Tag Archives: Banking

Credit, Securities Backed Lines Of Credit

Securities Backed Lines Of Credit

The Differences between Individual Margin Accounts and Revolving Credit?

It’s noon the day after Donald Trump has been victorious in his comeback cementing his Re-Election as President of the United States, and the country is electrified and the Stock Market is Roaring to all time heights today. But did you know? You can use you Securities as collateral to finance a loan? Yep! So I felt the need to share more about this today. Hmmm…It’s true!

Imagine yourself in the world of business and your a entrepreneur and all of a sudden you find yourself needing to use some debt to pay for your liquidity crisis? It happens and happened to me recently here is what I learned!

Credit Types

First before we dive into Margin Accounts that Banks Offer, we first must distinguish the two different types of Credit. The first type is Short term high interest credit. This credit type is usually one year or less and has a higher Interest rate because of the convenience it offers consumers. Just like in the Bond market the second type of credit is moderate to long term credit. Depending on the time involved with your credit needs? Moderate to long term credit is longer than one year and shorter than 10 years. This credit facility is used to offer borrowers lower interest rates.

Endowment Funds are a unique topic alone. Read all about this topic I wrote HERE!

Margin Vs. Short Term Revolving Credit

It seems I must share some quick facts and differences about Margin and Short Term Revolving Credit. Margin is credit offered by a Investment Bank that is lent to a individual who has a Brokerage Account with securities as collateral. It is usually high interest credit and short term. Margin credit works like this, Your portfolio of Securities of Stocks, Bonds, Mutual Funds and Investments held in your Brokerage account act as collateral for the Credit granted by the Bank.

It also must be pointed out that it’s highly likely you must have at least Fifty Thousand to One Hundred Thousand Dollars minimum invested in your Brokerage Account before the Bank will grant you a Securities Backed margin account. Under Finra rules a Bank is not allowed to grant credit of more than fifty percent of the total Securities held in the persons brokerage account. Example: If I have Fifty Thousand of Blackstone Stock in my Brokerage Account? The Bank can lend or extend me Fifty Thousand dollars on Margin. This credit is not to be used for purposes of Trading securities. It must be used as cash on anything else except Investments.

Revolving Credit | Credit Cards

According to Investopedia Revolving Credit is explained best by:

How Revolving Credit Works?

When a borrower is approved for revolving credit, the bank or financial institution establishes a credit limit that can be used over and over again, all or in part. A credit limit is the maximum amount of money a financial institution is willing to extend to a customer seeking funds.

Revolving credit is generally approved with no date of expiration. The bank will allow the agreement to continue as long as the account remains in good standing. Over time, the bank may raise the credit limit to encourage its most dependable customers to spend more.

Did you read my Page and Investment Portfolio? HERE.

Borrowers pay interest monthly on the current balance owed. Because of the convenience and flexibility of revolving credit, a higher interest rate typically is charged on it compared to traditional installment loans. Revolving credit can come with variable interest rates that may be adjusted. The costs of revolving credit vary widely:

So as you can see and imagine this can be a complex topic of discussion and to explain. However I like to keep thing simple and straight when I am writing. To sum up Securities Backed Lines Of Credit? It’s a Bank Loan that is deposited into your Brokerage account with the expectation that you will pay it back and use your Securities or Investments in the Account as collateral for the Loan. It’s that simple.

Larry Ellison loves his margin Account so much he uses it regularly for very large purchases. In fact if you want to read more on the topic? I would highly suggest you read this article by Forbes.

“How the Richest Public Company Executives use their Stock to have access to Billions.”

Speaking about Billions My Good Friend and Fellow Value Investor and Investment Advisor Mr. Bogumil Barnowski has built a Fantastic Podcast “Talking Billions” and Finance Professional Presence. Click on image.

Mr. Barnowski’s Podcast and Advisory Practice is incredibly interesting. Soon I will have to do a interview or post all about his Life as a Professional Advisor to High Net Worth Families.

SBLOC’s

As I conclude this Post about Margin Accounts and Securities Backed Lines Of Credit (SBLOC’s) Id like to leave you with this thought. Securities Backed Lines of Credit are more convenient than most other Lines of Credit. After all Securities are Asset’s just like a Home is a Asset to most Americans who invest into a Mortgage and store and grow their wealth using this method. However I would disagree with the thought “A Home is a Asset.”

I was taught by Investment Bankers as a Investment Advisor and as a Qualified Advisor? I do not feel a Home is a Asset. It is indeed a Liability. The upkeep and maintenance costs alone will erode and defy the mere fact your trying to create wealth for the future. I prefer my assets to be cash producing Investments. Buying Companies is a great way to build wealth as a Investor. At least you know if your wealth is increasing. Anyway’s I am getting off topic.

Using Securities Backed Lines of Credit

Securities Backed Lines of credit can incredibly useful as a Business owner or as extra source of finance when you find you need the convenience of fast money. As a Entrepreneur this can be incredibly useful and easy. The thought you can deposit income then buy stocks and bonds over time using your Income will no doubt generate wealth for you as a Entrepreneur.

Be Responsible With Debt and Credit

I would like to leave you with this one thought. What better way as a entrepreneur is there than taking the income we make from our Careers or Businesses than to deposit into a Brokerage account and buy Investments? Then when we have built up a small fortune with our stocks and bonds and investments? We can begin using them as assets to generate new strategies to building wealth.

