“I’ll take your BMW and raise you a new bike.  OK, I’ll raise you a steel.  I’ll raise that a soybean.  I’ll call.”  The poker game of international trade between the U.S, and China rolls merrily along with the most recent raise bigger than ever.  Caught up in this poker game are the American consumer and retailer.  Consumer spending makes up approximately 70% of the U.S. economy, and the economy is beginning to slow down – slowly, but still a reality.

JPMorgan Chase estimates that the American family will absorb another $1,000 in annual costs as a result of Chinese tariffs after the coming 10% levies take hold.  If the upcoming tariffs are raised to 25% as the president proposed most recently (may have changed by the time you read this), that number could creep up toward $1,500.  Where is the consumer going to decrease or stop their spending?   Retailers?  Restaurants? Clothes?  Shoes?  More?  There are going to be retailers that suffer which we are seeing already and it could get worse – death by a thousand cuts.  Tariffs are raising retailers’ costs on some items.  The consumer may have less to spend.  Not exactly a pleasant thought.

Christmas is right around the corner.  There are as of today only 119 shopping days ‘til Christmas.  Pretty soon “Jingle Bells” will begin to leak out of stores’ sound systems.  Consumers are spending like mad, and no matter what happens between the U.S. and China between now and then they are going to keep spending right through Christmas Eve.  But what happens after Christmas?  What happens to products totally made in China or ones where parts of them (like bikes) are made in China?

It could be a bumpy ride.  Retailers, fasten your seat belts.

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Distant Thunder
August 20th, 2019

It’s a glorious summer day at the beach.  The economy is roaring along; interest rates are continuing to decline with all the benefits that come with lower interest rates; the president just postponed tariffs until after Christmas on certain items without which the world as we know it would end – such things as laptops and iPhones.  The sun is shining brightly.  But anyone who has been at the beach in the summer probably remembers seeing way off in the distance these beautiful high clouds beginning to appear.  Then you hear something that’s so far away that you can’t tell what it is, and you finally realize that it is thunder.  It’s still a long way off but it’s there, and the clouds are beginning to get larger and creep closer.

We’re beginning to see in those clouds more and more signs of a looming recession sometime in the next year or two.  In my opinion the word recession is like crying fire in a crowded theater.  But it sells ads.  Recession usually indicates big problems.  I think the economy is still healthy enough over a wide spectrum that while a slowdown is coming it doesn’t have to be a disaster.  But disasters sell ads.  One of the things worrying people to most is a US-China trade war.  Many companies are holding off on investment decisions on things like plants and equipment until the situation becomes clearer.  The US services sector declined in July to its lowest level in three years.  Last week the Conference Board said its index of consumer sentiment fell to its lowest level in nearly two years, and it is the consumer that has been driving the economy.  And then there is the inverted yield curve (next week).

So what does this say to small business?  Only that it may be time to look at all the pieces and parts of your business and make sure that everything is tight and you’re on top of your numbers.  When things are rolling like they have been there is sometimes a tendency to get a little complacent.  So a little tightening up may be warranted.  Maybe you have everything completely under control, but you want to keep an eye on the clouds.  You don’t want to get caught without an umbrella.

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With interest rates continuing to fall, if you have existing business debt it may be worth looking to see whether it might be eligible to refinance with an SBA loan in order to lower your monthly payments.  SBA loans were created with longer amortizations than banks were normally comfortable with in order to enhance business cash flows because of the lower monthly payments associated with longer amortizations.  Another key benefit is that interest rates allowable under the SBA loan program are capped.  So the interest rate on any SBA 7(a) loan (by far the largest SBA loan program) over $50,000 cannot exceed 2 ¾% over prime.  Since interest rates have been dropping you may have debt that was obtained earlier when rates were higher.  So even though they may not have been thought to be that high at the time, with rates where they are now and expected to go still lower you may still be able to lower your monthly payments. 

To refinance existing debt there are certain conditions that have to be met.  One of the prime requirements is that a new loan must provide the borrower with a “substantial benefit” demonstrated by the payment amount being at least 10% lower than the existing loan.  Some of the other important requirements are:

·       A demand or balloon maturity feature in the existing note or the current maturity is not appropriate to the original purpose

·       The existing debt being refinanced is on a revolving line or a credit card

·       Interest rate exceeds SBA’s maximum

·       Loan is over-collateralized

·       Line of credit lender is unwilling to renew

There are other considerations but these are some of the most important.  If you think that you might be able to benefit from an SBA refinance go talk to your banker or an SBA lender and find out.  It could be well worth the effort.

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Is nothing sacred anymore?  In a lab at Columbia University in New York graduate engineers are developing ways to laser print pizzas and cook them with laser beams.  The whole idea behind this desecration of the noble pizza is to be able to create a pizza that can improve nutrition.  The 3D printer has an array of cartridges in which ingredients can be loaded.  So for example the printer can lay down the dough, then another cartridge lays down the tomato and another lays down the cheese.  Then it is put into a specially-developed oven and baked with laser beams.  Makes for more even baking they say.

So the thinking goes that you could customize the material in the cartridge, say maybe the cheese, with certain additives or medicines that might be used in a hospital setting for example where people may have certain nutritional deficiencies.  Why not?  Meatless burgers are here to stay with all the societal benefits attendant.  Why not 3D pizzas?  New technologies already here and being regularly developed  and are creating opportunities currently undreamed of for startups to create whole new businesses developing products for the betterment of mankind or just consumers’ lives.  Such as pizzas.  Digitized food to help people stay healthy.  Bon appetit.

Yuk.

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