The Farrell Chronicles: the last Weekly Economic Report??

So little time…so many thoughts…from the heart…

Last week I teased you with information that I perhaps was making a career move and this very report might in fact be my last.   Hence, with bittersweet news, I in fact will be reentering the world of advising…a passion which this weekly report has supplemented this past year.  But, my writings go back further than my first blog – which was St. Patrick’s Day in 2009 – I did write to many of you in a more limited format each week during my tenure as a Private Advisor with that large bank in America.  Additionally, for an even smaller number of you, I have been a weekly mainstay reporting on life-subject topics going back to the summer of 2001…just before one of the most changing historical events in our history.   Hence, writing is in my blood and therefore I hope to find a way to continue the financial muses…but we will see, for as much I love and appreciate my readers, job security is more important! 

However, as one person told me, I have a gift and I could write about virtually anything and still provide thoughtful reflection for my readers.   Therefore…. The Farrell Chronicles could live on…any theme suggestions?  Comment and let me know.

Now, onto the weekly report…

Last week I spent almost a whole report talking about cash…or the fact there might not be that much on the sidelines.  As I documented, there might not be that much…per se.  What I did not mention last week, but I did converse with readers over the past week, was there is cash out there…it’s just in an area not easily tracked.  The cash, which is hidden, is the cash presently invested at private equity firms.  Given the lack of credit available to finance deals, this cash is not working, and will not be working, until we get back (if ever) credit availability.  Hence another subject…credit.

If you listen to what the real economic gurus, the deans of industry, are saying these days, they will always be sure to identity that the true restriction to our expansion is the lack of financing available.   Cash is nice but leverage is better.  Sooner or later, but sooner is the preferred time frame, this recovery will need reliable, multi-source, credit.   Now, I’m not advocating a return to our recent past, with exotic, multi-tiered financing schemes, bundled together and resold as reliable long term investments (a.k.a. …derivates).  Those days hopefully are long gone (or at least until the general public forgets and these instruments resurface under a different name), but as someone who started his career in the credit field as an analyst, and then spent over 24 years administering and reviewing credit deals, prudence goes a very long way.   The challenge is the general business community doesn’t like prudence.  Prudence, as I had been told a few times in my career, is an anti-business practice.

Prudence, in recent times, has been re-phrased and commonly referred to as “Due Diligence”.  Due Diligence was supposed to be the fancy words to indicate that a buying firm (in a merger and acquisition – typically a private equity deal) looked at all the numbers behind the deal and made sure that everything was “clean”.   The challenge is we have come to learn that Due Diligence didn’t extend itself very cleanly to the investment world.  Hence, when all those securities were being bundled, the investors didn’t practice due diligence.  And when I refer to investors, I’m not referring to the general public.  I am talking about institutional investors, the huge insurance and banking conglomerates, the managers of corporate and public pension funds, all with very financially sophisticated, highly intelligent people working for them analyzing their investments; yet still these people lost their direction, and most importantly their underlying business principles, and well… you know the rest of the story. 

All the above are functions of easy credit, where no cash out of pocket rules the deal.  These days are limited in the future (hopefully) and prudence (or fear) will prevail for a long period.   

I take this theme, as this being perhaps my last report, as I cannot stress enough the challenge we have at hand to recreate trust.  Why aren’t the banks lending, why isn’t there ample alternative credit sources?  Simply, and very simply, trust isn’t there.  Trust in the “deal”; trust in the numbers supporting the deal, trust in the future.  

The same goes for you and your friends.  Where is your trust?  Take a field I know well, financial advisory.  Why are people hesitant to take input from their financial advisor without thinking twice – lack of trust.  This lack of trust has a lot to do with the reasons mentioned above but also could stem from the advisor’s ability, priorities and product steering which might be creating doubt…or lack of trust.

So, I leave you to re-start my career creating trust.  Hopefully over the time you have read these pearls of wisdom (I never said I was modest!) trust has leaked its way into your thinking.  Trust that your friend Greg wouldn’t steer you wrong, that he has reported what’s on his mind, sometimes not politically correct, but nonetheless, sincere and thought provoking.   I thank you for reading and I hope I can find a way to keep these lines open each week, in some format or another, but “trust me” they will come from the heart – for isn’t that really where trust dwells?

Be good.  Enjoy life.  And most importantly…. stay connected…for I have been and will be “connected” for you.   Greg

Advertisement