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Marshall Commercial Funding is an independent commercial mortgage brokerage firm dedicated to tailoring loans to meet the specific needs of our clients. Our goal is to excede our client's financing expections resulting in their desire to become partners for life. We specialize in loans requests of $1 million or above.
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TagsBanking (46), Bonds (12), CRE (40), Character qualities (4), Credit (20), Delinquency rates (1), European Debt Crisis (5), Federal Reserve (32), Financing (47), Greece (2), Inflation (23), Interest Rates (23), Japan (1), Leadership (9), Lending (39), Market Conditions (80), Property management (1), Quantitative Easing (1), Stock Market (1), The economy (20), US (2), US National Debt (6), US Treasuries (12)
Japan - A Bug In Search of a Windshield
Friday, June 14th 2013
Why should commercial real estate professionals in the Pacific Northwest be concerned about whatís going on in Japan?
Answer: Because the Japanese are determined to share their economic problems with the rest of the world. In the years ahead, Japanís economic problems will adversely impact both our economy and our investments. How U.S. leaders respond wiil determine how much fallout there will be from Japanís risky economic strategy.
But letís back up a moment and review whatís going on.
∑ Japan has suffered through 24 years of economic stagnation. As a result tax revenues have been declining during this time period. Revenues are now down to where they were in 1985. In contrast U.S. tax revenues adjusted for inflation are more than double where they were in 1985.
∑ The declining tax revenues have resulted in a staggering amount of sovereign debt. Japanís current debt-to-GDP ratio is 245%; in contrast the U.S. debt-to-GDP ratio, which is gi-normous, is 105%.
∑ Over the next 17 years Japanís working age population will shrink by 17% from 81.7 million to 67.7 million. With fewer people working, the burden of servicing the public-sector debt will be higher for each individual worker.
∑ During this same time period retired workers will increase from 23 per cent of the population to 32 percent putting an added strain on the Japanese entitlement programs.
And we thought the economic situation in the U.S. was bad!
So what is Japanís new economic strategy to get out of the economic quagmire that theyíre in? They are taking a page out of Federal Reserveís playbook Ė quantitative easing. Simply put quantitative easing is a central bank policy of buying government bonds in order to lower interest rates to stimulate the economy. Quantitative easing is also inflationary Ė expanding the money supply will reduce the value of the yen in relation to other world currencies which is what Japan needs right now as they have been in a deflationary cycle for years.
But what Japan is doing is significantly more disturbing than anything weíve done in the U.S. In five years since the beginning of the Great Recession Americaís monetary base has increased by less than 20 percent of GDP. In contrast, by 2015 Japanís monetary base will balloon to almost 50% of GDP. There is no example in our lifetime of a developed country aggressively expanding its money supply to this extent. There are many downside risks. Here are two:
∑ A currency war is likely to result. By reducing the value of their currency Japanese exports become more competitive. Just in the past year the yen has depreciated 20% when compared to the dollar. Thatís good news for Japanís export market. However do you think South Korea or China are going to idly stand by and watch their export market to the U.S. slump because their products are not as competitive as they once were to their Japanese competition? They too will be forced to respond by doing something similar.
∑ Seeds have been sown that likely will cause the eventual collapse of the Japanese bond market. When it becomes apparent that a government is financing itself mostly with freshly printed money, institutional holders of bonds begin to lose confidence in government bonds. When this occurs bond investors at the very least stop buying bonds. In order to avoid a collapse in the government bond market the Japanese central bank will have to raise bond yields which they canít afford to do. Currently 20% of the Japanís budget is allocated to pay the interest on their debt. If interest rates on Japanese bonds were to rise to a mere 2.2%, 80% of tax revenues would go just to pay the interest on their debt. This is an untenable situation.
I have watched with fascination the economic turmoil in Europe and have concluded there is no easy solution to their financial mess. My opinion about Europe has not changed. Itís only a matter of time before their economy collapses under the weight of their own malaise. But the more I read about Japanís economic woes the more I realize that Europe will not be the next economy to collapse. No that honor will go to Japan.
Sources: Japan Declares World (Currency) War III - Seeking Alpha, by Ian Wyatt, June 4, 2013; Abenomics - A Dangerous Game - Seeking Alpha by Michael Rands, June 13, 2013; Banzai!, Banzai!, Banzai! - Thoughts from the Frontline by John Mauldin, June 8, 2013.
An Open Letter to Residential Mortgage Brokers
Tuesday, May 28th 2013
From time to time I get a phone call from a residential mortgage broker trying to place a commercial real estate loan through me. I try my best to be cordial over the phone but deep down I know 30 seconds into the conversation this isnít going to end well. You see Iíve never closed a loan that a residential mortgage broker has presented to me, and for good reason. The way a residential loan is underwritten and processed is completely different than how itís done for a commercial real estate loan.
In an effort to be helpful, in a tough love sort of way, I want to share my comments to the residential mortgage broker who wants to dabble occasionally in commercial lending.
I know no example of anyone who has successfully financed both home loans and commercial real estate loans. Not one. If you think you can dabble in commercial real estate lending, donít even start. Itís all in or donít even bother.
But if you are seriously considering becoming a commercial mortgage broker then thatís a different story all together. I have these suggestions:
Commercial real estate is a very cyclical business. It has its joyous highs and its very deep lows. There are no statistics to back this up but I would guess that there are 1/3rd fewer commercial mortgage brokers in the Portland area than prior to the Great Recession. This business can be brutal at times but if you can make it in this business, it is both a financially and emotionally rewarding career.
So do you really want to get into this business?
Lessons from My Mother
Monday, May 13 2013
Over the past Christmas holiday I wrote a blog post titled, ďLessons from My Father.Ē If you didnít read it I would encourage you to do so. My father was the quintessential Ward Cleaver of the 1950s TV show, ďLeave it to Beaver.Ē Since last Sunday was Motherís Day I thought it appropriate to write about the lessons Iíve learned from Mom.
My mother, who passed away in 1994, was no June Cleaver. Far from it. She had very little maternal instinct and she was quite scary to my friends as she barely tolerated kids in general. Her motto: ďKids should be seen, not heard.Ē In reality, she was harmless but my friends didnít know that. So what lessons did I learn from my mother? A lot. Here are three:
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