I would argue that it could be risky if you don’t use this responsibly. However even thought with this said? If Larry Ellison and Elon Musk can use this for their convenience? To me that just seems like a convenient and winning strategy. It no doubt is bullish and capitalistic. Thank you for reading.

Godspeed
JS

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Business Articles, Investing, Investment Banking, Mergers and Acquisitions

The Federal Reserve Raises Interest Rates

The Federal Reserve raises it’s Benchmark Interest Rates by half a percentage point which is the most aggressive action since the US is facing highest inflation rates in 40 years. Behold a new term for most? “Quantitative Easing”

After much anticipation, fan fare, and business news speculation due to rising costs within the market and easy access to cheap margin debt? The Fed convenes and finally comes out and say’s “It’s time to raise the Fed’s Interest Rates.”

The last time the Fed Raised Interest rates were in 2018. Quantitative Easing is now working by pushing more money into the economy by way of the Central Banks buying more Government Bonds through individual banks which lends money to businesses and individuals.

Ok! But What does raising the interest rates mean? After yesterday’s press conference, the Federal Reserve’s Chairman Mr. Jerome Powell began informing the Press and the Finance community. Today’s Information and Report from the Good Reporter Mr. Jeff Cox, The Business News Editor of CNBC. FULL ARTICLE

“The Federal Reserve will begin to Raise Interest rates by a half a Percentage point per the markets anticipation. When asked, The Fed’s Chairman Jerome Powell had to say about this historic increase?

“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He did touch on the burden of inflation on lower-income people, saying, “We’re strongly committed to restoring price stability.”

Furthermore the Feds Chairman say’s, “The American economy is very strong and well-positioned to handle tighter monetary policy,” he said, adding that he foresees a “soft or softish” landing for the economy despite tighter monetary policy.

It’s likely according to the Chairman Powell’s opinion and comments on this interest rate hike, “Their will be many Fifty 50-Basis Points rate increases are coming soon. But likely not more aggressive than that.”

When you stop and consider how the Fed will begin raising the Interest rates in detail? It will look like this. They will start by raising the Interest rates by Half a percent in the first stage. Then raise again to the Three Quarters range of a Point. Then another quarter percentage of a point, Equaling the Full 1.0 percentage point. The video below demonstrates the numbers in detail.

With all the free flowing margin debt that has been free flowing for years? It makes sense the Fed is wanting to take the steps and transition raising the debt interest rates instead of a sudden hike. This ensures markets are not suddenly impacted to the point of panic. Rolling out stricter policy for a soft landing on the American People and Investors. This also begins to address the Inflation that is beginning to be out of control. But here are some more in depth facts from the report.

In conclusion we will need to sit back and see how things begin to work. It’s never easy to accept the Party’s over with easy free cash. But as time moves on I have a suspicion the market wont rise above what the market can handle. That is just my 2 cents

  • In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month.
  • This undoubtedly is the largest rate increase since the fed relaxed rates in 2000, and the inflation of American Debt has pressured the Fed to begin the process restricting Debt Rates.
  • Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.”

Thanks for reading todays Post on this Historic Event we have all been anticipating and speculating on for quite some time. If you have anything worth the time to add? Please comment below,

GODSPEED
JS

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Business Articles

Wealth Management “TRUST”

What is the elusive often misunderstood Trust. Wealth Management Topic

A trust is a contract that gives an individual or an institution—like U.S. Bank, for example—the authority to hold legal title to assets while managing them for the benefit of others. Trusts can help you ensure that your assets are distributed and managed according to your wishes. US BANK Rich Snippet

I would like to introduce you to Trusts and the history and also how they are used in Banking.

In the 12th century and middle ages of English Knights whom were about to go on crusade needed a safe place to keep their wealth and have it benefit someone else “IF” they were captured, tortured and placed into indentured servitude for the rest of their short lives. So wouldn’t make sense to have a place to have all your wealth act like a “Will” in a way? Of course. So they would go to the London Finance Center which is a little Banking Town inside of London the City and its sole purpose in this small finance town is to act as a separate entity to ensure personal Land, Assets, and wealth was taken care of and used in the correct manor under English Law. These stewards in Banking were often bound by law so nothing could ever separate the Beneficiary from the Assets.

The legal owner would hold the land for the benefit of the original owner, and would be compelled to convey it back to him when requested. The Crusader was the “beneficiary” and the acquaintance the “trustee”. The term “use of land” was coined, and in time developed into what we now know as a “trust”.

Click on Image For Wikipedia Page

The Beneficiary is the person who is entitled to the benefits and entitlements of the TRUST. Now with this said. Beneficiary’s do not “OWN” the TRUST. They are the Beneficiary of the Trust. Trustee’s are the legal stewards of the land or Assets. Often times Attorneys have their own Trusts being officers of the courts in United States.

Is a beneficiary an owner of a trust? In legal jargon, trust and will attorneys refer to Trust beneficiaries as the “equitable owners” of the Trust. Beneficiaries will receive money and other assets from the Trust either outright (meaning being paid all at once) or in smaller amounts over time, based on the provisions in the Trust document.

Thanks for reading, we hope you found this useful. Use the links if you would like to know more.

J.S.

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