People in general will watch your behavior and read in detail your communications. If your nice and sincere and completely committed? It will show in your perseverance. To many people call once or twice and are frustrated and never call back or follow up. This is the game they are playing. And it’s ridiculous at times. There is always a reason they don’t answer. It’s been my experience. People will Lie, deceive, and play games. However playing games and protecting their portfolios is how they stay above the fray in the business world.

How are you treated when your invited for a interview?

4. Are you meeting a Vice President of Development or are you meeting in a Board room with a Committee of Partners and Principals? This will gauge the level of interest the Private Equity Firm, Venture Capitalists will have in you as the entrepreneur or new business team.

A. If they place you in a small room with a VP of Development and a smile? This means it’s likely your not very attractive. B. If they invite you in to a large nice board room with coffee and a team of Partners and Principals? Your deal is fucking HOT!!! Act accordingly.

Is the Equity and Finance Structuring Trustworthy?

5. We are going to be fair with structuring Debt, and equity positions. (Unless your good good trust worthy friends? Don’t trust this whatsoever.) You should be taking steps to protect your interests and your equity. Have your own personal corporate Attorney negotiate the structures and equity positions that are best for you. If they threaten to walk away? You walk away first. You don’t want to beg or plead for anyone to ever be your capital partner or be the reason you wasted 20 years on a business that ended up not paying you a healthy equity piece.

The business world is extremely unfair at times. Make sure you know that the Attorneys for the VC will rob you without a gun. Or try to freeze you out as slave labor. Act accordingly. Your welcome.

The Lie Of Performance Based Equity Buy Back

6. Based on Performance you can earn back more equity down the line. ( Meaning if you perform at impossible levels? You will earn back equity in the company.) This should be pretty obvious. You want to do your background checks and put in the effort of interviewing previous successful and unsuccessful Venture Capitalists partners or entrepreneurs. You always want to work with well known names and Business leaders known for integrity and know for taking care of their people.

You don’t want to find out later you are on your own with a ship that is sinking. And your investment partners don’t care either way. They will just come in with corporate raiders and destroy the sinking ship. Leaving you with a failed experiment and a new sad life story. Be smart.. Be prepared, Be vicious in your approach for success.

Control Your Expectations

7. Our procedures for getting our partners funding as VC’s takes a month or two. ( This should be suspect) If you are lucky enough to sit down with a Venture Capital fund? It’s likely that they level of interest is moderate. But based on most of the experiences you should already have from others who have worked with them? You should know that its more likely that your in for a 1 year wait. Or longer. Prepare and keep a full pipeline. Often times after a few month’s they may call you back and follow up. Just to dig and see if your still interested for a sit down or if you have quit. More than likely your in for a year or two wait with VC’s. Be prepared to survive and fill up your VC Pipeline.

Feigning Interest as Investors

8. OH YA WE ARE INTERESTED!!! ( Honestly it’s more likely they are interested in your product or Intellectual property. Can they replicate it? Can they be the first knock off?) Be informed the game is largely rigged for Entrepreneurs. The only hope you have at fairness is from a Banker and someone you know treating you well. Don’t expect VC’s to invite you in and automatically partner and write you a check. Or work with you for the success of the project. Often they are not well organized and are ver opportunistic. Make sure your professional deck is clean, clear, concise with a time line. Don’t wait around. Be proactive and never ever get excited just because they called you back. Lower your expectations. But be pragmatic. You will thank me later.

Financial Modeling, Number Charts, and BS Statistics

9. You think all the financial models and assumed projections will impress their Accountants. WRONG! It will be dissected, interrogated, your math will be questioned for all failures. And you will have to answer slick impossible questions. But the good news is if you happen to have a CPA worth their salt? You can avoid the interrogation and punt to the Accountant or Analyst on your team.

Start at Failure and Build up from there

10. Just expect everything to be almost impossible with downsides and failures around every corner. If your able to prepare and research and interview all possibilities before hand? You may just have a fighting chance. Thank you for reading. I know this post seems impossible. As it was meant to be this way. Honestly most entrepreneurs need to not only change their expectations. But also settle in for a long, disappointing ridiculous ride. That is my experience and you should be aware the world of business is a cruel and unfair place. Make sure you are prepared for certain failure. And do prepare a mindset of certain failure. Armor your expectations and this will ensure your success one day.

Godspeed